Budget Basics

NEA Today, Jan 2005 by Rowland, Mary

If your income doesn't match your spending, try our financial fitness tips for the new year.

Did you make a New Year's resolution to get your personal finances in order?

If so, you're not alone. Over the two decades that John Norcross, a professor of psychology at the University of Scranton, has been studying resolutions, improving personal finances has always been among the top five, along with losing weight and giving up nicotine or alcohol.

When you think about it, dieting and budgeting have a good deal in common. Each requires modifying your behavior-and your attitude. You gotta learn to feel satisfied on less, rather than abstaining altogether.

Experts say that many people who overspend do so because they believe clothes, makeup, cars, or sports equipment can enhance their image. Or maybe they find themselves pouring money into a hopeless relationship. If you have any self-esteem problems, best to address those first. But many Americans get into debt simply from inexperience, because they spend more than they earn, and because, with credit so available, it's so easy.

Some tips to steer you toward financial health:

Add it up. Most financial planners advise tracking just where your money goes. Write down everything you spend-from that cup of latte to your car payment-for two weeks or a month. Then extrapolate from your spending diary to estimate what you spend in a year. Make sure to add in occasional big expenditures, such as semiannual insurance premiums or holiday spending. You may well find that you're spending more money on some items-such as eating out or on DVDs-than you thought. This information is the starting point for cutting your spending and bringing it back into balance with your income.

Fund your goals. OK, you say, but I'm not a "ledger type" who's going to chronicle every expense. Then put your energy into funding your priorities, with the help of online banking. Decide first on your goals: paying off debt, saving for retirement, or creating a college fund. Set up an online account with automatic bill paying, and set aside money from your account for each goal, instructing the bank to make automatic payments. That way you'll be sure to fund your important goals, rather than just your day-to-day expenses.

Challenge yourself. Try deducting a bit more than you think you can afford for savings. If your savings and checking account are at the same bank and require merely a cjuick transfer from one to the other, you can make it a game to see how long you can last without the big chunk taken out for savings. Alternatively, some planners advise clients to open a savings account at a small bank without an ATM and to make squirreling money away a contest where you the spender compete with you the saver.

Starve the card. Try going a week without using a credit card. Pay cash for everything. Before credit was an option, people who hoped to feel better about themselves by shopping or buying something new could not do so unless they had the cash. Many people who try the "cash cure" find they can't lay out $100 in cash for a dinner or a piece of audio equipment or a couple of polo shirts.

Leave room for rewards. As with any type of behavior modification, the idea is to feel satisfied under your new regime. Set aside one indulgence that you really enjoy-a dinner out or a night renting a family movie. Whatever you choose, plan it ahead of time and make a production of it. Savor the anticipation. And if you slip up a little and splurge on something, don't feel guilty. Just try again.