Seven budgeting tips ahead of the year-end holidays
The Sandbox Daily (10.15.2024)
Welcome, Sandbox friends.
Today’s Daily discusses:
Budgeting tips ahead of year-end holidays
Let’s dig in.
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Quote of the day
“Many of life's failures are people who did not realize how close they were to success when they gave up.”
- Thomas Edison
Stay in control: budgeting tips ahead of year-end holidays
Balancing your checkbook is easiest when you have a plan.
With the holiday season around the corner – Halloween, Thanksgiving, Hanukkah, Christmas, and New Years to name the big ones – healthy spending habits allow us to spread the holiday cheer and enjoy the festivities without breaking the bank. By managing our funds effectively, we reduce unnecessary debt, enable responsible spending, and ultimately, create peace of mind.
Here are seven methods that can help you develop a simple and realistic budgeting strategy while keeping the wheels on the track.
Building the budget
At risk of stating the obvious, this is square one. Without a budget, you can spend money mindlessly – without any effort. Mapping out spending patterns and essential expenses by creating a household budget will help you track categories of spending and identify areas to cut back.
To create the budget, confirm your after-tax income (inflows) and then calculate your recent spending habits (outflows) using an average of the most recent three or six months. Make sure to identify essential expenses versus non-essential ones.
There is no shortage of budget methods, so find the one that works for you – perhaps the 50/30/20 rule – and stick to it.
What works for your colleague or neighbor or friend might not work for you. And that’s ok. It’s finding the right balance and solution that’s most important. As Ben Carlson once wrote: “There’s no point in instituting a plan if you’re not going to follow it.”
To make the process even easier, you can skip the Microsoft Excel nightmare by utilizing free tools online or downloading apps like Rocket Money.
Shop with a plan
Before you drive to the mall or spend an hour at Target, create an itemized list of things you need / are looking for. Alternatively, if you have several big ticket items on the horizon, plan ahead by spacing out your purchases over the course of several months.
Shopping with a plan will focus our attention and wallets. Create the list and stick to it.
Understand what triggers spending
All sorts of factors contribute to our spending habits.
Social media introduces us to new people, new ideas, and new products and services – but it also introduces new avenues for us to spend money.
Promotional e-mails and text messages constantly inundate us with the newest drop or the latest upgrade.
A lunch break to your favorite store around the corner may serve as a pick-me-up if you’re having a bad day at work or home.
Technological advances like Apple Pay, or a similar digital wallet, allow us to pay for things with 1-2 clicks of a button on our phones.
Lifestyle creep occurs when we spend more as we earn more. This is often so gradual we don’t even recognize it.
Recognizing these triggers can help us short-circuit these habits and keep money in our pocket.
Calculate hourly earnings
No singular expense on its own is problematic, especially in the context of your total earnings for the month. However, that same credit card swipe can quickly appear more significant when you tabulate how many hours of work are needed to pay for it.
Calculate your hourly pay rate by dividing your monthly after-tax pay by the number of hours you approximately work each month. For example, if you make $5000 per month and work 160 hours, your hourly rate is $31.25; a friend’s birthday dinner of $150 requires 4.8 hours of work to pay for it.
Now, whether you feel that spend is worth it is a personal decision, but determining how much work is required for each larger expense could help ground your big ticket spending habits.
Find a cheaper option
The internet allows us to quickly Google search anything and allow us to compare pricing with the tap of our finger.
Comparative shopping helps us cut back on expenses by finding an item cheaper elsewhere. Or, you might find a similar brand for less.
Take advantage of sales and discounts
If you don’t need something right this minute, postpone a purchase by waiting for a big holiday (Labor Day Weekend or Black Friday, for example) or company-specific event (think Amazon’s Prime Day).
There is no shame in taking advantage of discounts whenever possible. This will help you stay within your budget while still getting the items you need. Of course, this requires planning ahead – a key input for healthy budgeting.
30 day rule
Studies and empirical data have shown that activities providing instant gratification – such as impulse buying – trigger feel-good chemicals in the brain. Think dopamine, serotonin, endorphins. It sure feels awesome in the moment ! We’ve all been there.
But, if that purchase comes at the expense of your long-term financial well-being, then buying now could set you up for disaster down the road. It might not be one simple transaction but a repeated pattern or behavior is surely problematic.
Before you buy something, take some time to mull it over. Create some time and distance to ensure it’s right for you.
That’s all for today.
Blake
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Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. The information and opinions provided within should not be taken as specific advice on the merits of any investment decision by the reader. Investors should conduct their own due diligence regarding the prospects of any security discussed herein based on such investors’ own review of publicly available information. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily. Any projections, market outlooks, or estimates stated here are forward looking statements and are inherently unreliable; they are based upon certain assumptions and should not be construed to be indicative of the actual events that will occur.
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