Charles A. Jaffe once said that it is not your salary that makes you rich but rather your spending habits. This simply means that the way you spend what you have can mean the difference between trying to make ends for your next meal and being financially secure. It does not matter how much you earn every month because if you are not able to budget it properly, you could be headed into a financial hole.
Here are a few of the things that can help you spend your money wisely.
Create a household budget
One of the spending habits you need to focus on is creating a comprehensive household budget. You might begin to think that you need a complex formula for your budget for it to be comprehensive. However, the truth is that the simpler the budget, the easier it is to follow it. Having a comprehensive budget simply means you need to list everything down.
Start with your income where you have to write down all sources of your money. If you have a side gig, an investment, or passive income sources, you need to include all of them. This way, you get an excellent overview of the money coming into your finances every month. You do not have to keep on guessing how much you have and if you can meet all your debt payments.
The other half of your budget is making a list of all your expenses including recurring debt payments. It needs to include your biggest payments such as your monthly mortgage up to the smallest one like lunch out with friends. Once you have these two components, you can now start budgeting and be able to make informed money decisions.
Follow your budget
If you want to improve your spending habits, you need to make sure that you follow the budget that you created. Hanscom Federal Credit Union shares that only 41% of Americans use a budget. This is an important piece of financial advice because there are some people who put the time and effort to create a budget but do not follow it. This renders your budget useless and you can end up mismanaging your finances.
If you write down your budget, find a way to bring that list with you whenever necessary. If you are going to buy groceries, bring your budget with you. It will give you an idea of what you need and what your budget is for buying them. It is best if you have a separate budget for your groceries so you do not have to bring your whole budget.
You can even put your budget in your smartphone so it is easy to bring with you wherever you go. There are many apps you can use to help you manage your budget. Try to explore using the cloud so you can sync and make changes on your budget wherever you are. Just make sure to back-up your budget just in case you accidentally delete it while on the go.
Lower down your spending
When you start to talk about spending habits, one of the best changes you can do is look for ways to lower down your spending. There are a lot of creative alternatives to your most common expenses. You just need to try and identify the ones that you can make changes to and focus on those ones to help you lower your spending.
Take for example your coffee habits while at work. You may not realize it but as you keep buying one in the morning and another one plus pastries in the afternoon, that can come to a lot at the end of the year. Why not try and brew your own coffee at home and brown bag some food so you do not have to spend on expensive food.
You may not realize it but you can also to talk to your lenders to check if they can lower down your interest rate. For credit card lenders, it is just a matter of making a request. Of course, they need to check that on their part and see if you have been making your payments. If they come to the conclusion that you have been a making on-time payments, they might extend that courtesy.
Save for planned expenses
One thing you can integrate into your spending habits is to learn how to save money. If you get this financial mindset down, you would have an easier time spending for things you need. This means that you need to save especially for expenses that are planned way ahead into the future. There should be no reason why you would put your finances in peril because of a planned expense.
Take a mortgage loan for example where it remains to be one of the biggest expenses every month for families. If you are just about to apply for a mortgage loan, you know that you have to put a downpayment on the house. Any lower than 20% would make you pay an extra for Private Mortgage Insurance or PMI. This can make your payments bigger than they should be every month for the house.
When you buy a car, the same idea can also apply. You also benefit when you make a big down payment because you save money which would otherwise have been paid on interest. You can also opt to save money for a second-hand car. The benefit you get is that depreciation on the car will be slower compared to buying a new one.
Do not be in a hurry to increase your lifestyle
There will be times when your income would go up either from a promotion or getting a side gig that pays really well. This means that as more money comes into your budget, you could be tempted to increase your lifestyle as well. You might be able to afford to buy things you want on a regular basis because of the money.
This is one of the spending habits you need to keep in check because of the temptation that it there and the money to give in is in your hands. It might be a good time to try a frugal lifestyle to help you save a lot more money. This way, you spend less than you normally would and the savings can be put towards future needs like retirement.
Pay down your debts
To help you curb unnecessary spending, you can focus on something else more important like debt payments. The simplest way is to make more payments than you normally would. These extra payments can help you save money on interest and pull the payoff date closer. However, making extra payments might be a challenge when you are on a tight budget.
One thing you can do is to look at debt consolidation to help you manage your debt payments better. This debt repayment program can put some order in the way you pay every month. When you combine them under one account, it lowers the chance of overlooking a payment. It is also possible that you pay a lower amount every month especially if you are consolidating on lower rates.
Your spending habits will have a huge effect on how you are able to manage your finances. You need to make sure that you are working on habits that will benefit your finances in the future.