Creating a strong emergency fund is an essential step to basic financial security, yet many of us find it difficult to set aside a regular monthly amount for savings. One of the reasons this is such a challenge for so many people is due to the way our consumer culture is set up to encourage overspending. Overspending is often a learned behaviour that results from issues such as “I’m in a bad mood, so I’m going shopping”; “I couldn’t afford much as a kid, but now I can”, or even “I got a raise, so I deserve a new car”. It’s not always easy to recognise your own negative patterns, so take some time to check your behaviour and determine whether you are overspending each month. Admitting you have an issue is the first step in taking control of your money. Of course, that is easier said than done, but there are some concrete measures you can take to help keep your spending in check and improve your financial habits. It may not be easy, but the process is worth it.
Improve your existing budget
Taking a hard look at what you bring in versus what you spend is a crucial first step. Seeing how much you are spending on clothes, electronics, and other luxury items can be a major wake-up call. Allocate money to savings by following the “50/30/20” rule: 50% of your monthly income should go to fixed and necessary expenses, 30% to fun stuff and lifestyle choices, and 20% to savings.
Switch to cash
By switching to a cash-only envelope budgeting system, you are forcing yourself to stick to the plan – when your money runs out, you have finished spending. Get a few envelopes for all your flexible expenses and label each one according to how much you have allocated in your budget. Then, put that amount of cash inside for each week.
Forget your credit card numbers
When shopping online, there is no greater convenience than knowing your credit card number by heart. Forgetting your numbers makes it slightly less convenient to buy things, and in the few seconds you are reaching for that wallet you just may change your mind about the purchasing decision you are about to make.
Choose cheaper entertainment
Over spenders may avoid the urge to change their ways because they think it means that they cannot have fun or get together with friends. That is just not the case. While you may not be able to splurge on a cruise or eat at an expensive restaurant anymore, you can still be social by making cheaper plans like having a cup of coffee at a simple café.
Set short-term financial goals
Over spenders are all about the “here and now,” they rarely give serious thought to how their habits may affect them in the long-run. For example, someone who puts a new laptop on a credit card with little intention of paying it off immediately is not usually concerned about the future. However, by setting some practical, attainable short-term goals, you can motivate yourself to save and change those habits:
• Save at least 15% of each pay check in a separate account.
• Stick to a cash budget for two weeks.
• Save $1,000 in an emergency bank account.
• Bring lunch to work every day for a week instead of buying out.
• Remix your wardrobe for an entire month without shopping for new clothes
Short-term goals like these can help fundamentally shift how you use money. As you become more money-conscious and less impulsive, you can begin to set long-term goals for the future.
Do not “Zero Out” your accounts
As an over spender, your mindset may be, “If I have it, I’ll spend it” and that’s why I “zero out” my accounts each month. No, this does not mean that you have to spend until it is all gone – you should be able to account for every dollar and not be tempted to make thoughtless purchases.
Think twice before spending
Now it is time to try and think about spending from a different perspective. When you are faced with a potential purchase, compare it to the more useful things you could buy with the same money, or to the energy and hard work you expended to earn it, and you might think twice about splurging. Suppose you want to spend $2,000 on a spontaneous vacation: If you make $XX per hour at work, it would have taken you at least XX hours to earn that cash. That $2,000 could help you get out of debt, start a retirement fund, or even buy a car. Understanding the value of money to your personal financial picture is an essential element to changing the way you think about spending.
Suppose you go on a very strict diet, you are going to be very tempted to over indulge when you see your favourite cake or pastry. The same is true about spending. Suddenly putting yourself on a strict budget can help you save money – until you go crazy and end up on a shopping spree. So it is okay to give yourself little rewards now and again to help you stay on track. If you love clothes, put a little cash aside for a reasonable shopping trip. You may not be able to completely reform your over spending habits overnight. However, simply acknowledging them and making a commitment is a great first step toward learning to stop spending beyond your means. Set goals and put safeguards in place, and you can slowly but surely make the move from chronic over spender to savvy consumer.
AIA understands how important it is to plan ahead for important occasions such as saving for your children’s education, starting a business or enjoying well-earned golden years in retirement. It is well known that the earlier financial planning is started, the better possibility there is of getting higher returns over time. AIA has various saving plans for achieving financial goals and securing the lifestyle that you desire. So start planning early and reap the rewards!
This advice on family living is made possible with support from