A couple in their 50s found it tough to stick to their budget until they talked to a financial planner. What emerged from the conversation was their desire to buy an elegant 1920s-era house in a city neighborhood served with gourmet restaurants and entertainment venues.
"All of a sudden the idea of doing serious budget planning made sense. The struggle was over because they had a big goal to work toward," says Steve Juetten, the couple's financial planner.
To buy and refurbish the city property, the couple first had to fix up and sell their small one-level suburban home - a place they'd bought years before for its strong neighborhood schools. But with the kids off at college, suburbia had lost its allure and the city beckoned. So they phoned their real estate agent and soon sold the suburban place.
"Unless you know what's important to you, a budget is like a ship without a destination. On the other hand, a values-based spending plan is a powerful tool," says Juetten, who's affiliated with the Garrett Planning Network (garrettplanningnetwork.com).
After clarifying their financial goals, many people realize that moving to a better home is their top financial aspiration, says Judy Lawrence, a budget coach and author of "The Budget Kit: Common Cents Money Management Workbook" (Kaplan Publishing).
Here are a few pointers for those who need to cut their spending to save for their first home or a move-up property:
- Track and then trim your expenses.
The technique of doing a budget, often called a "spending plan," isn't difficult but does require close attention to detail, Lawrence says.
"You have to become very mindful about your spending. That's because many people wanting to buy a home must first accelerate their credit card payments and build up their savings accounts to meet their down payment and closing cost needs, as well as their moving expenses," she says.
Before deciding where you can and can't curb your spending, you must first see clearly where your money is going. You don't need an elaborate software program for this. Personal finance specialists say that a pencil-and- paper system is often your best bet when creating a budget, especially if you're a novice at the process.
"Look at your recent checking account and credit card statements and then write down what you've spent for the last three months, breaking your expenses into two broad groupings: mandatory and discretionary," Lawrence says.
Mandatory costs include items like car payments and child care expenses. Discretionary items include restaurant tabs and clothing outlays. After tracking your prior spending, search within the discretionary section for low- priority items that could be cut.
"Having a spending plan that works is about delayed gratification. A budget is simply a way to control small expenses now so you can savor bigger pleasures later," says Lawrence, who offers tips on her Web site: www.moneytracker.com.
- Avoid budget busters on the way to your money goal.
Obviously, it's not enough to create a spending plan if you don't stay on track and remain faithful to it. That means depositing money in savings every time you get paid and avoiding temptations to veer off course.
Lawrence recommends that people trying to stay on a tight budget jot down all their expenditures as they make them. This should increase your awareness of where your money - including cash outlays - is going. Then make sure you enter all these expenses in your budget book.
Are you a shopaholic who gets a high from making purchases but later wonders why you bought all that nonessential stuff? If so, Lawrence urges you to follow the "24-hour rule." When going shopping (for anything but food), leave your cash and credit cards at home. Make your selections. Allow yourself at least one full day to decide what items are truly essential and then return to the store to purchase only these.
- Contain your food-away-from-home costs and gift expenses.
It's no secret that many people overspend due to frequent visits to coffee shops like Starbucks - recently prompting that chain to offer new brews for frugal folks. But many people still remain unaware of how much they're spending for weekday lunches and fine dining.
Nearly every financial adviser recommends that clients take a close look at their eating-out expenses. As Lawrence says, many people find this a black hole and realize, upon reflection, that more cooking at home could dramatically reduce their food expenses.
She also urges clients to be extremely watchful about gift giving. Birthdays and holidays cause many to let go of their purse strings for emotional reasons.
Before you buy any gifts, Lawrence urges you to write down what you intend to spend and then use the 24-hour rule to stay within your shopping limits. Also, watch out for emotional reactions that could undermine your gift-giving plans.
"Many people give big gifts because they want to feel loved or appreciated, or maybe to gain attention. But this practice could seriously hamper your savings plans," she says.