6 reasons why cost control methods don't work
Miscellaneous / / April 02, 2023
Sometimes it pays to allow yourself to go beyond your spending limit.
It happens that popular methods of home bookkeeping do not work. They do not help determine where a significant part of the money goes and how to save. Let's figure out what are the reasons for the failures.
1. You inaccurately estimate income and expenses
It seems that everything is simple: you need to start a table and enter all income and expenses there. You can do it manually - in a notebook or in a file. Or view financial history in the banking application.
But there is one downside. Well, if you are a pedant and financial accounting is your favorite pastime. You will check each digit several times, and there will be no errors. But if you are not an accountant by vocation, your spreadsheets may not be accurate. Even at large enterprises, where a whole department of qualified specialists is engaged in accounting, the balance at the end of the month does not always converge. Moreover, it is possible for a non-professional.
With the category "income" is usually clear. Accruals are easy to control if you have one salary card and the money goes only there. But if you have several sources of income, and you receive part of the money on one card, part on another, and a little more in cash, you can easily forget to enter some of the received amounts in the budget table.
Costs are even more difficult. We do not receive a salary every day, but we spend money almost daily. Again, it is rare for anyone to have only one card. The banking application accurately records all transactions, but the expenses on credit cards of other banks and cash payments will remain out of sight. So, you may well forget about some purchases.
It turns out that precise control is possible in two cases:
- You completely switch to settlements with one card of a single bank. If you have other cards, then all money, which come to them, you immediately transfer to the main one and pay only for it. The financial history is saved by the banking application.
- You start a file in Excel, Google or Yandex Spreadsheets and enter all expenses and income there every day. If you withdraw cash and then pay with it, keep your receipts. Also, write down every time you didn't receive a check. For example, they paid for travel in a trolley bus. Divide the table into several categories - for example, utility bills, shopping in supermarkets, clothes and shoes, eating out, transportation, entertainment. This will make it easier for you to analyze the cost structure.
By setting up accurate records, you will know how much of your income goes to each category. And there will not be a situation when a week before the salary the money runs out and you don’t understand where they went.
2. You misprioritize spending
In articles about savings and financial control, we are told: determine the necessary expenses and allocate money for them in the first place. For example, to pay utility bills, to the Internet and mobile communications. Then add the second circle of expenses - priority categories. This is food, transport, at least for clothes, shoes and hygiene products. The third circle is optional expenses. For example, eating out, entertainment, shopping for hobbies. And if you need to save, cut spending in the third category.
This sounds great in theory. But real life shows that only the first section - mandatory expenses - is approximately the same for everyone. But this is not a fact either. For example, for one, high-speed mobile Internet is a must. And the other is quite enough with minimal traffic and a cheap tariff.
The second and third layers of spending are similar for many, but they already have much more individual differences. One person can get by with a minimum of products, and for him prepare and try new recipes - relaxation and pleasure. Therefore, his "eating out" section remains almost empty month after month.
For another, the need is to go to a cafe two or three times a week, because he works until late or, for example, takes vocal lessons in the evenings. "It's overkill!" economy fans will say. But for this person, singing is a matter that energizes him. He looks forward to every lesson and does not imagine that he will have to give up lessons. But he doesn't like to cook. For him, sometimes eating in a cafe means saving time and effort.
Yes, you can tell him: look for dishes that you can cook easily and quickly, because everyone who wants to cut costs does this. But the money that he saves in doing so does not compensate for the time spent for him. This means that he needs to save money in a different way: continue to go to cafes, but cut other expenses. For example, give up alcohol, cookies and sweets.
Pick what's really important to you and make your priority list. One that suits exactly your needs. Then it will be easier for you to compose financial plan, which will not cause a protest.
3. Your method of control is suitable for high income, but for a more modest one, adaptation is needed.
Any accounting methods are good if your income is sufficient to live paycheck to paycheck without any problems. But for many people the situation is different.
