Regardless of whether someone earns a big paycheck or a much more modest one, nobody wants to spend more money than he or she has to. A Wisconsin-based financial planner said there are ways people can cut back on spending without feeling like they’re denying themselves something or lowering their lifestyles.
Kevin McKinley, of McKinley Money in Eau Claire, said the best way to start is to keep track of spending. He suggests saving receipts and recording expenses every day. Then, he said to watch for red flags.
“'Gosh, we’re spending $150 a month on cell phones,'” said McKinley. “'Is there a way we can cut that down?'”
McKinley also advises monitoring progress and watching for trends.
“'A year ago, we only spent $100 a week at the supermarket. Now, we’re spending $130,'” McKinley says. “Is there a reason for that? Or should we look at ways we can cut it back to what we were spending a year ago?”
McKinley recommends the website, mvelopes.com, to help organize and track expenditures.
Saving those receipts and recording purchases can also help keep spending to a minimum, according to McKinley. He said to add up the necessary expenses and carry that amount of cash each week to spend. Recent studies suggest that carrying large bills, especially if they are crisp and new, makes people more hesitant to use them as opposed to old, wrinkled, small bills or plastic.
When considering larger, more expensive items, McKinley said to count the cost not only in dollars, but in the amount of time it’ll take to earn the amount. For example, someone making $40,000 a year wants to buy a $500 item. After taxes and salary deductions, McKinley said that person will need to work an entire week to make that purchase.
“If you say, ‘Geez, I don’t like working for a whole week just to pay for this thing – I’m not going to buy it,’ it’ll help you avoid those larger purchases you might regret later,” said McKinley.
He said another relatively painless way to save is to increase retirement funds, especially through employers’ at-work plan, such as a 401(k) and 403(b). McKinley said those savings are tax-deductible at 20 to 40 cents per dollar.
Those who do not have a retirement account can open an IRA to get the tax deduction or a Roth IRA if they want access to the money. McKinley advises making small, regular deposits to that account.
“You can have $25 a month deducted from your checking account automatically into your IRA,” said McKinley. “Then, you don’t have to think about it. You don’t have to come up with a big bunch of money on the 15th of April before your taxes are due.”
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