Do you want to work towards your money goals, but can’t find room in your budget? Do you make ends meet from month to month, but scramble when seasonal bills come due? Do you want to rein in your spending habits, but have a hard time not spending money when you have it in hand?
Here’s how you can give your financial goals more power – by hiding your money from yourself and keeping it out of your hands until it becomes big enough to meet your goal!
1) Plan for the expenses that you don’t want to admit exist:
Your car cannot keep going without maintenance, repairs, parts, and tires. Instead of being shocked when you need to find $300-$600 each year when things come up unexpectedly, start setting aside $25-$50/month that is designated only for car costs. Ditto for household bills and periodic expenses like home insurance and property taxes, car registration and excise tax, or quarterly self-employment taxes for your small business.
Tip: Figure out the monthly average of all “unexpected” or seasonal expenses for the year, and funnel that amount into a separate account each month to get that money out of sight and out of mind until you need it.
2) Plan your giving:
Gifts are tricky. They are a big part of most people’s spending, but we are rarely accurate in admitting their impact on our budget in writing. How can you continue your generosity without going spending more than you can afford?
Tip: Track your spending to see where your money really goes, and use a separate place (Christmas Club or any sub-account at your bank or credit union, or even an envelope of cash at home that’s only used for gifts) to set aside what you actually want to spend on gifts instead of sticking things on credit cards when birthdays, holidays, weddings and anniversaries, office parties, or other occasions arise. Surprise: they come around every year!
3) Automate the process:
With the electronic age, money management is easier than ever. If you have regular monthly bills that are always the same amount, automate those bills. You can use bill pay through your bank, or you can make monthly payment with a credit card ONLY if you do not carry a balance or pay interest and fees for that card. You will never worry about paying late again, you won’t spend money that you don’t see, and you will free up time to focus on more important aspects of your financial goals.
Tip: Set up a separate checking account where you can direct deposit enough to cover all your regular monthly expenses AND your seasonal averages (see Tip 1). Then set up automatic payments from that account for any regular expenses, and write your checks or bill pay from that account to cover car, home, and other costs as they come up.
3) Hide your extra income from yourself:
Do you babysit or housesit for your neighbors on occasion, or does your hobby bring in a little money on the side? Make a separate account for that unexpected and unreliable income, so it can build up out of sight without having your budget depend on it month to month.
Do you get mileage reimbursement from work? Have it direct deposited into a separate account and don’t touch it until you buy your next car. Even if you don’t get mileage reimbursement, you can figure out how much you would be paying for a car loan, then divert that amount each month into savings NOW. When you need a new car, you can make a bigger down payment or pay with cash.
Tip: Use separate savings accounts for separate income streams, and tie those accounts to your financial goals (e.g. buying a house, buying a car, getting a new appliance, saving for education, going on vacation, giving back through philanthropy or tithing, or any goal you define for yourself).
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