Managing our Personal Finances – Saving Money

Suddenly, he finds himself entangled in a deep financial mess -indiscriminate use of credit cards and over spending leaves him broke. His credit cards are blocked and the bank issues an arrest warrant for non-payment of credit card bills. He struggles to stay out of jail and even to buy a ticket for an emergency back home.

This young man has messed up personal relationships and finances despite being a doctor in a prestigious hospital in Dubai. This was just a movie storyline and we need not directly compare ourselves to this young man but we too can quietly introspect. Are our personal finances a constant struggle and conflict in our marriage / family; are we stressed and losing sleep about it?

Do we wonder often where our money goes and are we saving zero or less than 10% of our income? If the answer to any of these is ‘yes’, beware you are not too far from ending up like this young man. But the good news is that it is not too late to set your finances in order to reach a stress-free and a comfortable position. The starting point obviously is some serious thinking about your spending and saving styles.

Yes, a stress-free and a comfortable financial position are not often about the size of your pay check but it is more about how you manage your finances – particularly how you spend and save. ‘Saving money’ is basically a systematic ‘putting aside’ of a part of one’s income in order to fulfil one’s financial needs in the near future.

Although often, most of us desire to save money and have been trying to save money, unfortunately, in retrospect many of us often wish we had saved more than we actually did. The need of the hour then is not so much the intention of saving but it is the act of saving – rather a discipline to work at. Other than a consistent saving patter you need to ask yourself

• What is your shopping pattern? Do you shop within your income? Do you have a shopping list, a clear budget and are you able to stick to it? Are you aware of margin-free shops, sale offers, discounts, and utilise shopping coupons?
• By when do you pay your bills and credit card purchases? Well before the last date…before the late fee and interest is applied?
• To what extent are you keeping a track of all your spending – a record of spending in comparison to the budget plan?

Understanding spending styles and tendencies may give insights helpful to strengthen one’s saving styles. Each one us may have a combination of some of the following spending styles and tendencies. Which ones to what extent or what combinations are your styles?

1. Compulsive Spender – plan spending before earning! Characterised by extensive brand consciousness and posses an abnormal craving for ‘every new thing’ in the market – electronic gadgets to fast cars. Old (models) is trash is this spender’s adage to aspire to. He could even be a generous giver giving exorbitant gifts, spending non- existent income. May rely on multiple credit cards and personal loans.
2. Situational Spender – Spends all salary in no time and goes hungry till next pay check! This person lives like a king and queen in the first week after the pay check, like a minister in the second week, like a commoner the third week and a pauper by the fourth week. ‘Spend when you have and starve when you don’t’ seems to be the philosophy here.
3. Constricted Spender – Plans most spending but never able to make ends meet or save. This person makes elaborate plans and has the best intentions but the money earned is never enough, so making ends meet remains a constant stress factor. May not be in big debt but keeps taking small loans to make ends meet; outstanding bills list is almost unending.
4. Wise Spender – Plans, saves, spends in that order and has made such choices to live comfortably and give generously to the needy. This is the spending style anyone reading this may aspire to develop. This requires you to be mindful of your spending habits – being realistic about your income and your expenses, make a budget and stick to it, and constantly ask yourself, “Do I really NEED this?” before spending. Saving and investment options abound here.
5. Never-spend Spender – Saves or rather hoardes and lives miserly: This is our ‘uncle scrooge’ who only saves and never spends. His family may resent him because getting him to spend for even the most necessary things is like trying to milk the bull. Getting him to pay the school fees or get the grocery too is a torture.

Our parents with their small pay checks and big families thought about home and personal needs only after setting aside money earmarked for ‘debt repayment’, ‘bills & receipts’ and ‘savings’. They never spent money they had not earned yet, except when taking home-loans to build a house for the family. And a home or gold (investments that appreciate) always came before a car or gadget or any other comfort (that depreciates over time).

Whereas, current trend on the other hand is to spend what is not yet received through credit cards and other methods. Even with huge pay checks we are left with nil or too less savings, investments or money for emergency and often a huge finance related stress. We reap the rewards of our parent’s financial discipline but what are we leaving behind?

If you are more of a compulsive spender, it is time you took a U-turn. Take help to enforce financial discipline as old habits die hard. Keep yourself accountable to someone with better financial management capacities and be transparent before them. Take small steps instead of giant ones- if you spend 80 percent of your income on perishables, next quarter attempt to reduce it to 70 and increase savings from 10 to 20 percent.

If you are a situational spender, friend, just start by buying things you need for the whole month the first week and put aside savings as soon as your pay check is credited. Setting up automatic transfer of regular amounts into saving options also may help. Above all you need to plan and live by your plan. Taking help and being accountable is a sure way to succeed for you too.

If you are a constricted spender, either you are trying to live a lifestyle above your income bracket or you need to look for better job prospects that bring in more. If you are always in lack although you are not compulsive or situational then may be your family’s needs require augmenting of your income. Check out what options you have to increase your income or lower your family budget because continuing under such stress will cause major health issues- another financial drain too!

If you are ‘never spender’ Beware! You may be alienating your family and friends and not helping yourself too. Money is to give a good life for now and the future and you cannot carry it with you when you leave this world so be gracious to your spouse and children’s legitimate needs. Congrats!! Wise Spender, well done, keep up the good work! Plan, save, spend and live a stress free life as far as finances are concerned. You can be a good mentor to the others struggling – try to help!

Point to Ponder!
It is a common trend these days to spend! Spend! Spend! And there is no money left to save. Let me draw your attention to the relevance of saving and the urgency of it. The age at which you start saving and the consistency in saving are far crucial and not so much the amount you start saving. For example – If you start saving at the age of 25 years, a mere Rs. 1000 a month you may end up accumulating approximately Rs 1.5 crores in 50 years time.

A mere doubling of monthly saving to Rs. 2000 could fetch you 1.6 crores in 30 years time. Starting to save from the age of 20 years would be more beneficial. If you invest into land or other intelligent options you could get even more. A couple of thousands may be less than what you spend on eating out every month, but putting that aside could be a great blessing for the future.

By the way you are not too old to save and certainly not old at all to convince your children and grand children to start saving.