Red is not a good color to see when looking at your bank account balance, but it doesn't have to be that way. This article will give you tips that will help you get through seeing red in your budget and prevent overspending.
Red and black
For those unfamiliar with the phrase "in the red," it means to be in debt. You are not making money or in a deficit when you are in the red; basically, you are cash negative. There's also the phrase "in the black" that has the opposite meaning of "in the red." Being in the black means, you are making a profit and are not in debt.
To be in the black is a positive thing as it generally means you are safe from bankruptcy and your finances are not in trouble. Being in the red, though, is generally seen as a negative thing. In a business, it's only normal to be in the red sometimes as losses occur. However, it becomes a problem when a business stays in the red for a prolonged period of time. The same thing can happen on a personal level to our finances. Therefore, it's important to bounce back to an "in the black" state as soon as possible to offset the "in the red" state. There are several things you can do to help you get through seeing red in your budget.
1. Track where you spend your money
The first thing you should do to get out of the red is tracking the various areas where you spend your money. These areas are bills, transportation expenses, groceries, loan payments, luxuries, etc. On a business level, these areas are different functions that fall under different departments where money is allocated for the business to work. By knowing the different areas where the money goes, you can put yourself in a better position to make adjustments to your spending and see if there are any areas where you can cut back on spending money.
When identifying your areas of expenditure, don't forget to include the small, daily expenses you make. For example, spending money each day to buy some coffee, a stick of cigarette, or eating out at a restaurant might seem insignificant when compared to bigger purchases you make. Still, these small things eventually pile up and can put a dent in your budget before you know it. So take note of your areas of expenses in a journal or notebook so you can always come back to these whenever the red shows up in your budget.
2. Plan how to budget your money
After you have identified your areas of expenditure, the next good thing to learn is how to budget your money. To do this, identify how much money you are making with your paycheck monthly. After this, see how much money you need to spend on the different areas of expenditure you have like bills payments, food, maintenance, etc. Next, exclude the area for leisurely expenses. Once you total your budget and there is a leftover amount, you can then opt to allocate all or part of it to your savings, and whatever amount left after that is what you should spend for leisurely expenses. If you noticed that what you are spending for leisure is greater than the leftover amount you got after savings and everything else has been totaled, then you got to cut back on your leisure expenses. This is just one way of how you make good use of budgeting. It's possible that there could be different areas where you are spending a larger amount of money compared to other areas, so adjustments have to be made. On a business level, budgeting money can involve cutting back on expenses in areas with little profit.
When budgeting for your money, it's a good idea to note these in a spreadsheet so you can see exactly how things tally up with each other. In addition, you can try making something like a pie chart where you split your budget into percentages and indicate the exact amount of money that goes to each area of expenditure. Doing these things provide a systematic way of keeping tabs on how you spend money, and you can go back to previous data to check things in case you go in the red sometime in the future.
3. Get somebody to coach you
Learning how to budget your money and controlling yourself when spending money takes a good amount of discipline and effort to pull off. It's not easy, especially if you are used to spending without noting how much you spend and earn. If you are struggling with budgeting, why not hire a life coach? A life coach is somebody who can assist when it comes to self-growth and development issues. Managing finances is one area of specialty that a life coach can provide help with. He can help you have the right mindset regarding money management and instill the discipline to budget your money effectively. If a life coach is not enough, you might also consider getting the help of a financial advisor. A financial advisor can show you exactly what you must do to keep your budget from going in the red. In the world of business, even people in the high ranks get help from coaches. Try to get help as soon as financial trouble happens, not when the debts have already piled up.
4. Set financial goals
A good way to motivate you to spend your money wisely and budget effectively are to set attainable financial goals in the short term. Having goals gives yourself why you are cutting back on spending money and putting money on your savings. It could be because your goal is to save $100 every month or maybe because you wanted to buy an important item in the upcoming months. Make the goals quantifiable, so you know exactly how much you need to cut on spending and how much will go into savings.
