Spending money in an integral part of every individual. Spend your money wisely is a key input in your overall financial planning. However, the easy disposable income one generates today has blurred the difference between needs and wants. Spending money in an unplanned way could result in significant financial drain of savings for your future.
Here are some tips to spend money wisely.
Begin with budgeting
If you don’t have a plan for a destination you need to go to, you are going to take far more time to reach there. Ditto for finances.
If you don’t budget, you will splurge profusely. Budgeting is a powerful tool most households don’t implement. Start with a budget and track the forecast against the actual spending that you do. Use spreadsheets or online tools to do budgeting and tracking.
It is tough to stick to your budget but try your best as it will be very helpful in the long run. Tracking your expenses will lead to revelations about your spending patterns which otherwise might not be very obvious to you. Make a budget and spend inline with it .
Get out of loans
Debts like personal loans and credit card loans do no good to investors. You end up paying a mammoth amount of money in interest charges. Get rid of such loans. If you have a home loan, stick with it as you get tax rebates. All other loans need to be re-payed in due course of time.
If you need a loan at all, make sure you have a clear repayment plan in place. If you want to be a smart and wise investor, loans are the not the way to go.
Avoid on-the-fly buying
This is a favorite pastime for youths today. They go to a mall and buy something they like on the spot. Obviously, it was not in the plans to do so, but who cares ! Impulsive spending is an illness for which the only cure is self restraint.
In fact, spending money on the fly can be a major contributing factor in high expenses for a family. This closely ties to good budgeting, in the sense, you spend only what you planned for but many times one does end up spending money uselessly.
The only solution here is self restraint and resisting the temptation to do so. A simple rule of thumb could be to wait for a day or two when you feel the urge of buying anything. That time delay could make you revisit and change your decision.
Here is a small take from a reader of TheWealthWisher on investors on how to spend money wisely
In spending patterns, there are three categories of people.
The first ones are the diligent people, who don’t spend a rupee more than they should. Such people don’t invest because they are scared to lose out. They normally don’t even deposit their money in the banks but place it within lockers inside their homes.
They don’t go on holidays, don’t go to cinema and eat only home cooked food. These are the people who live all their life like a miser only to die rich – there is no question here on whether they spend their money in the right way or not !
Such people are virus for the economic progress of a region. Fortunately on percent terms these qualify for less than 10% of the masses.
The second category of people are the spenders. Such people save a bit, spend the most. Some of the spending is influenced by irrational thinking vis-a-vis behavioral spending habits and is not a well thought process.
They go for their holidays, do their shopping, buy their house and save whatever remains. There is no committal spending. They don’t have financial budgets or investment goals. They spend more when with friends. They have set their living standards and comply to it.
These people don’t save every month and don’t stress if they don’t. These people don’t invest much. Most of the masses qualify in this category.
The third category of people are the ones who are very committal in their spending.
They have strict regimen of their spending. They budget and have financial goals. They want money to work for them.
They know all about P/E ratios, market values, mutual funds, SIPS, stock prices, bonds, debentures, IPOs diversification etc. They have very committal investment portfolios. They grow their estate very fast and make financially sound decisions. On percent terms these qualify for less than 10% of the masses. They spend their money wisely.
Again there is situational category where a person could be in one of the aforementioned category depending on his personal situation. A person could be category two the first 20 days of the month and after exhausting his/her salary move to category one for the rest of the month. On receiving his/her next salary credit, the cycle repeats.
It is not how much you earn, but how wisely you spend your money that secures the future. The third category of people is like the financial breathing room, the place to attain financial independence and pursue your dreams. It is never too late to start planting the seeds for future prosperity.
– Dhiraj Bahroos (bahroos@yahoo.com), a reader of TheWealthWisher
Pay your bills on time
If you count the number of bill payments you need to do in a month, you will be amazed. There are utility bills, grocery bills, insurance bills and many more. Late payment fees on all of them can add up significantly to a large amount.
That is free money you are giving away. So be sure to pay on time. A good idea would be offload or share the responsibility of bill payments with your spouse. Put notifications on your mobile phone or yahoo/gmail emails so that you get a reminder when a bill is due for payment.
Avoid credit cards to spend money wisely
Well not really. As long as you can discipline yourself with credit card usage, you are good to go. However, most of us do not know the right usage of such tools and it can lead to heavy credit card debts.
Keep it at home if you think you do not understand how to use a credit card or you are rolling off your credit card loan month on month. If you keep rotating your credit and building up a credit card loan, you are in deep trouble.
How do you spend your money ?
My friend’s husband is in the second category: spenders. Even when they were in deep trouble with money he refused to give up his $25 a week “allowance” for lottery scratch off tickets. My friend pleaded with him to stop spending on tickets and he wouldnt. You mentioned irrational thinking…..I think this falls into that category!
@Mike, Yeah you do get lot of folks who cannot shed off their spending habits. I have heard of Reverend Billy in the US who has taken up the cause against consumerism and esp against Walmart…Wonder how that is going !