This is a guest post from Kevin, who writes about getting and staying out of debt with a plan at No-Debt Plan.
Saving money and the frugal mentality are all about awareness. If you’re in the dark about where your money is going or how much something costs you each month, you can’t do anything about it. Life will continue — and you’ll keep spending as you always have.
The truth will set you free
Setting up a budget isn’t much fun for most us. (The sick ones like me get enjoyment from the task!) But a budget can reveal some ugly problems, problems you most likely don’t want to face. The reward for all of the hard work is awareness — knowledge of where your money goes each month. That knowledge can be very, very powerful.
For example, without taking a hard look at your finances, you might miss the fact that you’re unintentionally spending $300 per month on dining out. Maybe you thought you were only spending $50. You’re okay with spending $50. You’re not happy with $300. The difference? Awareness.
Let’s take that example one step further. Changing that behavior results in having an extra $250 every month. Applying that $250 to debt or a savings goal could substantially change your life. You’ll get out of debt faster. Or you’ll have a healthy emergency fund when your transmission goes out or an unexpected medical bill pops up. The difference? Awareness.
As J.D. noted a few weeks ago, items in the grocery store are shrinking. If you don’t notice the change, you might unwittingly pay 25% more than you’re used to for an item you use regularly.
Granted, paying extra for yogurt probably isn’t going to break your budget this month. But what if a bunch of your favorite products suddenly became more expensive and you didn’t notice? Suddenly you’re running out of money in the grocery category in your budget. You spend $350 this month rather than the budgeted $300. No big deal, right? But that $50 has to come from somewhere, and it might be your retirement savings, or the money you’ve set aside for a house down payment. Do that for long enough and you’ve got a serious problem on your hands. The difference? Awareness.
Awareness leads to informed decisions
Noticing smaller package sizes may not completely turn you away from using a product, but it can help you make an informed decision.
- You might decide to use the product less.
- You might choose to go with a substitute product.
- You might even seek out coupons for the product so you can keep using it.
As long as you know there has been a change — and I would argue 25% is a big change — you can make an informed decision about how to react.
The bottom line is you can’t cut back on comic books, eating out, or gasoline until you know how much you are spending on them. Take a look at your receipts or bank statements over the last three months. Compare your spending to your budget.
Find something that shocks you? Time to get to work. Investigate the discrepancy and address the issue. Make an informed decision: adjust the behavior or adjust the budget. It’s up to you.