For most wage-earners, who need to be at your desk or working for your employers for the better part of the day (and often stay back late or take work home), there really is little opportunity to create additional revenue streams. So, in the absence of being able to generate more income, how can you increase the amount that you can save, from your existing paycheck?
The answer is, spend less! This may sound like a no-brainer, but you’d be surprised how many people have not really grasped the concept that the only way to retain a greater part of what you earn, is to cut down on your spending.
Check out these 10 rules for smart budgeting.
Again, another no-brainer…but yet again, many people just can’t get round to doing one.
Before we go any further, let me stop and re-emphasize this point – having a budget is an absolute necessity.
If you do not know how much you have spent for the month and how much you will spend for the month, you are almost guaranteed to run out of cash way before the end of the month.
Rule no. 2 : Create an easy system to manage your budget
The catchphrase here, should be “Do whatever works”. For those financially savvy guys out there, you’ll be able to create detailed and complex spreadsheets or use a personal finance software programme for this purpose. But one does not need a fancy software programme or app to do a budget. Actually, a simple paper exercise book will do if need be… as the saying goes, where there’s a will, there’s a way !
Rule no. 3 : Track every expense
Yes…every expense. It may sound really tedious and time consuming, but in reality, once you create a system that works for you, tracking your expenses is not difficult. Just note down what you spend every day immediately after you spend it. There is a lot of “down time” spent waiting for the lift, waiting in a traffic jam, waiting in line, etc. Use some of this time to update your records.
Rule no. 4 : Be conscious of the latte factor
Much has been written about the insidious “latte factor”. Basically the idea is that people spend on stuff they don’t really need, which end up costing them quite a lot at the end of the month.
By the same token, if you cut out or reduce daily spending on expensive “nice-to-have” items, you’ll end up saving more at the end of the month.
Rule no. 5 : Spend time on your finances
This is a must-do. No two ways about it. The only strategy to improve overall financial health is to work hard at building it up. And to do this, you need to set aside time to review your income, expenses, savings and investment portfolios and plans regularly. You and you alone, must take the responsibility.
Rule no. 6: Have a strategy for coping with the “I Gotta Have It” syndrome
The latest smartphone, the latest luxury car, the newest collection of high-fashion wear, the latest designer sunglasses…there’s just no escaping the invitation to spend, spend, spend. Have a coping strategy in place. Either delay the purchase, or keep little cash in your wallet and no credit card.
Rule no. 7 : Pay yourself first
From your monthly take-home pay (after deducting EPF and income tax contributions), work out how much you must save from that amount. Then transfer that amount to a separate account as soon as your paycheck comes in. Pay yourself, before you deal with the bills. Adjust your non-essential expenditure if need be. And make it hard for yourself to withdraw money from that account… lock up the chequebook/ATM card.
Rule no. 8 : Don’t spend more when you receive more
There is of course a tendency to spend “a bit more this month” because you have received a bonus, news of an increment or some other “windfall”. While you should of course treat yourself or your loved ones to something special, don’t increase your spending just because of the windfall. Be disciplined and keep to your normal budget. The excess money should go into your separate account.
Rule no. 9 : Live within or below your means
Even after that increment or after starting a new job with a better salary, don’t start spending on luxuries you don’t need just because you are earning more. If you look around you will see that many extremely wealthy individuals do not drive fancy cars or dress in designer clothing. They live below their means and continue to spend less than they earn. Often, this is one of the key drivers behind their massive wealth.
Rule no.10 : Keep a positive mindset
The need for discipline and constant monitoring may sound like a sad way to live, but think about it – most of our worries are related one way or the other, to our finances. If we put in the extra effort to put our financial house in order, our state of mind will improve. We will be able to reap the rewards by not only having more money for our own needs but also, being able to give more to charitable and worthy causes.
As the wise Benjamin Franklin once said, “A penny saved, is a penny earned”. Hopefully, the above rules will be useful to you in spending smarter and will help you save not just pennies, but dollars as well.