“Man, if I don’t get $1,000 before Monday morning, I’ll be in deep trouble,” says Barry. “I gotta get my car fixed. I can’t have my wife take me every morning–it costs too much in gas.”

“Maybe you should cut out the lattes from Starbucks,” says Johnny. “Those cost you, what?, $4.75 every day? Think of all the money you’d save if you just made coffee at home or got it at the office.”

“You have to stop worrying about the small stuff,” says Barry. “If we hadn’t had our roof fixed last week, we’d have the money.”

“You need a roof,” says Johnny. “You don’t need the latte.”

“Maybe I can find a cheaper mechanic,” says Barry.

Unfortunately, too many Americans think like Barry. They worry about the big stuff, and are oblivious to the amount of money that leaves their pockets a little bit at a time.

If you buy a latte five days a week, fifty-two weeks a year, at $4.75 each, that’s $1,235 in the course of a year. Making your own coffee at home will cost you probably under $35 a year, assuming one cup per day. Even making your own lattes at home won’t cost you anywhere near $1,235. So, you’re spending probably close to $1,200 you wouldn’t have too. (Hint: Get up earlier and make your own coffee or latte.)

How much are you spending on fast food each week? Do you have subscriptions to magazines you don’t read? Do you have a gym membership you never use?

The fact is that many Americans have no idea how much money they are really spending. They think of high gas prices, or high grocery bills, or high gas and electric bills, or high repair bills, and so on. But, they don’t figure in all the little things they spend money on. Do you think Wal-Mart has gotten so large just by selling stuff people actually need? How many things do people buy that they don’t really need? Maybe something was on sale. Maybe it was “just a couple bucks.” Maybe it looked cute.

Most Americans don’t have a budget, so they may not even realize they’re overspending. They add up their important bills, and those numbers float in their heads, but all the little things get overlooked, and those little things are the ones that can frequently come back and bite you in the posterior.

Let’s say that each week you go shopping, you pick up $10 worth of stuff that wasn’t on your list. You didn’t need it. You’ll probably just stick it in a drawer somewhere and never use it. But, it was only $10 so you didn’t worry about it. Over the course of a year, that’s $520. Could you have used $520 for something else? Something more important? Maybe you could have saved it, earned a little bit of interest, and, at the very least, had an extra $520 if you were hit with a money emergency, such as an unexpected home or auto repair.

Setting up a budget doesn’t have to be hard. Just sit down and write down all your monthly expenses. You’ll have stuff like the utility bills, your mortgage, your phone bill, maybe a car payment, insurance, and other things. Next, think of your quarterly or annual bills. Maybe you pay self-employment taxes, maybe you have condo or other association fees, membership fees, magazine subscriptions, newspaper subscriptions, etc. Write down everything you can think of. Look through your credit card bills, checkbook and any other receipts you have to make sure you don’t miss anything. Don’t forget to write down how much you spend on gas, eating out, even postage stamps.

Once done, break down everything to a monthly or weekly amount. For example, divide an annual expense, such as a membership fee, by 12 to figure its monthly cost or by 52 to figure out a weekly cost.

After you have figured out your monthly or weekly expenses, add up your monthly or weekly income. Use your take-home pay, not the pre-tax amounts. If your expenses are larger than your income, then you really, really need to make some cutbacks. If they are equal, you should still make some cutbacks so that you can save some money.

If your income exceeds your expenses, the difference between the two can be thought of as your “excess” money. (Though, if you have debt you’re paying off, you never really have “excess” money.) What you need to do is to figure out how to deal with that extra money. You may want to apply some to your debt so you can get it paid off faster, or you may want to stick it all in a savings account. If you have a decent amount of “excess” money, you can divide it out, some to save, some to pay off debt, etc. Ideally, you should make saving up enough money to equal 6 months of income, which will be off great help if you lose your job or have unintended expenses. But, be sure too that you keep up on all your bills.

Once you’ve worked out a budget, and get used to working within it, you’ll find that you won’t as easily be willing to part with that extra $10 a week on things you don’t really need, nor will you be as quick to plop down four ones and three quarters for a latte each morning.

In any case, figuring out, and sticking with, a budget can be your first step in saving money. And, having money when you need it can help eliminate some stress in your life. And, while money can’t buy you happiness, less stress and more peace of mind can certainly aid in making you happy.

If you have other ideas for being happier that you’d like to share, please comment on this post.

This entry was posted on Monday, September 29th, 2008 at 12:01 am and is filed under Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed.
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