Spending - Keep in check

Saving money is one of the most important part of ­financial management for individuals and families. Our spendings have a direct impact on our savings but unfortunately, controlling spendings is a challenge for everyone. Many of us believe that saving money is a methodical, disciplined and largely a left brain process. But it is not entirely true and saving money does need a lot of thinking and creativity.

The real challenge with most of us is to be able to think long term, plan for it and ­finally put enough efforts to achieve it. Therefore, the task of deciding how much to spend directly falls on the head of the spender. Here are a few well known tips on how to save more by controlling spendings...

1. KEEPING A BUDGET

Yes, the same old budgeting technique has gained much more prominence today where credit cards often encourage useless spending. Try budgeting for savings instead of spendings, for a fresh perspective. It will automatically force you to limit budget for spending. Hopefully, you may limit spendthrift activities and impulsive buys as the ­first step.

A creative idea for managing spendings is by maintaining a separate bank account for only spendings. Monthly you may transfer a fixed amount for planned spendings to this account from your income account. One part from our income account will go to savings as planned. This will automatically enforce discipline in managing budget.

2. PROCRASTINATION

Usually, procrastination is found to a useless and typically unproductive habit. But, used at the right place it can be as useful as the methodical thinking, and that right place is the time of spending. When running on the budget above, it’s easy to ­find yourself depleting that ‘spendings account’ before the month ends and then ­finding yourself in the fray with the products you really wanted to buy nowhere to be seen in the order list.

The trick is to procrastinate the use of ‘spendthrift account’ till the ­final days of the month and soon you’ll ­find that your savings are increasing at an increasing rate, and your order-list is full of necessary items you always wanted to buy. Procrastination is a good habit when it comes to spending on things which are not important or urgent.

3. PAY BILLS AUTOMATICALLY

There are wonderful features now a days on your online bank accounts that can help you save a lot of money you end up paying in penalties for late payments (because most of the time the bank account goes empty before the due date). Auto payment of the bills; i.e. postpaid phone bill, electricity and credit card bills, can save you from frequently paying those unnecessary penalties on late payments. Also, it’ll reduce your account balance in time, allowing you to spend only as much as you should and create another barrier to spending.

4. MANAGE CREDIT CARDS

Now we come to the hard part, credit cards you so dearly love and use, not just to buy the favorite weekend dinner or movie tickets, give wings to your spending, and if spending gets the wings they are sooner or later bound to go out of control. Therefore, you are left with two options with credit cards:

A You can pull your socks up and start managing your cards meticulously, or

B You can go ahead and switch to Debit cards. (yes, it means surrendering your credit card)

So, which one should you follow? Depends completely on your personality. If you feel that you are one of those people who love discipline, planning and are patient with money, you can easily manage your credit. On the other hand, if you like to call yourself creative, love living in the moment and being spontaneous, credit cards are perhaps not a useful choice for you (though, there can be exceptions).

This step is important, because your credit card can easily make or break your credit score. Credit cards are best and perhaps the easiest way to build a good credit score, all you need to do is take care of the following:

• Have a total credit limit no exceeding your annual income on all your credit cards combined,

• Use only up to 70 - 75% of the total credit limit in any billing period, Ensure that you are always able to pay in time, and

• Ensure the amount spend is always paid in full in the same billing period.

This may sound tough for the right brainers though, and if it does you may follow the tricks given below and still manage to keep a credit card.

• Spend only as much you can repay at the end of the billing period.

• Tally the credit card transactions and your bank balance regularly. Check past records to see how much you can actually spend through credit card.

• To save miscalculations switch to bill payments for phone and electricity through credit card.

5. LET SOMEONE ELSE DECIDE

This may sound strange but, it is a very useful and stress-free method of making your spending decision. There is one limitation however, you cannot bank on the stranger for each and every small expenditure, and neither would you like the control the stranger may exercise on your expenses. The way to solicit the stranger’s help in controlling your expenses is to get a comprehensive plan and let the stranger tell you how much you can spend in each of the months. That stranger, will usually be your ­financial planner or wealth manager, and will provide you a comprehensive roadmap for not just future but also the present. Knowing what is important and what is not, setting your priorities based on factual data and numbers and not on feelings and impulses will certainly allow you to achieve the self-discipline needed to control the spending.

OTHER INTERESTING METHODS

If somehow you find accepting and applying any of the methods above, yet you still want to be able to control your spending there are more interesting and rejuvenating ways to do that:

A] Spend time prioritizing & planning: A weekend exercise each month or every two months will take you long way towards family bonding and spending your money in far more useful and satisfactory manner.

B] Think Long Term: Long term success requires short term sacrifice and the same is true for money as well. If you have bigger long term goals spending control in the short term is very important.

C] Use SIP Mode: SIP mode of investment, or Systematic Investment Plans can be useful in diverting your money towards savings each month before you can think of spending it. Plus, you have added advantage of performance if you are investing in Equity Mutual Funds.

D] Use Your Recording Skills: No need to be surprised here, recording skills mean recording transactions not the video recording skills. All you need is a notepad on your smart phone or a small notebook and a pen at the end of the day and less than 5 minutes of time to record every expenditure you incurred throughout the day. Best way is to use a spreadsheet on your cell phone or laptop, where you can enter the bank balance at the top (in negative) and then record the spending every day with a total being displayed at the bottom. This, will keep telling you about how close you are to the limit you have set for your expenses. Additionally, if you want to get creative, spreadsheets can be wonderful in reflecting your income-expense status. You may add pie charts (see ­gure: “Spending Chart”) and actually use the data to tally with your bank statement, giving you a comprehensive picture of where your money goes and where you can control its ow.

E] Make a List: Prepare a ‘Go Get It’ list before you go out to shop. It is an old but powerful tool to get hold of your purse each time you get attracted to a new arrival at the superstore, or the new advertisement for the same old non-useful product you already own. With these many weapons at your disposal, it shall be easy for you to conquer the spending territory. Additionally, you can try finding your very own creative ways to control your spending and credit yourself with successfully defending your money later.

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