How to stop being a spendthrift

Well, how to stop being a spendthrift will surely going to rub quite a few of you on the wrong side ! But that precisely is what I intend to do.

If you are a spendthrift and your expenses and financial planning are spiralling out of control, then you need an eye opener. I hope and pray for your sake, this is it.

But then you are not alone in this quagmire of spendthrifts. There are tons and tons of friends you have out there. But it’s high time in your life you sit back and understand the long term implications of high spending and low saving.

Let us check on how to stop being a spendthrift.

Who is a spendthrift ?

According to Wikipedia – “A spendthrift (also called profligate) is someone who spends money prodigiously and who is extravagant and recklessly wasteful”. I guess that sums it all.

Simply put, spendthrifts are people who cannot control the urge of spending. They are people who buy the latest phone even though they already have three; they are people who buy the latest shoes even though the shoe rack is spilling over; they are people who dine out every alternate day even though they have a mother and a maid back at home; they are people who buy almost anything on impulse with no clue of where the money is coming from.

For them, the pleasure and urge of owning a materialistic entity is so enormous that they go to any extent to acquire it. They do this probably because it provides instant self satisfaction. Leave alone reasoning whether the product they buy will be used in the future or not or whether they really need it. The sense of ownership and self importance of owning the product is too influential for them to ignore buying the product.

How spending more affects your financial health

When you begin to spend more, you lose control on what you want to spend on. This means that every month, your paycheck is financing products that you bring home when there is actually no urgent need of them. When you end up spending exorbitant money on things, you obviously are left with little or no money to save for your future.

But this is not where it stops. Spendthrifts need more and more money to fund their lust for products. As a result they begin to borrow money from friends, relatives and acquaintances. If a product is available at a mall, spendthrifts swipe their credit cards without blinking an eyelid.

Little do they know about credit card debts.

Spendthrifts also fall for personal loans quickly. The bait of owning today and paying later is an idea too hot to miss !

As a result, they pile up debts that they can never clear off. That is because any future earnings go into buying things. This is a vicious loop they find themselves in.

Spendthrifts first spend money and do not think about saving. It is because of this reason that spendthrifts can never save money for their short term, medium term and long term goals.

Since they do not save a dime, they are losing out on time to grow your money. They have no emergency funds and no idea of what their future financial goals look like. Ask them about their retirement and  children’s education and they would mostly be scratching their heads.

Once this pressure of  “no investments for our future” builds on them, they are easy targets for prowling agents who mis-sell products to the unaware investor. As a result, spendthrifts  invest randomly in products that will not benefit them in the future.

In short, their financial health is in a big disorder.

Spendthrifts :

1. Take personal loans and use credit cards to buy products and build their debt.
2. Do not have a clue about their financial goals.
3. Spend first, save later, if any.
4. Buy random products unsuitable for them.
5. Do not have an emergency fund or any cash-flows for future goals.

How to stop being a spendthrift

Let’s get one thing straight. There is no use reading this piece of article to get a ready made solution to resurrect your financial health if you cannot change your mind towards money.

Spendthrifts first need to accept the fact that they need to spend less. If that is done, half the battle is won. What next ?

Make a list of expenses that you have made in the  last 1 year or 6 months. You need to put pen to paper for this and you need to find time to do this. Not all the IPL cricket matches are worth watching. You can find time to do something if you really want to do it.

Now, segregate the expenses in discretionary and non-discretionary ones. Discretionary expenses are those that you can do without – entertainment, movies, fine dining, splurging. Non discretionary expenses are those that you need each month for basic living – that is money spent on food, shelter and clothing.

Now see on which discretionary items you spent the most in the past. Keep that in your mind, you don’t want to spend on them at all going forward.

Create a budget on how you want to channel your income towards expenses and  saving. STICK TO IT, come what may !

Next time when you go visiting to the mall, leave your credit card behind. Force yourself not to buy that product. But what about that darn ATM card which you can use ? Well, sweep in idle money in your bank account into investments. Make sure you do not have idle money lying in your bank which you can blow away.

Use goal based investing to chalk down your financial goals and see how much you need to save each month for them. Each month when you get your (fat) paycheck, sweep away money into investments. Do this in the first 2 days after you get your paycheck so that you do not have any money left to spend away. SIPs (systematic investment planning) of mutual funds are ideal for such a thing.

Close down your personal loans and credit cards dues. Surrender credit cards if you have more than one or two. More is not good here.

Stop being a Spendthrifts – to recap :

1. Remember that from now on, your financial mantra is : Income minus saving is meant for spending.
2. Make a home budget. Make sure you know how much you need to save and spend each month.
3. Know which discretionary expense is killing you. Avoid spending on it.
4. Stick to the home budget. Do not tweak, come what may.
5. Close out your personal loans and credit card dues.
6. Form an emergency fund.
7. Sweep away money immediately after you receive your income into investments.
8. Surrender unwanted credit cards. Try leaving them behind when you walk into a mall.

Stop being a Spendthrift and good luck being a careful spender.