Personal Budgeting – How to Manage Discretionary Spending
Image sourced by Sincerely Media @sincerelymedia
Personal Budgeting Secrets – How to Build Wealth by Managing Discretionary Spending
It’s a lot of fun – often downright satisfying to spending money on shopping, clothing, dining out, entertainment, vacations and travel. Instant gratification! But. . .
In order to save money, meet your financial goals and build wealth, it’s super important to resist temptation. Or at least delay it.
Follow these often overlooked personal budgeting techniques to organize your finances and save money on discretionary spending:
Get a handle on your income and expenses. How much money do you earn in a year? How much money, actually, do you spend? Be realistic.
Create an annual personal budget. As part of that exercise, determine the amount of money you have available to spend on discretionary items (discretionary spending) throughout the year.
Break down your annual budget – ideally for each spending category – into a periodic spending allowance or periodic spending limit (maximum spending) for each period.
One rule of thumb is to divide your annual budget by 12 to arrive at your monthly spending budget. Or, to create a quarterly spending budget – four (4) quarters – divide your annual budget by 4 (four) to arrive at your quarterly spending budget.
Commit to spending No more than your periodic spending allowance.
Absent other changes in your personal finances, you should be able to spend up to your monthly or quarterly spending amount (allowance or spending limit), without overspending or running out of money.
Another approach is to organize your spending by seasons. For example, if you face back-to-school expenses in August or September or holiday spending in December, you can arrange your annual spending budget (allowance) based on your seasonal spending habits.
Starting at the beginning of the year, track your year-to-date (YTD) actual spending for the discretionary items category against your annual budget.
Keep your actual spending to less than your periodic spending budget and your annual budget.
For example, suppose you calculate that you can spend up to $1,200 on clothing this year.
Then, $1,200 becomes your annual spending budget or annual spending allowance on clothing. Be sure to spend less than your clothing allowance.
To convert your annual budget or annual spending allowance into a monthly budget or monthly spending allowance, divide your annual budget or allowance by 12 (twelve).
$1,200 divided by 12 equals $100 per month.
Absent unforeseen changes in your income and unexpected expenses, this means you should be able to spend up to $100 per month on discretionary items and still achieve your financial plan.
Instead, if you organize your personal budget or spending budget on a quarterly basis, you would divide $1,200 by 4 (four), which equals $300 per quarter.
If you spend more than $100 in say January, spend less than $100 in February and March to balance out and stick with your plan, your annual budget goal, your annual spending goal. Or, if you spend more than $300 in total in January, February and March, in the second quarter be sure to spend less than $300 throughout the quarter to balance out and get your spending budget back on track.
In this example, if you spend less than or equal to $100 per month consistently throughout the year, you’ll meet your budget and achieve your financial plan.
If you spend less than $100 in January – for example $70 – this means you have an extra $30 [$100 minus $70] to spend in later months. Or, if you spend less than $300 in the first quarter, this means you have extra money to spend in the next quarter.
When you spend less money than your personal budget allows, you can direct the extra money to other spending categories, for example a nice dinner on the town, a vacation, debt reduction or retirement savings.
When you approach your spending based on an average spend, you’ll stay on track and always win. You’ll achieve your financial goals, save money and build wealth. And gain peace of mind.
The key is, Don’t overspend or run out of money.
While this article focuses on planning discretionary spending and managing discretionary spending, to learn how to apply this to online shopping and Amazon Prime, click here.
Then you’ll really achieve your financial goals, save money and build wealth. And gain peace of mind!
And to Save More Money on Groceries, Every Day – click here.
Don’t delay. Let’s get to it!
See you next week.
Arthur V.
How to Succeed and Achieve Your Dreams!
Tired of the rat race?
To Succeed even bigger, greater and stronger, 10X your success – click here.
Budget and Grow Rich® is the original e-book guide to easy budgeting and wealth-building. Gain financial freedom and pour money into your pockets today and for years to come.
Finally, the proven roadmap to building wealth – how to make a personal budget that really works. Explained in plain English – easy to follow, practical steps. Since 1974, personal finance expert and author Arthur VanDam has used this system to organize his finances, manage his money and amass wealth. Now you can too. This straightforward guide tells all! Handy spending plan worksheet includes 14 categories that does it all. Practical tips and ways on how to create a financial plan and put your financial plan on auto pilot. Budgeting At Your Finger Tips will help You save more money, build more wealth, gain peace of mind and enjoy financial freedom.
Take your Business, Career & Life to a New Level with this Experiential, Immersive Live Event FREE!
How to Make Money in your Spare Time Writing Letters.