5. Don't spend more than what you earn
You would want to track your areas of expenditure and budget your money to see if you are spending more than what you are capable of earning. If your job pays an income of $10,000 a month and your total expenditure per month always exceeds this amount, then we've got a problem here. This is even more problematic if you are not tracking your expenses. A good way to remedy this is to allocate money for the "needs" first; then, the "wants" can come in later once the "needs" are settled. If you don't have any savings left after taking care of the "needs," try to evaluate your lifestyle and see if you are living within your means. Some of your "needs" might actually be "wants" for all you know. Learn to control yourself and don't hug things that are beyond your reach. Sometimes, people's lifestyle changes when they get a pay raise, so the expenditures also shoot up. Discipline and contentment are your friends if you don't like to see some red in your budget.
6. Watch out for big purchases
Big purchases are those whose price tags can range in the millions and usually involve a long-term payment plan. Buying a house or a car are good examples of this. It's quite easy to overestimate ourselves and think we can purchase such things just because we are currently earning a good amount of money. However, you never know what things can happen in the long run. What if you lost your job while in the middle of paying for your house or your car? Do you have a significant amount of money in your savings account? Are there people you can approach and loan some money from in case things go awry? These are questions you should ask yourself first before diving into a big purchase. Ask yourself if you really need this thing and is it something that you must immediately have. If it can wait and is attainable in the future, it is better to wait until you are in a better financial position before getting your next big purchase.
7. Cut back on credit card usage
Credit cards are not evil by themselves. However, these things are responsible for driving many people into bankruptcy by triggering overspending. It's quite tempting to spend with a credit card considering how easy it is to acquire one and use them for buying, like shopping online. Do remember that the amount of money you see on your credit card is not your money. It's called a "credit" card for a reason. You are using somebody else's money. Many people might think that the amount of money they have on their credit card is like an additional budget on top of their usual budget, so overspending can really creep in. It takes a massive amount of discipline to control yourself from spending with a credit card. If possible, try to buy things using cash. This way, you can see exactly how much your spending limit is and how much goes away for everything you buy. If you really need to use your credit card, use it only in an emergency, such as buying something for work when you don't have enough cash. Avoid swiping the credit card for leisurely expenses as much as possible, and if you really need to get one, get a credit card that has a lower limit.
8. Understand what triggers you to spend
Spending triggers are things on the emotional and psychological level that make us spend depending on what's going on in our minds. A good example of this is impulse shopping that is triggered when we are feeling stressed or down. Instead of using shopping as a means of relieving ourselves, talk to somebody else like a therapist to solve our anxiety or stress problems, or try to do something productive like going for an exercise. The environment around us can also act as triggers, such as malls posting their huge sale events or going outside when there is a holiday, and there is that festive atmosphere everywhere. These things can trigger an urge for you to spend, so if possible, avoid going out or near these places if you know you are the type to go on a buying spree when you see one of these. Even your friends can act as triggers if they themselves are bad at their spending habits. You can avoid going out with these kinds of friends if you are short on budget and learn to say no.
9. Associate your spending with your work
One effective method to control your spending is to connect how much you spend with how much effort is required to generate money. If it takes 9 hours of work to earn $200, then you might think twice before spending your $200 on something because you know how much labor it takes before you earn such an amount. By having this mindset, you would not carelessly spend on things because you know how hard it is before earning a significant amount of money.
Get out of the red
Being in the red is not a good place to be. It gives us stress and anxiety whenever we see that we are in debt and our budget is in trouble. Learning how to spend and save money is an art, and it takes discipline, dedication, and effort to pull this off consistently. Learning how to do these things while we are still young can help inculcate in our minds the discipline needed once we reach adulthood. Know the categories where your money is going, settle loans as much as possible, create secondary income sources, and prioritize spending on what's important over luxuries. Free yourselves from debt and save money so you can have peace of mind and better mental health.