Track Your Spending, Don’t Budget – Financial Literacy Spending Series

This might sound different than the advice you are used to getting about your finances, but there is some sound reasoning behind it. Budgets don’t work because they are static and do not account for life and the unexpected costs you will encounter. Instead track your spending and create a spending plan.

Think of this like tracking your calories in a food journal versus dieting. Dieting is hard and often times results in failure because you are being restricted, feel like you are missing out, and are being deprived. A food journal on the other hand lets you analyze the calories you have consumed and burned so that you know where you need to make adjustments and you can control your eating. A spending plan is the same concept.

To get started

Plan how you will spend your money
Track your spending
Compare your plan to reality
Make adjustments and decisions about your goals monthly.

Spending plans allow for wiggle room so that if you take a small detour off your path you won’t feel completely defeated and give up. Instead you can look at the numbers, adjust and get back on course.

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Spending Decisions – Financial Literacy Spending Series

So all week we have been focusing on savings, and to cap off the week I have a post about spending. Know that every time you make a purchase, you are making a spending decision. You have a choice and you decide what to spend your money on.

There are three questions you should use to guide you through the decision making process each time you make a purchase; Utility – is this something I need or something I want? Availability – do I have the money to buy this right now? Affordability – Does this fit into my long-term goals?

These questions are great guidance and cause you to really stop and think about the decision you are making. When I was younger, I never really thought about spending money and how it affected my future, I just did it. As I have gotten older and the reality of life has set in, I have realized that I need to be more thoughtful about what my actions today will mean for my future.

Here are some tips that might help you make spending decisions:

If you are shopping, walk around the store with the item in your hand and ask yourself the questions, 9 times out of 10 you will probably find a reason why you don’t have to have it.
When making a big purchase decision, sleep on it. Think about it and don’t be impulsive.
Ask for advice from friends and family they might have a perspective you haven’t thought of.
Really think about the long-term to give you perspective.

Hands Off The Long-Term Savings – Financial Literacy Saving Series

If you are able to you should be putting aside money into savings. You should ideally be putting 60% of your total savings into a long-term savings account. This is used for your long-term goals like retirement.

In the book, Money: What Financial “Experts” Will Never Tell You, it talks about the prediction that in 2015, 77 million Americans will be over the age of 50 and only about 1/3 of those people will be financially secure enough to retire. That means 50 million of these individuals will not be able to retire. Have you started saving for your future, yet?

To be successful at saving for future goals it is important to make sure that the money is not easily accessible, this will cut down the temptation to pull money from this savings account and spend it. It would be a good idea to put money in an account like a 401(k) or Roth IRA.

Emergency Savings – Financial Literacy Saving Series

Building on the last two posts (found here and here), todays blog post is about emergency savings. It is important to set aside a percentage of your savings each month, ideally you should put aside 20% of your total savings toward your emergency fund. An emergency can have lasting damaging effects on you financially if you are caught unprepared.

Emergency saving funds are very important, you never know what life will throw at you so it helps to be prepared. Any number of things can happen from illness, divorce, loss of job, or a car accident so it is important to be financially ready for it. In the book Money: What Financial “Experts” Will Never Tell You, the authors suggest thinking about this emergency savings as self insurance. You insure your car and your house so you should have emergency savings set aside for insurance when something unexpected happens.

It is suggested that you have 3-6 months of income set aside and if you can it is ideal to set aside one year of net income. This is you backup so that if something does happen you can weather it and continue to build your long-term savings. Without an emergency savings many people will use their retirement accounts to pay for unexpected emergencies and this can derail you from your long-term goals.

Divide Your Savings Into Three Categories – Financial Literacy Saving Series

If you haven’t already, read our previous post Paying Yourself First

So now that we are all saving 10% of our income each month we need to break it down into three categories. You should put aside 20% of your savings each month into an emergency savings fund. An additional 20% should be put into an account for emotional spending and 60% should go toward your long-term savings goals.

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Pay Yourself First – Financial Literacy Saving Series

Pay Yourself First, I like the sound of that, but apparently in America we find this hard to do. Now, when I say “pay yourself first” I don’t mean go out and buy anything you want and then worry about paying your bills. I mean pay your savings accounts first before you pay your bills. The logic is that if you put your money into savings first you will actually put money in savings.

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Financial Literacy Debt Series: Quick Money Saving Ideas

So yesterday the blog talked about tracking your spending so you can find places where you can save. Now today we are going to give you some ideas!

Take your lunch to work

This has been estimated to save you over one thousand dollars a year, why not do it. If you feel like this is depriving you, start with bringing lunch three days a week and work your way up to not eating out at all.

Eat at home

Instead of going out to a nice dinner for date night. Stay in, make it a competition to see who can make the cheapest dinner that you both enjoy, then cook it together. You will appreciate it more!

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Financial Literacy Debt Series: Track Your Spending To Pay Down Debt

Track all of your spending for the month. This means tracking everything including your $1.00 per day vending machine habit, everything counts. This stuff all adds up! It is important that everyone in your family participate in this process and make sure that the tracking is as accurate as possible. Once you have completed this process it is time to analyze your expenditures and see where you can save some money. There are things we spend money on everyday that are not necessities and this is where you can pull from.

Find the things you can cut down on and maybe start out small so you don’t feel like you are being deprived. Then take this money and put it towards paying off your debt. A little bit of extra money going toward debt will go a long way.

For all of LearnKey’s Financial Literacy Month resources, visit learnkey.com/financiallitmonth

Financial Literacy Debt Series: Get Informed

Find out how annual interest rates, months remaining, monthly payments, and principal affect you every month. Make sure you find this information and use because not knowing could be costing you money. All of these terms are important to know for your financial well being.

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Financial Literacy Debt Series: “Power Down” Your Debt Method

Use a systematic method to eliminate debt, pay one item first then apply that amount to the next obligation and so on. You should have already prioritized your debt so that you know what payment to focus on first. Now you will want to focus on that first item on your list and apply any extra amount of money to that payment. When this payment is gone you will move on to the next payment and instead of spending the money you have extra from the first payment, you will apply that extra amount to the payment.

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