Recently, as I sat down to look over my budget I came across an interesting discovery. I use Personal Capital, a budgeting app that allows you to track anything from your cash flows, to your net worth, to investment accounts. It allows you to compare your income and expenses from this month to that of last months. What I discovered is the past month or even the past 2 months have been noticeably lower income and higher expenses. I’m sure this is common as the holidays often mean a few extra days off and a few more purchases.
As I examined the transactions to figure out why my budget was so thin I realized it isn’t the day to day transactions that hurt me, it's the big “budget breakers” that come along once or twice a month. So how can we stop this?
Often I have seen, especially with young adults, that day to day expenses like coffee, Netflix, etc. are what kills a budget. And if we aren’t cognizant of these they truly will kill it. Not that I don't have any of these little expenses but over time I have managed to squash many of them. What I found in my budget was that it's the large expenses that keep me from making more progress toward my financial goals.
As I think about what these are, some of them are necessary and may be out of our control but some are completely controllable. Maybe it's a costly repair on our car? Maybe it's the new gaming system you've been wanting? Or maybe just a trip to the beach? These are the budget breakers that can really derail all of our hard work and sacrifices to get to our goals.
So when we are faced with a decision on a large purchase, what should we do? Here are a few things I have learned the hard way. First ask yourself why you want it. Is it because your best buddy just got one or because you keep seeing all the TV ads for it? If you can’t come up with a justifiable reason, then it may be classified as a budget breaker. Secondly, picture yourself in the future, will this purchase still be relevant in your life? I can thing of a few purchases I have made throughout the years that I didn't end up getting near the value I had originally thought I would. And my last idea is to wait 2 weeks (if possible) and see if this is still something you really want to purchase. By doing this, if the decision to make the purchase is emotional in nature, you will allow the temporary feelings to pass and look at the decision more logically. This has saved me from several budget breakers. For example, my sophomore year of college I wanted a motorcycle pretty badly. I had worked hard to save up a little money and rationalized it to myself that it would be such a great purchase. But I decided to wait and see if I still wanted it by the end of the next summer. By that point the desire to purchase one passed and I am very thankful now (however I still wouldn't mind one if anyone has one they would like to donate).
Watch out for those big budget breakers and be sure it is a good purchase before you empty your pockets. In the long run this will keep you on track to reaching those goals you've set.