Source/Contribution by : NJ Publications
We have all struggled to stay in budget. Each time we get our salaries or income from the business, we vow to save more money and reduce expenses on unnecessary items but end up pushing the agenda for the next month.
It is important to have some sort of control over your spending and being able to save some money for not just emergencies but also for the future. Any individual should save some, to make their future better, to be able to build assets and afford things which currently seem unaffordable. It is important that you understand the opportunity cost of spending money. Like, could the money you spent on the luxury watch be better used for your sons' education fund? Or could the expensive phone that you juts upgraded be avoided in order to save up for a better house?
While certain expenses like rent, loan EMIs, education and basic amenities are necessary and unavoidable, one can definitely control their discretionary expenses. Here are a tips which can help you to control your discretionary spending:
1. Monitor your expenses
You cannot change or control something if you don't know where you are going wrong. In order to spend less, you need to understand and realise where you have been spending more than what is needed or where you have been spending is unnecessary and avoidable.
So, note down as many expenses you can remember for the past few months and look at the areas where you have spent your money. You can divide them into groups, like basic utilities, travel, shopping, luxury items etc. Expenses on items like house rent, electricity bill, phone bill, groceries form a part of basic utilities and of course cannot be avoided but they should be kept in check. You should know how much you are spending. This will help you in realising how much of your spending is necessary and basic and how much is discretionary. Further, once you realise what your discretionary expenses are and where are these expenses mostly meant towards, you can control it.
For example, if you have been spending a lot on eating out and you realise this after monitoring and judging your expenses, you can be careful about it. Of course, you cannot and should not completely cut eating out, both change and socialising is necessary, however, you can control when you have been too lazy or too bored eat to at home.
Also, if you observe that you have been spending a lot on shopping for things you don't need, it maybe wise to go on a shopping hiatus for a while. Thus, monitoring your expenses will help you control them as well.
2. Make a budget
Making a budget is the very basic step to control your expenses. It is simple and effective. Once you make a proper budget, you will know how much you spend on a particular arena and thus it will be easier for you to control your expenses.
While, you may say that making a budget will not actually make you stay in one, whether you stay in it or not, you will still save more than general. This is because once you make a budget, you make a mental note on how much to spend on what. Now, while you are crossing that mental limit, you will realise that you are going over limit and thus will not be as reckless as you would have been without that reminder. Thus, even if you don't stay within the budget, you will at least benefit by spending lesser than general, which is the whole point of making the budget.
One point to remember while making the budget is to be realistic about it. You cannot expect to cut down your expenses by 40-50% in the very beginning. In fact, spending 40-50% less is very difficult even if you learn to spend less. Make sure that the budget you are making not just covers your basic needs but also gives you a little margin to spend on unforeseen expenses and also that it doesn't cut you out from everything but just helps you save some extra amount.
3. Cut yourself at the source
If you are someone for whom saving is extremely difficult, you can set automatic transfers which will leave you with lesser money. For example, you can get a different account and set up an automatic transfer at the beginning of the month. So every month a specific amount is automatically deducted from your account and saved in another account. If you want to be very stern with yourself, make withdrawal from the account difficult. Don't get a debit card for it or ask your family member to change the pin and not tell you.
Similarly, you can also start an SIP to a liquid fund or other instruments, which will help you save and invest more.
While there are many more ways you can save, these three simple step should cover you in a basic and extensive manner.