Debt Reduction 101 Article by Michelle
I’ve dutifully tracked my spending for the past week and – man alive! – the money I spend daily doesn’t seem like a lot (unless I’m dropping $60 bucks on postage – that hurts!), but when I sat down this morning to tally up my dastardly ways …
My grand total latte factor for a week was ...
Drumroll, weakly masking the sounds of my pocketbook weeping ...
$690.09
Wow. I see why financial analysts encourage people to perform this sort of exercise. It is maddening, it is humbling, it is sickening, and it is an eye opener.
Debt by a Thousand Cuts Table of Contents
Budget Breakdown by Category: DIY Debt Reduction Exercise
Here’s the breakdown by category:
Bills - $250
Retail - $89.64
Gift - $77.21
Grocery - $63.30
Wedding-related - $62.40
Eating Out - $61.65
Gas - $36
Cash - $35
Snacks - $9.39
Fees - $5.50
Dribble Money: Eating Out vs. Groceries
The good news?
If you look at the numbers in terms of category, the bulk of my money went to bills this month. But yeah … if you total up my “dribble” money, that kind of eclipses the good I’ve done toward eliminating my debt.
More good news – I only spent about $60 on groceries, but I also spent that much on eating out. That’s $120, half of which could have easily gone toward my credit card bills.
I wasn’t even going to tally up what my snack expenditure was if you spread it out over a year, but it’s about $10 for a week (which was odd for me, I will admit), but I had snacks three out of five days.
What is My Typical Consumption?
If that was my typical consumption, that would mean I would be spending $520 over the course of a year. That’s another credit card bill.
Well, I’m going to ponder this and … not eat out for awhile.
Top 5 Ways: How to Stop Little Expenses Accumulating and Killing my Budget?
Managing small expenses that can add up and impact your budget requires attention to detail and mindfulness. Here are some strategies to avoid these little expenses from derailing your budget:
1. Create a Highly Detailed Budget
Track Every Expense! Maintain a comprehensive record of all your expenses. Do this regardless of size. Be anal. Use apps or spreadsheets to track where your money is going. The Credit Karma app (formerly Mint, I think) is good for this.
Set Spending Limits: Allocate specific amounts, based on experience, for different categories. Do all the categories! Include smaller expenses like eating out, movies, LATTES, etc.
2. Distinguish Needs vs. Wants
Separate essential expenses from discretionary expenses. Understand the difference between necessities and indulgences to make informed spending choices.
3. Measure Evaluate Regular Small Expenses
If you can measure it, you can manage it!
Review recurring small expenses like streaming subscriptions, random internet subscriptions, coffee runs, or impulse purchases. Identify areas where you might be overspending.
4. Implement the 24-Hour Rule: Conscious Spending
For non-essential purchases, give yourself a cooling-off period. Wait 24 hours before making the purchase; this helps in avoiding impulse buys.
Back to that highly detailed budget ...
Use cash or specific allotted funds for these expenses. Try the envelope method. Consider using cash for discretionary expenses or allocate a specific budget for these expenses to prevent overspending.
5. Meal Planning and Packing Lunch
Shop with a List: Stick to a shopping list when grocery shopping or running errands to avoid purchasing unnecessary items.
Bonus 6. Automate Savings
I have been using Robinhood to schedule lots of small weekly and biweekly dividend stock purchases. Man, that money stacks up fast!
Schedule automatic transfers to a savings account as soon as you receive your paycheck. Treat savings as a non-negotiable expense.
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