Having difficulty creating and/or sticking to a budget? Or trouble getting on the same money page as your partner? Hate the constraints of a monthly budget? Experts now suggest you throw out the idea of sticking to a budget. Counter intuitive right? Not necessarily. Finance gurus are now reframing the idea of how one spends and saves. Below is your guide to spending less and saving more, all without following a budget.
There is a lot of talk in the financial community about “savers” and “spenders.” Are you someone who spends naturally, craving new clothes, the latest technology, or even dinner outs? Or do you fall into the saver category, skimping on unneeded items, only to save that extra money? There’s no right or wrong answer; even spenders can be responsible with their money.
Becoming aware of your natural inclination to save or spend allows you to address any faulty spending habits and explore the way you manage or mismanage your money more freely. Identifying the saver or spender traits can also be helpful when you are trying to get on the same money page as your spouse. Married to a saver, but you’re a spender? Ditching the budget and approaching your finances with a savings plan may ease pressure and allow for both sides to find compromise. But prior to ditching your budget all together you will need to first figure out where you are spending those take-home wages.
Most people don’t know exactly where their money goes; do you deposit your paycheck then pretty soon realize that most of it is gone? Well, you’re not alone. Tracking spending isn’t high on everyone’s to-do list, but it is extremely important when it comes to money management.
To start, simply match your expenses to your take-home pay. Avoid including the gain or losses of investments; this allows for a more straightforward approach which will help you gain insight on what you spend your money on.
Luckily, the days are gone where you are forced to write down each purchase. A variety of money tracking websites and apps have been flooding the market. If you are looking for a more comprehensive money program, check out Personal Capital, a personal finance tool that customizes money management for every level of income. It allows you to see firsthand where you are spending your money, and create a financial savings plan with the support of an adviser.
Once you are aware of your spending habits, it will be much easier to create a savings plan. Experts agree that throwing out your budget and replacing it with a straightforward savings plan takes away the guesswork. Once you know where your money is going and all of your expenses are paid for (mortgage, insurance, etc.), come up with an amount every pay period you are willing to save.
This said amount can go into your 401(k), a traditional savings account, or your investment portfolio. If you decide to fund a traditional savings account, consider using an online high interest account where your money will work for you.
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