By Juan Alvarado, Western Union employee
Most people know what’s like to be tight with money, whether because of a low income, or because there are loans to pay, and bills to cover. This magnifies when you have children to take care of.
Have you ever asked yourself, where did the money go? The answer may surprise you. The moment you know exactly where each cent went, even if they went to a last minute candy emergency, you’ll have a very clear picture of how your finances looks like.
The good news is that it´s easy to know where your budget went awry, you just have to take a look at the new high-end computer sitting on your desk, or the amazing new home theater system you have for watching movies or playing video games.
So, is saving actually doable? Yes, it is! But you need to start being mindful of the things you buy. Even if they are cheap, they will eventually add up at the end of the month, in many instances, to the equivalent of one or two big purchases. The term you should get familiar with is: discretionary spending.
There are many small holes that can make a healthy budget leak dry, and those are completely avoidable, for example: how much do you pay for a coffee and how often do you go? How often do you go out for the convenience of a meal versus cooking them yourself? Do you walk to nearby places or do you use the car instead of the public transportation to commute?
All of those examples are called discretionary spending, which are basically things that are accessible, fast and somewhat rewarding. They are neither good nor bad; they are simply choices. The one thing they have in common is that they don’t usually require a thorough process of decision making; they are mostly impulsive or a product of habit.
Budgeting is all about prioritizing, so any time you feel like treating yourself, make sure that your main priorities are being met. There is nothing wrong with buying that delicious burger you love, or paying a little extra for a haircut, but it should be with clear knowledge on how it will affect your short-term or long-term budget.
How do I budget? How do I organize my income to know when can I do some satisfying discretional spending? There are many ways, but I will give you my top 3:
- The 80/20 rule: I’ve mentioned this before, in this type it is just a matter of putting 20% of your earnings away and using only 80% of the money left.
- The 50/30/20 budget: This one is more detailed. The idea is to use half (50%) of your income to pay bills and other necessary things like house fixes, food, etc. 30% will go to “treats”, and the last 20%, well, save it!
- Budget lists: Every month, make a list of the things you need to spend money on to live, from high priority to lesser priority, assign a number to each and see where you can cut or add.
Knowing this will help make you use your money more wisely and will open your mind to a different world of spending. This will come in handy if there’s ever an emergency, or if you have something special you want to spend your money on. Know when to spend, and always pay yourself first!