We need things in life. And we want things in life. Mostly we don’t want to wait for the things we want in life. We have to have it now, don’t we? Even if it means that we will pay twice for it if we buy it on credit.
Related article: Mindful About Money
According to “The Richest Men in Babylon”, a book by George C. Clason , our expenses should not be more than 70% of our income. This implies that you know what your expenses are or how much of your income are contributing to cover expenses.
Now, here’s the thing – there’s a difference between expenses and debt. That means to differentiate your expenditure between living expenses and debt.
What qualify as expenses? Everything besides retail accounts, credit cards, car payments, furniture payments or any other loans or payment agreements. This counts for loans from family and friends too.
Living expenses are what you need to live. Take clothes for example. If you buy clothes cash, then it counts as an expense. If you buy your clothes on credit, it is debt.
Consumerism combined with instant gratification is a deadly trap. This is an addiction to fill some void with things. Frugality is the antidote to this addiction and moderation creates the balance. Frugality means to squeeze the last bit of pleasure out of everything you have and think twice before you buy anything new.
Budgeting is the key to exercise the balance of moderation. Once you know what you spend your money on, you have the power to practice flexibility and juggle your expenses to include a luxury or new item. The biggest challenge however, is the self-discipline to stay true to your budget. In order to do that you need to set up a realistic budget that reflects your needs and expenses in an authentic way.
Track your expenses
The first step is to track your expenses so that you can become aware of what exactly you spend your money on. Certain expenses can be hidden items that you are not even aware of until you start recording every cent that you spend. For example magazines, take-away lunches and café lattes, cigarettes, the gym membership that you hardly use, etc.
When you draw up a budget make sure that you put savings as the first item. Pay yourself first gives you the peace of mind that you are not entrapped by consumerism. List all the things that are necessities like rent, electricity, water, gas, fuel for your car, food, groceries, school fees, transport. Next list your health, life and short-term insurance fees. Now list your debt payments. Lastly list items like clothes and entertainment and luxuries like a facial or massage.
It is crucial that your budget does not exceed your income. Don’t cut your savings to accommodate your budget! Make that your golden rule – pay yourself first no matter what. Rather find ways to cut down your expenses.