2. Watch discretionary
- Take stock. Before you know what spending you need to cut out, you need to know where all your money is going. "You have to have a handle on where you are today before you can realistically make changes," says Crossan. "That starts with a balance sheet." Track your income and expenses carefully for a month or two to get a handle on where you can slash costs.
- Plan ahead.
The average American spends $150 a month eating out,
says Ray Andrée, president of Kitchen
Table Advice. A little advance planning on your
weekly grocery trip can easily cut that number in
half. "That's money you can put away toward retirement,
big-ticket items or the unexpected expenses we all
have from time to time," he says. And instead
of spending $5 on lottery tickets, consider joining
an office pool and contributing just a dollar. The
key is to make small changes -- and make them a habit.
- Know your triggers. Maybe you can't control your spending when you walk into an electronics store -- or maybe you always have to have an extra pair of shoes. Knowing when you're likely to make an impulse buy can help you avoid buyer's remorse. "If you like to window shop, go after the store has closed, or make sure you only buy the things that are on your list," says Andrée. Vacation shoppers should also be wary, since it's much easier to spend money away from home.
- Keep your eye
on the prize. Many purchases may make you happy
for a brief period of time, but financial security
may make you feel less stress. "Money gives you
options," says Congemi. Instead of going out
to eat all the time or buying new outfits, you'll
have backup savings, so you won't have to be worried
about what will happen if you lose your job."
3. Set goals.
- Write it down.
In the back of your mind, you know you'd like to retire,
save some money for your kids' educations, go on a
vacation or two and do a few other things. But writing
these plans down can help give clarity to those goals.
Keep these goals handy, so when you're tempted to
spend, you can decide if it's really worth the trade-off.
- Make adjustments when necessary. The funds required to achieve your goals are likely to be substantial, but don't get discouraged. "Sometimes it's almost counterproductive when people plug in the numbers and realize that they're going to have a shortfall," says Richard Manchester, CEO of Wave Wealth Management. "The key is to maximize that finite amount of discretionary income to achieve as much as they can with what they have."
- Use separate accounts for each of your goals. Seeing how close you are to reaching your objective will help motivate you. "Most people think saving is pretty boring, but if you've got accounts for each of your goals, you're actively engaged," says Robert Pagliarini, author of "The Six-Day Financial Makeover." "When you open up the statement and see that you have $13,000, it's not just money in an account, it's money for your first house. That will help motivate you and get excited about saving."