• May

3 Steps on How to Control Spending Habits

Updated: Aug 25

Controlling spending and increasing savings is the best way to handle a recession, layoffs and rising inflation.

How to control spending

We're in unprecedented times right now and no one is sure of where the economy is going. The best thing to do in times like this is to save as much as possible and curb unnecessary spending or spending urges. How do you actually do it? Read on to learn the 3 steps to control spending habits.

TL:DR? Watch my Tiktok video on this topic instead.

Step #1: Estimate what your expenses will look like for the next few months.

That is sometimes easier said than done. What do you do if you don't know what your monthly expenses look like? For starters, check out my Annual & Monthly Zero Based Budgeting Spreadsheet. Once you look back a few months at how you're saving/spending, it will give you a good idea of what to expect for future months. I've been consistently budgeting for about 8-9 years now so I have a pretty good baseline on what my "needs" expenses are vs my "wants" expenses, which tend to be more variable.

Step #2: Assign a credit card a purpose.

Credit cards are amazing....if you use them correctly. If you have multiple credit cards, give each credit card a purpose. Make one of the credit cards your "needs" credit card, where you charge all of your utilities, rent (if possible), maintenance, groceries, etc. Make the other one your "wants" credit card to handle some of your discretionary spending. This allows you to monitor the different types of spending separately.

If you only have one credit card, I recommend using your credit card for "needs" expenses, while your debit card is for "wants" expenses. You'll be less likely to spend a lot on wants, since the money is automatically deducted from your checking account.

You can also do this with cash using the envelope method. I'll talk more about this in the next step.

Step #3: Set account balance alerts at a certain threshold.

Once you have your credit cards identified, create an account balance alert based on your average monthly spending of that category. For example, if I have an American Express credit card that is now my "needs" credit card and I typically spend about $2,000 on "needs" expenses each month, I will set the account balance alert to $1,900, which is 5% lower than my usual spending. I might be a little more aggressive with my "wants" credit card threshold because that includes more variable spending like vacations, dining out, going to watch a movie, etc. I might set a threshold that is 15-20% lower than my average monthly spending so that I can save a bit more. Once your account balance exceeds the target you set, you will either receive an email or text alerting you of the overage.

This has been super helpful for me - when I see the alert go off, I know I need to be smarter about my spending and that I'm at risk for spending more than I should for the month, which reduces the amount of money I'm saving.

If you don't have a credit card, there is something called the cash envelope method. This is actually pretty traditional and has been around since before credit cards were invented. This method requires you to create different envelopes for different expenses. You label each envelope and put cash in the envelope based on how much you typically spend in that category/what you want to spend. You can only spend that amount of money within the month. Once the cash runs out of the envelope, you can't spend any more in that category. It is difficult as you have to handle everything in cash, but it is a great way to control spending.

What are your thoughts on the above? I'd love to hear if this has worked for you! Sign up for our email list to stay up-to-date when new blog posts are published.

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