The ability to save money is a basic financial skill that everyone should have. If you cannot save money, then you are going to end up becoming a spendthrift. Unless you have millions of dollars in your bank account, being a spendthrift will eventually cause to go broke and fall in severe debt.
In a credit based economy such as the United States of America, going broke and falling in debt is the last thing that you want to do. There are countless predatory money lenders out there who are looking for an opportunity to prey on weak individuals who are struggling to get out of their financial quandary. Predatory lending practices will cripple you financially and may force you to go bankrupt. A bankruptcy will not only ruin your finances, but it can also adversely affect your professional and personal life.
This is why it is so imperative to master the art of saving money. Since we are living in a consumer based society, it can be quite difficult to prevent yourself from pulling out cold hard cash or the credit/debit card from your wallet. In tempting times like these, you need to think about the long-term consequences of spending big. No one is asking you to eat only once a day and live in a one bedroom shabby apartment located in a cheap neighbourhood. All you are being advised to do is eliminate a few luxuries from your life so that you have money to fall back on when you need it the most.
If you are struggling to save an adequate amount of money, then here are 4 habits that you should nurture in order to handle your finances more responsibly.
1) Maintain a Monthly Budget
A lot of people think that creating a budget is an extremely boring and painful activity. They are not wrong, but it does not change the fact that budgeting is one of the most important things that you need to do in order to stay financially afloat in life. Not everything in life is going to be a joyride. Think of budgeting as those green veggies that you must eat to stay healthy. Why is it so important to maintain a budget? Without a budget, it will be impossible for you to understand your spending, let alone keep track of it. Budgeting basically serves as a tool for you to make sense of your cash flow.
One of the main reasons why people shy away from budgeting is because they perceive it as a highly complicated activity. In all honesty, you do not have to be an accounting or finance major to maintain a budget for personal finance. All you need is basic knowledge of mathematics and a lot of common sense. If you want, you can simplify your budget to a great extent. The basic formula of budgeting involves allotting a specific amount of your income for every head. The heads you take into account will depend on the kind of lifestyle that you have. Common heads include food, health, accommodation, transportation, entertainment and clothing.
Once you have fixed a budget for ahead, do your best to stay within the budget limit. There are times when you will exceed the budget, but do not let that throw your expenditure off balance.
2) Spend Less Than You Earn
Kevin O’Leary, the face of ABC’s Shark Tank and one of the most iconic venture capitalist firm owners in America keeps handing out a piece of advice that we believe is pivotal to the financial success of any individual. “Go to bed richer than you woke up”. In other words, you should always try to spend less than you earn. If you can’t keep this up on a daily basis, then make sure that your overall weekly or monthly expenditure does not exceed your weekly or monthly earning. It is a really simple technique that guarantees massive rewards. You are never going to fall in debt if you keep earning more than you spend. Also, developing this habit will make it much easier to set aside extra cash for your savings account.
3) Wait for 30 Days
Do not buy out of impulse. If you follow your urges for instant gratification, you are going to end up in a lot of debt. Avoiding instant gratification is perhaps the most important rule of personal finance. If you are interested in making a purchase (other than essential items such as food), wait for at least 30 days before making up your mind about it. By the time you reach the end of the 30 day period, the urge to buy something would fade away, and you would have saved yourself a lot of money by simply delaying your decision.