Budget Spending Caps
Posted by admin on Jun 27, 2011 in Personal Financial Control | 31 comments
Many people struggle with their finances. Mounting debt, no savings. At first, a little debt and no savings seem okay, but as the years go by it seems that it becomes more and more difficult to put away for retirement, and there is still that nagging debt load hanging over you. You wonder – why is this getting harder?
Young or old, or even in-between, there is hope for you. Action has to be made however, right now. From a financial point-of-view, you need to run your home like a business! In running any business, you need a budget. If you do not have one in place, get a budget sheet and start writing down all of your income and expenses. If you need a budget sheet please e-mail Seianna Financial Services head office at toserveyou@seianna.com . We will be happy to send you one in Excel format, printout or fillable.
This article covers one specific area of budgeting – spending caps.
What are spending caps? In the article “What’s in a budget?” touches on this subject. A spending cap is when you put a ”maximum amount allowable to be spent” on your expense items. For instance, you cap grocery spending each month at $400, cable at $60 (which means if you like to rent movies from your cable company, this cap puts a limit on how many movies you may watch per month). Here we will give you clear guidelines to forming good spending caps.
#1 – Be realistic with your budget – once you have a budget sheet, you will see many spending categories, plus there is room for special categories that you may need as well. At first, estimate the amounts that you will need to spend in each expense category, then keep receipts for at least three months to find out how much you are actually spending. You will see very quickly where your money is going possibly why your credit card bills are growing and not shrinking.
#2 – Set hard caps on spending – once you have completed your estimate and found out through adding your receipts how much you are spending on specific expenses each month, it is time to determine how much you will be allowed to spend in each expense category, and stick to your guns to meet your financial targets. Use a spreadsheet or a cash method (such as putting money in envelopes or jars) to help you track your expenses throughout the month. When the money runs out, or is “capped out”, you cannot spend any more money on that category. If the category is a critical one, such as groceries, then money may have to be transferred from a “discretionary category”, a category that has no critical bearing on your well-being.
#3 – Cut down where you do not want to cut out – in our article “Cutting down without cutting out” you see how this method can help your budget. Read the article again as a refresher. Setting a cap on spending will help with cutting down
#4 – Cut out if your budget demands it – you may have to take the painful step of cutting out some discretionary spending from your budget to allow for paying expenses on critical items, debt reduction and saving for retirement.
Remember these things as you are budget planning and the reason why you are setting spending caps on EVERY expense category – every time you eliminate a debt you are giving yourself a raise, plus you are no longer paying someone else your hard earned money in the form of interest! Every time you save for your retirement you are paying yourself first, and the interest is gained in your favour!
Capping your spending through the use of a budget will help lower your stress, give you better maneuverability during a financial emergency, and help you prepare for your future. Today is the day to start setting spending caps!
Seianna Financial Services cares about your financial welfare. Go to www.seianna.com to check out our free audio series. We also do personal financial control consulting, in person, online or even by telephone, through our “Take the $75 challenge”. Call Head Office toll-free in North America (866) HOPE4U-8 (467-3488).
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