EVALUATE YOUR SPENDING HABITS
You now need to take a very close look at where your money is going. Rent, food, and gasoline for your car may be obvious. But you're also spending money at plenty of places where you don't need to be spending it. Take a look at a simple morning cup of coffee. Let's say you buy a $1 cup of coffee each workday, five days a week, for 50 weeks. (Let's assume that during the other two weeks you're on vacation.) You're spending $250 a year on coffee. lf you smoke a pack of cigarettes a day, at a cost of $5.50 a pack, you're spending $2,007 a year. If you buy lunch at McDonald's three days a week at $6 a pop, you're spending $936 a year on greasy burgers and fries.
No one's saying you shouldn't drink coffee, or smoke, or eat fast food. Just realize what those guilty pleasures are costing you. Could the money you're spending serve you better somewhere else? You'll decide as you start to track and analyze your spending.
WANTS VERSUS NEEDS
Most people use the word "need" without considering what it really means. Often, what they really mean is "want".
"I need a new dress" "I need a piece of chocolate" "I need a vacation"
It may feel as if you need those items, but they're really things you want. A "need" is something you can't live without, such as food, shelter, and medical care. A tenant's is more or less everything else. You can live without your wants.'' You may not always be happy without them. But you won't come to physical harm (or even mental harm) if you don't fulfill your "wants."
In today's world, it can be very hard to distinguish between needs and wants. Turn on the television or open a magazine, and you'll see hundreds of things you think you need-but do you need them? Do you really need brand-name sneakers? Cable television? Even a car?
When so many people in our lives spend so much money on luxury items, it's easy to feel as if we, too, need those things. They make life convenient, they're fashionable, and so on, but they are essentially wants, not needs.
Come on, you're saying, what's the big deal if I buy a new pair of sneakers or a candy bar now and then? When you are talking about one item, of course it doesn't seem like a big deal. But when you can't meet your debt obligations because you've spent too much money on things you don't really need, you have a problem. If you're behind in paying your bills, and if you`re not saving any money, you need to learn to balance your wants and your needs.
It's time for another list. Make a list of all the things you spend money on. Label each item "need" or "want." Be honest with yourself. Keep this list handy. It will help when you organize your budget.
If you can easily pay for your needs and have money left over, and if you're debt-free, you can start spending on be your wants. But if one of your needs is to be debt-free, you shouldn't be spending much-or anything-on your wants.