Budgeting for the Future
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It’s not just the cold weather across the country that is causing many Americans to hunker down and save instead of spend. No matter what the analysts and the Fed says, unemployment is still at ten percent and the country still feels like it’s in recession, forget the technicalities. The New Year always brings a little monetary sobriety after the holiday spending binge, but over the last year Americans have become more serious about saving money and paying off debts.
Even with good intentions, becoming fiscally savvy can be easier said than done. A recent NBC Today poll showed that most Americans don’t know exactly how much money they spend each month or how much money they would need to live for three months, much less have that much in savings.
Whether the goal is to save more or pay off debt–or both–the first step is getting a handle on spending. There are a number of ways to go about this: 1) Follow the paper trail of past statements and receipts. This can be time consuming, but eye-opening. 2) Track all spending for the next month, recording everything from bills to cash spending.
For those who like to do things to the extreme, there is the cash-only diet. Take out the amount of cash estimated to be needed for the week and then spend only that amount, no credit or debit cards. When the cash is gone, the spending is over. Neuroscientists have discovered that the brain regards cash transactions and credit transactions very differently. A cash transaction causes the area in the brain called the insula to light up and cause people to proceed with caution. This doesn’t happen with credit cards. In fact, credit cards pump good feelings of an instant reward throughout the brain–very dangerous stuff.
Next comes setting a budget that incorporates savings or debt pay-off goals. This is another area where people can be a little confused. A budget is not simply a spreadsheet that tracks how much was spent for the month nor is it just balancing a checkbook. While both of these are important tools, neither fits the definition of living within a budget.
There is a plethora of software and websites that assist in setting and maintaining a budget. Quicken is a popular software program and with a free money management service. Starting by mapping it all out on paper may be the best way to begin. The thing to remember about a budget is that it sets limits as well as tracks spending through very specific categories.
Getting started can certainly be time consuming and there will be a period of trial error. However, living within the parameters of an income and sticking to spending goals can be very rewarding, both emotionally and monetarily. Keeping on an eye on the long-term goal, like having six-months of expenses saved for just-in-case or saving for a house or even being debt-free, will take a little chill out of the winter budgeting blues.
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