Close the app and put the phone down. Checking your bank account balance isn’t helping you as much as you think it is.
For most of your life, you’ve probably measured your financial health by the balance in your bank account. If you wanted something, you decided whether you could afford it by checking your balance.
This method seems reasonable, but it has one major flaw — when you check your bank account, you’re not thinking about other expenses you’ll need to pay later in the month, or perhaps later in the year. You risk using money you’ll need later to buy what you want now.
If you’re serious about pursuing financial freedom, it’s time to change that. The best way to decide whether to buy something by checking your budget, not your bank account.
Once you put in the work to create a solid budget for your personal finances, you should have a pretty good idea about where your money is coming in and what expenses it will need to cover. So when you want to spend money on something, check your budget to see how much you’ve allocated for that expense.
If you have enough money budgeted, you’re free to make the purchase. But if you haven’t planned for that item in your budget — or you haven’t saved up enough for it — the purchase isn’t a good idea.
Your budget should sets the rules for every spending decision you make. This change of habit can be difficult, so I’m going to give you four tips to help you live according to your new budget.
But first, I want to tell you about Stress-Free Finance, a free program we have created to help you make sense of your overwhelming financial life. This five-part video series has short, simple lessons to help you solve money problems so you can stop worrying and build a better future.
Here’s a preview of the free video series:
Now, back to the topic at hand:
Living according to a budget doesn’t come naturally to most people. Fortunately, there are some ways to make it easier. Let’s take a look at four of them.
1) Know your numbers.
You need to constantly monitor groceries, eating out, clothing, entertainment and other discretionary expenses. Memorize your budget amounts in each of these categories so you’ll know exactly what you can spend.
2) Track your spending.
For discretionary expenses, you need a way of knowing how much of your budgeted amount you’ve spent. Keep track of your expenditures in each category as you go. You can use a cash envelope, a written list or a note-taking app to track your spending and see how much you have left.
3) Save your surplus.
Sometimes you’ll spend less than your budgeted amount in a category. When that happens, roll that surplus over into the next week or month. This will give you flexibility to spread your spending across multiple budget periods or enjoy a treat next month with money you have left over from this month.
4) Watch your balance.
Checking your bank account doesn’t tell you what you can afford, but you should still monitor it regularly to make sure nothing unexpected is happening. Confirm that direct deposits arrive on time, that auto-payments go out when they should and that you’re not overdrawing your account.
These new rules are going to be crucial for succeeding on your journey. Following them may not come easily at first. But if you commit yourself to this discipline, you’ll soon find incredible peace and freedom that come from an intentional spending plan.