As we’ve discussed in our 6 things to keep in mind for achieving financial freedom blog, one of the best ways to achieve financial freedom is by limiting your spending. Today, we’ll be probing deeper into ways in which you can do that.
When you call your plumber to plug a leak, he first has to isolate the primary cause of the leak. Once that’s done, he then has to analyze the situation and come up with the best plan to fix it. Finally, he has to execute that plan properly, or else the customer won’t be satisfied and he won’t get his money.
Similarly, you first need to find out what causes you to guzzle money away, then make a plan to address it, and finally, stick to that plan and avoid any pitfalls along the way which could put you back to square one. That’s what we’ll be talking about in this feature.
Unless you have your monthly cash outflow planned on the basis of your inflow, you won't know when you're spending too much. That's why it's important that you budget your money.
Begin by adding up all your sources of income. That includes, apart from your salary, interest from savings and other miscellaneous sources. Then factor in your fixed payments such as loans, bills and groceries and assign money values to each item of spending by taking an average of how much you spend on each item over the course of a few months.
The difference between your income and your calculated expenditures should provide a pretty good idea of where you stand - whether you're biting off more than you can chew or are within safe limits.
One of the best ways to go about enforcing your budget is by setting short-term goals around the restrictions you've decided to place on your spending.
Make sure these short-term goals are quantifiable. For example, if you find you're spending too much on eating out every month, say around Rs. 5000. Make a goal of not spending over, say, Rs. 2000 for the same, and live by it. Similarly, if you're riding your motorbike to work and spending Rs. 1000 per month on fuel costs, cut that down to say, Rs. 250 by setting a fixed number of days in the month where you use public transport to commute instead.
Without these short-term goals, you'll struggle to track spending and your well-planned budget could go for a toss.
Credit cards are convenient, there's no doubt about that. However, that very convenience is the reason behind people's tendency to overspend. After all, when you're using a credit card, you're spending money you don't actually have on you at that moment. Without thinking too much of how it'll impact us by the month's end, we tend to hand over our credit card for a swipe too frequently sometimes.
However, when we make cash payments, we physically take a bite out of an allocation that we can see for ourselves when we put away our purse or wallet.
If you're trying to stick to a budget and have set spending limits for yourself, then cut down on credit or even debit card usage and instead assign fixed amounts of cash only towards those purposes and carry that around with you.
There are certain settings where we're more inclined to spend more than others. Say, you pass through a road on your way to work that's dotted with attractive shops, where you can’t help but walk in every other day to check out the many temptations on offer and eventually end up buying one of them. Or say, you work at a mall, and everywhere you turn, there are ways to blow money away.
It applies to the virtual world too. Many of us while away hours on online shopping platforms like Amazon and Flipkart, salivating at the countless enticing deals on offer. And with fast, convenient online payment modes available at the tap of a finger today, we often end up impulse-buying things we don't really need to, with a quick payment.
So, take a different road if you need to, delete some of the most addictive shopping apps from your phone, at least temporarily, and try your best to discipline yourself when it comes to your spending habits.
We all love our circle of closest friends and enjoy a lot of activities together. However, when you find that those group activities tend to take an expensive turn more often than not, it's time to make some changes.
You don't really want to say no and be left out, but at the same time, suggest cheaper ways to hang out once in a while. Perhaps have a fun, group cook-out at home instead of everyone going to a ritzy restaurant. Or suggest travelling by bus or train instead of hailing a cab.
Just as people are told to “tighten their belts” during wartime rationing, we have to be flexible with our lifestyle based on our circumstances.
Assess your current financial situation and take a call on whether the lifestyle you're accustomed to right now fits that situation. Perhaps you were raised in a life of considerable luxury but now, on your own, you're stretching your finances to keep living that way.
On the flip side, if you find you’re living well within your means, then don’t use that as an excuse to increase your spending. If you’re happy and satisfied with your current lifestyle and it’s letting you save more money for your future, then why change?
At mPokket, our purpose is to provide financial independence to youth. With world-class technology, transparent communication and quick decision-making, we enable today’s youth to attain financial independence.
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