Be a Spending Detective: Analyze the Evidence
How you use what you find from your Spending Detective exercise is up to you. You might find that you have more money left over each month than you thought, or that you are spending more than you realized on unnecessary purchases.
Let’s look more closely at Barbara’s results:
- It is good news that Barbara’s overall expenses are less than her income, but $88 left over at the end of the month isn’t much cushion.
- Barbara withdrew some savings to cover trip expenses, so her savings balance is down to $150. She aims always to have at least $500 in savings, which means she currently is behind on that goal. Ideally, Barbara would like to have enough savings to cover three to six months of expenses, but $500 is her minimum goal.
- Although Barbara had hoped to pay off her credit card balance before the next billing cycle to avoid accruing interest, she only paid the $15 minimum payment on her $218 credit card bill.
One of Barbara’s goals is to pay off her credit card bill each month. Because she paid only the minimum amount due this month, she did not make any progress toward paying down the principal on her credit card debt, and her new balance the following month raises to $221.
What Would You Do?
Looking at Barbara’s “needs” and “wants,” which of the following strategies would you suggest so that she can pay her whole $221 credit card bill?
Option 1: Cut Spending on “Wants”
- If Barbara spent no money on wants at all in the coming month, she could have around $179 to put toward her credit card bill.
Option 2: Cut Spending on “Needs”
- Barbara could find cheaper deals, cut coupons and make less expensive meals to lower grocery costs. She also could take public transportation a few times a week to save money on gas. Some “needs” such as the oil change, will not occur every month, but it is likely that she will need that $20 for something else.
Option 3: Look for Savings on Regular Payments
- This strategy takes a bit more effort, but Barbara could research better deals on her regular monthly payments. For example, she could try to get a less expensive phone plan or cable/Internet bundle. Or she could drop her TV and/or Internet service all together. Barbara also could find a free checking account that does not charge the $10 monthly fee that she is paying currently.