Get Smart About Spending
An expert shares tips to help you get a handle on expenditures— and save
Let’s admit it: Even those who are savvy about personal finance are bound to have a few bad spending habits. As for the rest of us, we may need to take stock from time to time to be clear about where our money really goes. And what better time than now, as we shake off the winter doldrums and prepare for a new season? Think of it as spring cleaning—for your checkbook. To help put you on track for more sensible spending, we turned to Sarah Beane Ricca, a financial adviser at Morgan Stanley Wealth Management in Paramus, and she offered seven tips:
1 Consider your routine.
Often, our spending is done by rote and can be curbed without much impact on our quality of life. “Bad spending habits can come from not recognizing when a habitual purchase is worthwhile and when it isn’t,” Ricca says. “You wake up, buy your coffee and a paper, and then drive to work. That could be $7 a day, but you don’t really think about it. Ask yourself if this gives you more joy than making coffee at home and reading the paper online.”
2 Track your spending.
Inattention is a major culprit in poor buying decisions. “You need to bring awareness to your spending. Unless people really track expenditures, they typically spend about 10 percent more than they think they spend,” says Ricca, who recommends keeping a careful record for a minimum of three months to get a realistic snapshot of spending activity. (Note that December and the summer months will usually bring higher spending, so plan to do your tracking at another time of year.)
3 Use a good tracking tool.
This could be spreadsheets, a spending journal, QuickBooks or the mint.com app. “The tracking method doesn’t matter,” Ricca says, “but pick something that fits your personality: Do you use your mobile device a lot or are you more comfortable with spreadsheets?” Perhaps you are a procrastinator or are daunted by the prospect of looking at receipts. In those cases, consider hiring a bookkeeper for a few hours to do the baseline work.
4 Ask the tough questions.
There are many sneaky, passive spending habits that people don’t think about. Do you charge up credit cards and pay only the minimum? Switch to cash until you pay it off. Could you pay less for automobile insurance? You should assess your policy every few years. Do you really need everything in that cable bundle? Chances are, you don’t. Do you impulsebuy at the store? Create a list before you go and if you spy something you feel you simply must have, wait 24 hours to see if the desire is still there.
5 Create a plan.
“Set aside a few hours a month to see where you are financially, and assess the areas where you think you’re spending too much,” Ricca says. “Once a year, sit down with your family, list the top 10 expenditures of the year and brainstorm where you can improve. These thoughts can be very helpful for meetings with your financial adviser.”
6 Start with small adjustments.
Don’t make major cuts right away. For example, try cutting out the lattes before you curtail your nights out with friends.
7 Set realistic goals.
When you’ve reined in your spending, don’t fall into new bad habits. Ricca suggests a 50/30/20 rule for managing your finances: After taxes and maximizing contributions to your employer-sponsored retirement plan (especially if there’s a company match), 50 percent goes to needs, 30 percent to wants and 20 percent to savings. “With that 30 percent, give yourself permission to spend some money,” she notes. “Being frugal all the time is not healthy either. You need balance.”
Related Read: Budgetary Wellness