Amid rising prices and inflation, it has been imperative to balance your income drain into various directions — necessities, lifestyle, savings, retirement planning and investments.
Today we look at top five things you can do to ensure you spend your money wisely, not sacrificing fun while maximising potential savings wherever possible. In this process, it is important to acknowledge the difference between needs, wants and luxuries.
- Create a budget: Adjusting your spending habits against your income through monthly and annual budgets helps keep an efficient eye on your income and outgoing. This also allows you to splurge without fear when you need to — birthdays, celebrations, holidays, etc.
You can opt to create budget plans based on your payment schedule — daily, weekly, fortnightly, or based on your spending schedule — loan repayments, EMIs, school fees, etc. The three broad tracking heads would be your earnings (salary, interest, etc.), your expenditures (debt, EMIs, purchases, groceries, food, travel, etc.), and your savings (including investments).
- Make saving a habit: If your impulse control is not very good, you can take away the temptation by setting auto investments for the money in your bank account. Setting auto SIPs, fixed deposit debits, and mutual fund debits immediately after your salary has been credited, will ensure that your savings are done before you begin to spend.
If you’re not an average salary earner, you can also develop a formula that works for you — 60:40 for spend and save (including investments), or 50:30:20 for spend, save, invest, or any other break-up that works for your personal goals and requirements.
- Track your expenses: If you plan for it, the occasional splurges can be baked into your budget so that they do not strain finances and allow you to have your celebrations.
This includes taking into account what you spend at extravagant spots or for eating out every day. If you do not track how much you’re spending on eating out or buying packaged foods, when you do have the option to make home food, the total could be an unpleasant surprise. You can also make it a habit to save any windfalls — bonus, gifts, etc., — to boost your savings, instead of spending it impulsively.
- Manage your debt repayment: For households with monthly recurring debits, it is wise to set aside a dedicated account with sufficient funds. Set reminders or make use of the bank’s auto pay options to ensure you do not fall behind on monthly loan repayments, EMIs, bills, and credit card.
Interest or penalty on late payments (especially when it happens repeatedly) though minor at the time can easily compound into huge debts that could have been avoided.
- Sort between requirements and wants: When you make purchases, try to categorise them in buckets that would signify the priority of the purchase.
For example, you can prioritise which streaming services you actually watch the most and cancel subscriptions for those you haven’t reached for in weeks. This will help shave off a chunk of expenses that are paid for and not used.
If and when you can make sacrifices for the big spend, go for it, but back-to-back splurges on luxury goods, expensive trips and viral lifestyle habits is not feasible if it is not in your budget. Self-examine if your spending habits are truly needs or wants.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.