We could all do with being a little bit “wiser” with our money.
It’s easy to tell yourself that you never have enough cash because you don’t get paid enough at work, or because you have too many bills to pay. However, the truth is that a frugal lifestyle can help virtually anyone gain financial independence.
Being wise with your money doesn’t have to mean stopping your spending on anything but the absolute essentials. However, it does mean thinking carefully about each of the purchases you make, so you’re confident you’re not wasting cash.
So, how do you make better financial decisions?
Decide What Matters Most to You
You have to pay things like your rent, mortgage, and utility bills. However, when all of the essentials have come out of your budget, and you’re left with the “remainder,” it’s up to you to decide how you should be spending it. Many of the things that matter most to you will be items that you can’t necessarily buy right now.
For instance, if one day you’d like a bigger house for you and your family, then you can’t just rush out and buy one with your left-over income one month. However, you can commit to putting a portion of your money away in a savings account. Listing your values will help you to determine the value of each purchase. For instance, you can decide whether the takeaway pizza you’re craving is really worth spending an extra two months saving for your vacation.
Recognize Your Problem Areas
Once you’ve set your financial goals, the next thing you’ll need to do is figure out what’s stopping you from reaching them. Think about the way that you’ve used your money in the last couple of months. Are you constantly finding yourself spending extra cash on things you didn’t expect when a sale crops up? Maybe you have a hard time saying no to deals. If you’re always going over your budget because you don’t want to miss out on a night out with friends, that’s another problem.
Knowing your problem areas will help you to figure out which spending triggers you need to avoid improving your chances of reaching your financial targets.
Focus on Reduction, Not Elimination
When you’re trying to cut costs, there’s no need to rush into your budget and start looking for things you can cut from your monthly expenses. Obviously, if there are things that you’re spending on that you don’t need- like a gym membership you never use – get rid of them. However, for the most part, your focus should be on “reducing” costs, rather than eliminating them.
For instance, if you’re currently spending a fortune on interest for your loans – could you consolidate your debt into a cheaper loan and pay less? Compare your options online to see what’s available. If your car insurance costs a fortune, could you switch to a different provider? There are plenty of comparison tools online today that will help you to reduce expenses with ease.
Start Watching Your Money
Counting the pennies isn’t always fun – but it is necessary if you want to make better financial decisions. If you know exactly how much money you have left over in your “splurge” budget each month, then you won’t have to agonise over whether it’s a good idea to get lunch with a friend rather than eating at home.
The good thing about living in the digital age is that you don’t have to make a note of all your costs in a notepad and add them up later. You can download a smartphone app that tracks your spending for you, and keeps you informed of when you’re behind, or ahead on your budget. Tracking your money this way will also make it easier to see if your spending habits improve.
Be More Patient
Finally, avoid impulse shopping at all costs. Sometimes, all we need to make better decisions with our money is more time. Instead of buying something you didn’t plan to get as soon as you see it, walk away and think carefully about whether it’s really important to you or not. If it is, then you’ll have no problem returning to make the purchase 24 hours later. If you were just buying something as a spur-of-the-moment purchase, then you’ll probably forget all about it.
Make a rule for the amount of money you need to take a 24-hour hiatus for. Maybe you’ll want to wait whenever you’re thinking of spending more than $30.