My clients Sarah and Will showed me an interesting device you may have seen. You may even have one. It’s a bracelet that provides immediate monitoring and feedback to help you achieve your fitness goals.
What if we had a similar bracelet that recorded all of our spending and savings, then compared them with our budget and savings goals? And it acted to keep us on budget? Say you spent over your limit in a particular category. Your credit card would reject the charge. Or you’d get a message to reduce spending in another category to cover the overbudget item.
You might pay a reasonable amount of money for a budget bracelet — and for good reason. People with a budget feel more in control of their financial life. Moreover, people who set goals and have a financial plan are more likely to achieve their goals. You might solve your budgeting challenges by increasing your income. But spend all of your additional income, and you’re back where you started. It’s like exercising more, then eating more. You don’t lose weight.
So how do you stick to your budget commitment? There’s no budget bracelet yet, but a variety of handy tools exist to track your spending. They run from low-tech to high-tech, mobile to fixed. All can help you take control.
There’s nothing wrong with going low-tech — using a simple memo pad for writing down all of your spending at point of sale. Each night, enter the date, item and amount into a ledger or larger pad — a column for each category you set up.
You can add some technology by using a computer spreadsheet like Microsoft Excel for entering data and automating such actions as adding columns or rows of categories. Spreadsheet software is easy to use and keeps your records legible. What’s worse than not knowing which number you’ve written — especially when you’re looking at hundreds or thousands of dollars?
Go high-tech with mobile apps that automate tracking spending and setting up a budget. Check out this review of personal finance apps: www.tinyurl.com/nytimes-budget-apps. Often, these applications will alert you when you are over budget or when you receive a bill. These tools are constantly being improved.
But what if you’re unfamiliar or uncomfortable with using tools on your smartphone? Use your memo pad at the point of sale, and then when you get home, enter the data on your laptop.
Is all this effort worth it? While this is a topic for another column, I can tell you now that you’ll want to retire some day, and you can’t borrow to do it. You need assets. You also need motivation. You’ll find some in the retirement confidence survey from the Employee Benefit Research Institute at www.ebri.org/surveys/rcs/2014.
As Sarah and Will told me, it’s a real challenge to find the right balance between savings (deferred gratification) and spending (instant gratification). We all want to live a good life, and who can guarantee how long we’ll live? (As it happens, I know a woman who’s 106, and my own mother is 96.)
Successful financial planning is about finding that balance and, when necessary, modifying our behavior. We achieve a reasonable balance by acknowledging the challenge, setting goals, then spending time and energy to find our balance point.
Words are cheap. Sticking to the plan is where the money is. Remember this:
• Budget tools are most effective when they are used at point of sale.
• Both low-tech and high-tech solutions exist. Use whatever — singly or in combination — is most comfortable and works for you.
• In developing a budget, look at each line item and brainstorm alternatives that will lead to lower spending. Record your ideas and review options every quarter until you stay within budget and begin or increase your savings
Needless to say, Sarah and Will were excited about the budget bracelet image. Of course, I reminded them that they’d actually have to use it — in whatever form — to get results. And yes, it’s not easy; otherwise we’d all be savers. But today’s tools give you control over spending and saving.
So now you’re making real progress toward your savings goals. But what are those goals? And what pathways can you take to meet them? We’ll talk about that in the next column.