Truth be told, spending money is way easier than saving it. Many would agree saving often involves sacrificing short-term enjoyment, while spending gives instant pleasure. However, people also admit that in the long-term, uncontrollable spending and lack of an adequate savings fund increases the chances of financial distress.
That being said, many realise this but they still struggle to curb their high spending habits. Giving in to “unbelievable online deals”, not being able to resist buying far too many clothes and shoes…we know it, it’s difficult. If you’re someone who can relate to these, read on as we discuss a few tricks and hacks to instil some much-needed financial discipline.
How To know You’re A High Spender
Different financial signals may indicate that you are spending more than what you should. For example, borrowing plays the role of an enabler when it comes to accomplishing financial goals. However, if you often need to borrow money to meet your short and long-term financial obligations, it could be an indication that you are mismanaging your income or have a habit of high spending. Also, when repaying a debt, if you are finding it difficult to arrange money for the EMIs, it could be a signal that you have spent more money against the borrowed fund than what your financial capacity allows.
Another signal that you have a habit of high spending is that you may often exhaust your credit card limit or completely utilise your overdraft account. It can impact your credit score negatively, and in such cases, it’s essential to put a brake on your spending habits.
Let’s find out how to control the practice of high spending.
The key Is To know One’s Priorities
You can’t completely stop all discretionary spending, and it would be wrong to do so as well. After all, you earn money so that you can use it to spend. However, you must avoid spending more than what your financial capacity allows. It’s important to know your financial priorities if you want to estimate your spending capacity. Once you’ve met your financial priorities, the leftover money can help you determine that.
Your priorities should typically include regular expenses like rent, food, clothing, commute, utility bills, goal-based investments, insurance premiums, credit card bill, etc. This may take up 50-60% of your monthly income. You also need to prioritise saving up at least 20% of your monthly income. The remaining money is for your leisure spends. If you feel that you’re hardly left with anything to spend after taking care of your priority expenses, you should look for cost-cutting measures.
Budgeting is a tried-and-tested tool that can help you know how much you should spend and on what things and also identify areas where you can cut down. The best strategy is to note down all your expenses regularly (or take help of some expense tracking mobile applications). Also, it’s equally important that you stick to your budget.
Control Temptations And Plan For Big-ticket Purchases
Financial discipline and self-control are extremely important to ensure you don’t just blow away all you’ve earmarked for your monthly spends. Ditching the flashy malls and online shopping portals who have “irresistible deals” throughout the year is a great starting point. It’s great when you have a plan in place even for your leisure spends like clothes, gadgets and shoes. Also, while it makes sense to buy things during the discount seasons, it’s equally important to keep in mind that there’s no point in piling up unnecessary stuff just because you get them cheap.
You’ll also be well-advised to set a short-term financial goal even for your big-ticket purchases. Like, “I’ll save up Rs. 1 lakh to buy a laptop after 1 year”. Once you’ve in place a clear goal, it’s much easier to allocate or recalibrate your savings and investment returns to achieve the goal in a timely manner.
Another interesting strategy you can implement is “delayed gratification”. This means and whenever you feel like making an impulsive, unplanned purchase, try to wait for at least 7 days before you actually buy it. Chances are, after the waiting period is over, you won’t even feel like buying it at all, and in turn, and prevent an unnecessary spend!
Save Before You Spend
Saving should always precede spending. It means when you get income in hand, you should use it first to save as per your different financial goals, and then use the remaining amount to spend according to your priority list. Not the other way round. This will ensure you have a growing savings fund even if you make a few extra purchases every now and then.
If will power isn’t your strongest point, consider saving up in a separate account or giving a standing instruction to your bank to auto-invest in a recurring deposit (or a fixed deposit if you have a lump sum) and let it grow over time. These “forced savings” techniques can be of great help too.
Lastly, by suggesting putting a brake on spending, it means cutting down unnecessary expenses. At times, low income is the primary reason why people struggle financially, and not their spending habits. If you feel you’re in a similar situation, try to increase your income instead of cutting down your necessary expenses. Upskilling in order to land a promotion or a better-paying job opportunity, tutoring online, taking part-time jobs on weekends, starting a YouTube channel where you get to showcase your expertise, becoming a social media influencer — the possibilities are endless. More income would simply translate to more savings and spending fund.
In conclusion, always remember no strategy to put a brake on your spending habits will succeed unless you exercise financial discipline at every stage. Wish you all the very best!
The author is CEO, BankBazaar.com