Step 1: Watch every penny.
“That’s the first thing: You need to know where your money is going,” says Schultz. “So get out your bank statements and your credit card bills, and categorize every single expense—food, entertainment, car expenses, housing expenses, etc. Once you see where you’re spending, it’s easier to budget and to figure out where you’re willing to cut back.”
Step 2: Face facts.
“Everyone has their dirty little secret about what they spend too much money on,” says Schultz. “One of the big ones is ATM withdrawals. There are a lot of people who take out $20 here, $40 there. It doesn’t seem like much at the time, but when you look at the total over a month, it can be thousands of dollars. Another common problem is too frequent trips to the grocery store. Sit down and do your meal plan for the week, then go to the store, buy your food and don’t go shopping again. When you keep going back, you pick up a little more of this and a little more of that, and all those little bits can add up.”
Step 3: Set a budget.
“Everyone has things that they really enjoy doing and that are important to them,” says Schultz. “But at the end of the month, you can’t spend more than you make and you need to cover other things first, like paying off debt, saving for retirement and putting together an emergency fund. So if you want to eat out more than the average family, fine, but you’re going to have to cut back in another area to make up the difference.”
Step 4: Keep on trackin’.
“There are various ways to stick to a budget,” says Schultz. “There’s the Til Debt Do Us Part method of literally putting the different amounts in jars and living out of the jars, paying cash for everything. I’ve also seen people do similar things using accordion files. Others use computer programs. Whatever system you choose, you still need to follow where you’re spending your money. If you don’t, you can’t know that you’re really on budget."
Step 5: Work together.
“It’s hard when only one person has an interest in the family’s finances, because when one person doesn’t know where the money is going, they tend to not watch what they’re spending either,” says Schultz. “I always encourage couples to communicate more about money and their financial goals and to hold each other accountable. Make it a team project.”
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