For example, one of the most popular ways to control costs is the “four-envelope principle”. It works like this:
- Allocate money for mandatory expenses - utilities, transport, Internet, loan payments.
- Set aside 10% of your income.
- Divide the rest into four parts. Put each in a conditional envelope - these are your expenses for the week. There is money here for food, clothes, medicines, and entertainment.
The main thing - try not to go beyond the limit. If you still had to spend more - take the money from the next envelope, but remember that you have to save on something.
In reality, not everyone will be able to save 10% of any income to the account. He quickly spends money and finds himself in the same situation: the weekly limit is over, it is necessary to open the next envelope. And then another. As a result, there is almost no money left for the fourth week.
In this case, some expenses It is easier to plan not for one week, but for the whole month. For example, it makes sense, having received a salary, to go to a hypermarket. There, with discounts, you can buy hygiene products, washing powder and long-term storage products that will be needed all month. Maybe it’s more profitable to go to the market, not to the hypermarket, but there are no household chemicals and other necessary things there. Then it's worth planning both trips. And the remaining money is already divided into four parts.
It turns out such a scheme:
- Mandatory expenses.
- Essential goods that are in the hypermarket.
- Non-perishable products that are on the market (including those that can be frozen).
- Four envelopes for current weekly expenses.
If this method works, you should consider how increase your income by at least 10% of the current one, so that there is at least a minimum of funds that can be set aside.
4. You just don't like your method of control
It happens like this: the way of accounting for the budget works, but you are not satisfied with the balance between the time spent on calculations and the effect of planning.
For example, another popular method is to divide all expenses into 5-6 categories, determine your limit for each and not go beyond it. Option: allocate 40% for food, 10% for clothing, hobbies and entertainment, and another 10% for contingencies. The rest is obligatory spending on utilities, transport and loans.
The problem is that a person does not have 5-6 different cards for each area of expenditure, but one. Therefore, he can easily exceed some limit, but he will not notice it immediately. And this situation will repeat itself again and again.
Exit - count interest spending at least twice a week. If you are not a fan of bookkeeping, it is better to choose a different way of budgeting. For example, the same “four-envelope method”.
5. You have no motivation to control spending
Perhaps you do not understand at all why it is worth spending time and effort on financial calculations, filling out spreadsheets and planning.
- You do not have a serious goal for which you need to save money. Maybe you are satisfied with today's lifestyle. Or you don't see the point in planning big purchases because you don't know how the world will change tomorrow. This means that all these manipulations with calculations, filling in columns and balancing are not needed.
- You have an ambitious goal, but you do not believe that it is achievable. Have you been dreaming for a long time, for example, of going to journey several months long. Or buy a professional synthesizer and studio equipment to record your own music. But you are not sure that you can realize your plan. And you are afraid to invest effort, time and energy, but not get anything in return.
Maybe you're right. Whether to spend time on personal accounting or do something else is up to you. But think about it, maybe you should start with financial accounting, so that over time you can learn to see the holes into which money flows. You will already win.
Maybe a new look at money will allow you to move on to the next one. financial level - find ways to increase income and try to realize a dream.
6. You've lashed out a few times so you don't believe you can regain control.
Few of us are like a machine that clearly operates according to a given algorithm. So breakdowns are normal. Sometimes it is even useful to buy something unplanned and expensive. Or go away for the weekend on a short trip. You will spend money but gain valuable experience:
- See if you can find ways to offset costs through savings or find ways to earn extra money.
- Find out how useful these are for you spontaneous purchases. Maybe you will see that the expenses did not bring the expected joy, and next time you will not break down. Or vice versa - you will feel that in a couple of days you have recharged the internal batteries. Then the next such trip can be included in the plans and a new breakdown can be avoided.
In any case, just get back to planning and accounting. You will see that over time the new way of life will become familiar to you.
Read also🤑
- How to budget for a month and a year: a guide with examples
- How to manage finances with a banking app
- How to learn to save in 7 days and consolidate the habit