It’s no coincidence that many people are currently reevaluating their finances. COVID-19 has crippled businesses across the globe, and as soon as it seems things are dying down, cases start ramping back up.
It’s time to buckle down and start spending less money on frivolous pleasures. But that’s easier said than done. Old habits die hard, and in order to break them, you need a game plan.
Step 1: Evaluate Your Expenses
You need a detailed account of where your money is going. Let’s say you start the day off with 100 dollars. You spend five dollars here, twenty dollars there, and by the end of the day you’re broke.
Evaluate your spending habits online. You can track your spending easily by accessing the website of whatever company you bank with and logging in with your account number.
Take a look. Are you surprised? Do you feel shame? Put those feelings aside and simply learn from your mistakes.
Step 2: Consolidate Your Spending
As stated above, it’s easy to lose track of where your money is going due to absent-minded spending. Instead, break your paycheck down and dedicate portions of it to various categories. Your bi-weekly paycheck comes out to x amount of dollars. Cash it. Now take your cash and put it into a series of envelopes. Label one “rent”, another “groceries”, and another “utilities”. You get the idea.
Now for the fun part. Saving money doesn’t have to come at the cost of petty pleasures. Dedicate one envelope to “recreation” (or whatever name you care to give it) and use that for the things that make life livable.
Step 3: Put Whatever You Can Into a Savings Account and Stay Dedicated to It
A lot of people decide they’d rather spend that leftover 50 dollars on something stupid like eating out or going to a bar, because after all, it’s just 50 dollars – why put it into a savings account?
The thing you need to remember is that as quickly as money goes, it just as quickly adds up. Look at your bank statement. You weren’t thinking about the compounding cost of all those little purchases – that 3 dollar coffee or that 5 dollar beer – they all seemed like negligible one-time expenses, but they add up to large amounts of money in the long run. The same principle applies to your savings account.
Remember the envelope method? One of those envelopes needs to be labeled “savings”. You can decide on a bi-weekly or monthly amount that you want to put into your savings envelope, but as you’re probably well-aware, life rarely conforms to our plans. That’s okay. As long as you’re putting something in on a consistent basis, you’ll start to see that savings account grow.
Step 4: Hire a CPA
The money you spend on a CPA will pay off in the long run. CPAs can evaluate your income and spending habits from a cold, logical perspective. This perspective is also backed by education and years of experience. Listen to them and follow their advice.