01- keep track of your spending
You probably heard this a million times yet you are going to hear it today as well, simply because it works and because you are not doing it. Basically, it should always be a priority. Make sure that every single penny you spend is clearly accounted for. The basic goal of expense tracking is to find and get rid of inefficient spending patterns in your financial life.
Additionally, maintaining control over your finance and encouraging better financial practices like saving and investing will come from continuously keeping track of your costs. Basically, in words of Peter Drucker " if you cant measure it, you cant manage it ".
So what you should do to get in control of your spending habits is to analyse your categories of spending to determine which are the most crucial. Perhaps you might even find out that you have been paying for a subscription that you are not using. Most people consider that cutting back on these " non-essential expenses " is a wise approach to saving money. You might also want to go for activities that are less expensive. Now you can see where is your money is going.
02. make a budget
I personally used to spend money without any plan in mind, i never understood why people need a budget until recently. You see, most people are worried about all the paperwork to be done to compete a budget. Well in truth, its a lot of work, but it most certainly is worth it.
You see, you should look at budgeting from a different angle. Look at the positives and look at how much is it going to benefit you. And once you got a rhythm going, make sure you stick to it. I've found this to be the only way that works. So make sure you dont loose the momentum.
If you create a budget and then store it away in a file or in a folder on your bookshelf then its simply worthless. So its important that you constantly updating and review it. Or you can also use digital apps and softwares to make this task a lot easier. There are a bunch of really good free ones online, you can find with a quick search.
03. give yourself a limit on unbudgeted spending
Buying something in the spur of the moment that you had not budgeted for, can be enjoyable and emotionally satisfying - literally everyone does it-.
however, that emotional high may pass quickly, leaving you with impulsive purchases you don't actually need or even want. if this is you then the bitter pill to swallow is that this has to stop! In fact, its the entire opposite of good money habits. next time you are in the mall, try using the 1% rule for spending money.
this rule states that, you have to wait a day before buying anything that costs more than 1% of your yearly gross income, for example if you make a 60,000 dollars a year, the rule states that you need to a day before making a purchase of over a 600 dollars.
this guideline applies to discretionary spending on items you desire but don't require.
basically, the inner battle in your mind of " do i really need this " vs " do i want this". the 24-hours cooling-off period gives you time to reconsider your purchase. why not take an additional day to consider if you actually need it ! after 24-hours might not anymore.
so next time you go shopping remember what that guy from SMART FINANCE told you to try.
04. Save for big purchases
Seeing a beautiful 4000 $ advertisement of a stunning 90-inch flatscreen 8k tv, i mean imagine the things you can see on that tv doesn't mean that you should immediately pick up your phone and credit card and start dialing the number on the screen That's really a bad idea. Remember the rule that SMART FINANCE gave you, about the 24 hours one. So experts suggest that if you really want that big tv then its best that the money comes from your savings account, which is dedicated for such purchases. Not a credit card loan, unless you have a really good plan to pay the money back, which 99% of people don't.
Also, there are countless advantages that come with saving for a big or expensive purchase. You may be able to negotiate a cheaper price, or at the very least, better financial conditions,if you save up and pay cach. The price could drop as well.
Additionally, for a larger purchase, getting a loan may make more sense, especially if it's an item with a appreciating value, like a house, or if its preventes you from taking money from out of your savings or investment account. As paying in cash for the big expensive tv might leave you with little to spend, therefore it's wise to save up for a while before you buy the products you need or desire. Therefore, it's sensible to start saving for that specific things so that your daily life is not disrupted.
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