Most of us have at one time or another felt that we have no control of our spending, yet in the journey to financial freedom, it is important to keep your expenditure in check. Extra unnecessary expenses can make you live from paycheck to paycheck. The amount of money you earn does not determine your wealth, but the amount that you are able to set aside for savings and investment. It is challenging but possible to wrangle in your extravagant spending habits through the following steps:
Keep Track of Your Expenses
The first step to controlling your extravagant spending habits is to keep track of every one of your expenses. Buy a small notebook and record everything you spend on. It could be the $10 you spend on your morning coffee and muffin or even $50 you spend on gas weekly. After a month of keeping track of all your expenses, analyze which ones are necessary and which ones can be reduced or eliminated. For instance, do you really need to eat out daily?
Make a Budget and Stick to It
The first point of call is to have a well-outlined budget which tells every dollar of your income where to go. When creating a budget, your priority should be crucial expenses, followed by savings and investment, and lastly expenses such as entertainment. The envelope method of budgeting can help you build up your discipline and stick to your budget. Under this method, you put the money you allocate to your expenses to different envelopes. For example, you can have an envelope for rent, benevolence, savings, food, entertainment and so on. This helps you develop some discipline in your spending because for instance if you spend all your food money in one week, you will no longer have any more food money for the month. Alternatively, you can take some money from other envelopes.
The 70% Rule
As a rule, you should only live on 70% of your income; 10% should be set aside for emergencies, 10% savings and investments and the last 10% for retirement. If you earn $500 and are living on more than, $350 you are not living within your means. This is why; one day your car, fridge, television, washing machine, whatever valuables you have, will need to be replaced. You have to make it a habit to put some money aside for that. A St. George Kia dealership knows that a car is a depreciating asset and as such, you should choose one that makes the most sense for you financially. If you are young, you can take a car loan to buy your first car, and pay the loan over a period of around 3 years. However, with the right saving and spending habits, you will never need to take a car loan again to buy a new car.
Do Not Carry Excess Money
Carry only the money you need. Know how much you spend in a day, and carry only that amount. For instance, do not have $300 in your purse if you have no use for it because you might be tempted to spend impulsively and later wonder what happened to your money.
Make it a habit to make payments in cash because it helps you realize how much you are spending. It is easy to forget how much you are spending when you are swiping or making payments electronically. Remember, it is not how much you earn but how much you keep that determines whether you remain in the rat race or become financially free.