Volume 7 Issue 2008

There aren’t many good things you can say about higher prices. But here’s one: Higher prices can help motivate people to save money. According to a poll* conducted in March of this year, 25% of the adults surveyed said they were spending wisely or spending less so they could save more money. That’s a substantial increase from last year when only 2% gave that answer.

Knowledge Is Power

If you want to spend less or spend more wisely, you must know where your money is going. And that’s where a budget comes in. Setting up a budget for your household isn’t difficult. And the benefits may be considerable. You will need to make a time commitment, but there are software programs and Internet sites that can streamline the process.

Follow the Money Trail

Start by projecting your income for a period of time. (Most people set up monthly budgets since many regular payments are due monthly.) Then, using data from the past few months, project your future monthly expenses, breaking them down into specific categories to reflect your particular spending patterns. Be sure to include “savings” as an expense category. And make sure your projected expenses for the month don’t exceed your income.

Now, start keeping track of your actual spending. After a month, add up the amounts you’ve spent in each category and compare the totals to your projections. You may have to do some tweaking for a few months to get your spending in line, but it will be worth it. Seeing where your money actually goes is the best way to reach your goal of spending wisely or spending less so you can save more.

Plan for Periodic Expenses

Some bills — real estate taxes, insurance premiums, etc. — may be due on a quarterly, a semiannual, or even an annual basis. To keep your budget on course, tally these expenses, divide the yearly total by 12, and set that amount aside each month so the money will be there when you need it.

Bonus Bucks

In addition to setting aside a certain amount of savings each month, any time your budget is in the black, you can put some (or all) of the surplus into savings as well. The more closely you scrutinize your expenses, the more successful you’ll be at controlling spending. After living on a budget for a while, spending wisely will become a way of life.

* Conducted by Harris Interactive® for the American Institute of Certified Public Accountants