How to stop overspending and balance your personal budget

Think about the last time you took cough syrup. Most likely, you poured it into a special measuring spoon that comes with the medicine. And they certainly did not use a huge cup, hoping to correctly calculate the dosage. The same should be true for personal finance. This means each month pouring a certain amount of funds (money) into a suitable container (bank account) to make sure that you use (spend) exactly as much as you need. However, spending is often not about how much you have to spend, but how much you can spend.

How to understand that you are spending too much

Here are a few signs to help you figure out if you're throwing money away:

• You save less than 5% of your income.
• Your credit card payments are not reduced.
• Your personal credit score below 600 points.
• You do not have a financial "airbag".
• You have never made a budget.
• You paid a fee for exceeding the credit limit.

Even if you don't have a problem with spending too much, managing your spending can help you increase your savings and start managing your money better in line with your values.

How to organize cost control

A separate spending system will help you manage your budget wisely. To access it, you need to do the following:

• Have two separate bank accounts: one for running expenses for living and basic household needs, the second for entertainment.
• Regularly transfer a fixed amount of money to each account.
• Use accounts only for their intended purpose.

Such a system will allow you to spend a strictly defined amount on entertainment. If you do not set up a separate account for this, you will have to manually track how much you spend, for example, record everything in notes or banking application.

The split-account approach doesn't require you to do tedious bookkeeping, just keep an eye on your balance regularly. Once a week, evaluate the status of both accounts and each time before going to the cinema or meeting friends at a restaurant, check how much money can be spent from the account on entertainment.

How to balance the budget

Replenish the reserve fund

It is useful in situations where you need to pay several bills at once, and the receipt of funds to the balance is delayed for one reason or another. The ideal amount is all the essential living expenses for the month.

A quick, but not the most pleasant way to raise an emergency fund is to completely give up entertainment for 1-3 months. If you are not ready for such sacrifices, then gradually replenish both accounts.

Avoid triggers

When you go out to have fun with friends and don't want to spend too much, leave the card linked to your account at home for current expenses, or withdraw the amount planned for entertainment in cash if you have a card the only one. This will help keep you from making decisions that only seem right in the moment, like paying for everyone at a bar.

Of course, you can still use your smartphone and banking app to treat your friends. But remember: the quality of your spending can be greatly improved by avoiding situations that provoke rash decisions.

Consider the natural desire for more

Imagine a young man who grew up in poverty. He dreams of his own home and is sure that this will bring him happiness. He does everything possible to achieve what he wants, and at 25, after graduating from university and working hard for several years at a stable job, he finally takes out a mortgage. He is happy. But two years later, his friends move from a rented apartment to their house. And his own living space no longer seems to him as luxurious as before.

Our opinion of what will make us truly happy is constantly changing, and the ways to achieve happiness are becoming more expensive. Of course, there is nothing wrong with setting yourself ambitious goals. But the constant desire for more can be destructive.

When we associate our well-being and enjoyment of life with external factors, we fall into the trap hedonistic adaptation. That is, our level of happiness always remains stable, and we quickly return to it even after important positive changes. In other words, no matter how much power and money we have, we always want more.

The alternative to hedonism is eudemonism. It has six dimensions:

• self-knowledge;
• capacity development;
• a sense of purpose and meaning in life;
• efforts invested in achieving brilliant results;
• deep involvement in any activity;
• pleasure from activity as a means of self-expression.

Eudemonism is a more personal and much more enduring approach to happiness than hedonism. There are two practical ways to overcome hedonic adaptation. First, temporarily stop buying unnecessary things, for example, for 30 days, several months, or even a year. The second is to keep a list of unnecessary purchases and add items to it every time you want to buy something. Then set a rule for how long an item must be on the list before you spend money on it: 24 hours, a week, or several months. This is a good way to train your brain to get delayed gratification.

Work hard

No special technical skills are needed to apply the separate spending system. It just takes time and dedicated effort. Effort is something you can control and even turn into a habit. So, it all depends on your desire.