How to Control Spending
Controlling spending can be a difficult task for anyone. Whether you’re trying to manage your personal finances or those of your business, it’s important to have strategies in place to help you stay on track and make sure you’re making the most of your finances. How do you gain control of your spending and make your money work harder for you? Read on.
First, you need an accurate budget and cross check this budget against your actual spending (both cash and credit). It won’t take long for you to identify areas of overspending and it will allow you to consider areas for further cost saving, either through reducing, consolidating or eliminating costs altogether. Make budgets practical and realistic, try to include all costs and record these as accurately as possible for best effect.
You can supplement your budget by creating a cash flow forecast to help you identify not just where your money is going, but when. This will help you to plan for any upcoming large payments and to manage your cash flow more efficiently. If you don’t currently have a working budget and forecast just implementing these two processes alone will make a huge difference to your spending control. Budgets and forecasts are essential if you’re serious about managing a business’s finances effectively and in some cases, compliantly with government legislation.
Pro tip: Search online for free cash flow forecast templates that can be used to auto-calculate for you and improve them to suit the needs of your business. There are a variety of free templates available online for both Excel and Sheets. A pre-designed template will save you a huge amount of time and effort in creating the document, especially if you’ve never made one before. This doesn’t just apply to the business owners out there; the forecast can be an incredibly useful tool for streamlining and organizing personal income and expenditure. Don’t do spreadsheets? Outsource the work or use accounting software. Software can almost automate the budgeting and forecasting processes for you and many solution providers offer free trials on premium features.
Money Management Tips
Working with a business coach or financial advisor can provide you with a tailored approach to managing your finances. They can help individuals, as well as decision-makers, better understand their spending patterns and assess the best strategies to reach their own unique goals. If you want a bespoke solution, working with an advisor can arm you with the tools and knowledge to gain better control over spending unique to your specific circumstances.
Want to keep things internal? We’ve got you covered, read on for 5 strategies you can implement today that will help you control your spending and increase oversight of your finances:
- Set SMART goals: SMART is an incredibly versatile way of measuring outcomes, the acronym stands for: Specific, Measurable, Attainable (or Achievable), Relevant and Time-bound. Setting financial goals in this way is a great way to stay on track with your spending, as you have a clearer and more specific direction. Think of it like this: you can’t plan a route without first having a destination. Decide what it is you want to achieve and then create a plan that will help you reach those goals using the SMART criteria. For example, if you want to save $5,000 in the next six months, your goal should be Specific: save $5,000. It should be Measurable: in six months. It should be Attainable (or Achievable): with your current income and expenses, or with changes to your budget. It should be Relevant: to your current financial situation, and it should be Time-bound: in six months’ time.
- Analyze your spending: Examining spending can be a great way to identify and cut out unnecessary costs. Start by looking at bank statements, any existing budgets, credit card bills, and other financial documents to gain a deeper understanding of where the money’s going. In particular, look for any items that don’t bring or provide any real value and those which can be comfortably accommodated in-house. Once you’ve identified these, create a plan to reduce or cut them out altogether. If you find yourself struggling to keep your budget in check, consider setting up automatic payments or using budgeting apps to help you track your expenses and stay on budget. Look for ways to save money on things you need, such as switching to cheaper mobile phone contracts or shopping around for the best deals on sundry. Don’t take the listed price, negotiate effectively with your suppliers and secure better prices. With a bit of groundwork, patience and research you’d be surprised at how many costs can be reduced or eliminated in all.
- Take advantage of discounts, one-time offers, loyalty and reward programs: Look for ways to save money on regular expenses, if you have a credit card that offers cashback, use the card for your regular expenses and spending, over time you’d be surprised at how much cashback can be recuperated through regular use. Take advantage of discounts, coupons, and reward programs to get the best deals on the items and services you need regularly. You can also switch to cheaper suppliers, you may even receive cashback for switching your services while also benefiting from reducing your overall recurring costs. Reducing costs is known as ‘cost control’, it’s easily confused with ‘spend control’ (mentioned below). Unlike spend control, where the focus is on controlling and monitoring spending, cost control typically refers to the process of reducing the cost of goods, services and other overheads to keep costs within their pre-determined budget amounts.
- Automate the finance back-end: By setting up automatic payments with your bank and suppliers, you can ensure that your payment schedule is consistent and suppliers aren’t chasing you for invoices. This is beneficial for two reasons. Firstly, it eliminates the need for you to manually process and send payments each period, which saves you time and effort. Secondly, it ensures that your payments are always made on time, so you don’t risk late payment fees or damage to your relationship with the supplier. If you do decide to set up automatic payments, make sure to select a date that is convenient for you and your suppliers and one that allows enough time for the payment to be processed and sent out. Additionally, make sure to keep an eye on your account balance and any payments that have been scheduled to go out each month. This will help you manage your cash flow and ensure that you don’t overspend.
- Implement additional spend control measures: Spending controls are measures put in place to enforce your budget, they aren’t there to cut costs as such, but rather to ensure that you’re spending according to your budget. Budgeting and cash flow forecasting are both examples of simple spending control measures that can be utilized with great effect. If you want to tighten spending controls further, you can limit access to purchasing systems, apply user spending limits and consider requiring approval for purchase orders and purchase requests, you can add an additional layer of enforcement by requiring sign-offs from two approvers before your PO’s are issued. Be aware: Purchase approvals can be a highly effective way of controlling company spending, however, if taking this approach it’s important to manage effectively or it can impact your business negatively. If your team have to raise an urgent PO, outside of regular trading hours, there should be a procedure in place to account for this.
Implementing these systems can benefit you and your business in many ways. Individually, it can be incredibly empowering to finally get control of your spending, especially if this has been a long-term issue. You’ll find that when you have greater oversight of your finances and a clear picture of what’s coming in and going out, you spend less time stressed out over your finances and looking at the bigger picture the lowered stress will aid you in your performance, whatever your role in the business. For businesses, greater oversight and control means potentially reducing overall expenditure while improving profit margins against wavering overheads with excess capital re-invested into the business or into stocks, shares, savings or other commodities. It’s important to take a step back and think: what is it that you really need? You want to have better control of your spending, but for what end goal? The strategies above will hopefully have provided you with insight into how you can better control spending, but overall, consider this to be just one stepping stone in a permanent process of continuous improvement whether on a personal or business level.