You've finally done it - a detailed, realistic budget. It's a crucial step toward financial freedom, and you should be proud. Nearly half of Americans don't even bother to create, let alone stick to, a budget. (From lawn care to summer fairs, expenses can skyrocket if you're not paying attention. Check out Save Money On Summer Bills.)
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That's probably because following a budget can be so challenging, just like staying on a diet. Reaching your goal weight would be so much simpler if there weren't always so many delicious goodies around, right? Similarly, keeping to a budget would be far easier if tempting new products weren't constantly being dangled in front of our faces, practically begging us to splurge.
With all of life's obstacles, challenges and temptations, it's up to us to resist them. When it comes to spending, there are many ways to fight the urge to splurge.
1. Leave the Plastic at Home
You've probably heard this before, but it's perhaps the most important way to avoid overspending. Not carrying credit cards wherever you go eliminates the possibility of large impulse purchases. Although it may sound a bit old-fashioned, consider carrying cash most of the time and only the amount you can afford to spend. Bring along the plastic only when you know you'll need it.
2. Trick Yourself into Feeling Like You've Splurged
For example, try playing this little mind game with yourself next time you go shopping: Put something you want but don't really need into your cart and keep it where you can see it the whole time. After a few minutes, it'll seem like you own it. Ditch the item when you're done shopping, then hit the checkout line. It's uncanny, but this little trick can make you feel like you splurged on something even though you never actually bought it. See if it works for you.
3. Get Feedback on Spending Decisions, Particularly Big Ones
Before you go out and drop, say, $4,000 on a high-end 24-horsepower lawn tractor, check with someone who knows you - a spouse, sibling or friend. After a bit of discussion, you may realize the $1,200, 14-horsepower job will do the job just fine. Get feedback on all relatively big purchases, like flat-screen TVs, power tools, cars and sound systems. (Take a trip through history to learn from some (in)famously frugal Scots. See Save Money The Scottish Way.)
4. Budget for Splurges, But Keep Them Small
Nobody's perfect. So instead of aiming for perfection with your budget, leave room in it for indulgences. From a personal finance perspective, small splurges are obviously preferable to big ones because they're cheaper. Generally, bigger splurges are no more pleasurable than smaller ones and that frequency, not size, is the key to maximum enjoyment. So someone who eats at expensive restaurants a couple times a month might try hitting the sub shop and then going for ice cream once a week.
5. "Hide" Money from Yourself in a Tax-Sheltered Account
Take full advantage of your 401(k) if you have one. Before you're retired, these tax-sheltered accounts limit how much you can take out and when. You also usually have to pay back withdrawn funds with interest by a certain time. If you don't, you're on the hook for income taxes and penalties. A 401(k) plan also put a damper on spending by deducting contributions from each paycheck, meaning that money is already deposited and invested by the time you get paid.
If you don't have a 401(k), fund an individual retirement account (IRA) through automatic deductions from your checking. It's easier to get money out of IRAs, but they still discourage spending because any money you withdraw before retirement is subject to income taxes and penalties.
The Bottom Line
People are increasingly succumbing to the daily temptation to overspend, often at the expense of their financial well-being. In fact, there were more than 1.5 million bankruptcies in 2010 - an all-time high. The number is expected to be even larger in 2011.
Don't allow yourself to go down that road. With the right attitude and a little creativity, you can defeat the urge to splurge. (Saving money can be a chore, but these tricks put money in your pocket with no effort at all. Check out 5 Painless Ways To Save More Money.)