What portion of your salary should you spend on loan EMIs?

Money is something which never skips your mind until you leave this world. The most common thought about money is how much more can you earn. For many, it is the only way to achieve stress-free living. Driven by this thought, people strive to increase their income, but at the time of retirement they are still dissatisfied. The reason is not their inability to earn, but the lack of ability to spend their hard-earned money wisely. Individual needs are never ending, and those who fail to acknowledge it, get stuck in vicious circle of earning and spending. It leads them in to consistent payment of debts, which later results into little to almost no savings by the time they retire.

Solution to financial stress way beyond just increasing your income. While increments are always directly proportionate to wealth creation, managing your expenses are indirectly helpful too. As Edward Day once said “To acquire wealth is difficult, to preserve it more difficult, but to spend it wisely most difficult of all”. Managing your expenses is long-term game plan, which not only helps in creation of wealth but also gives you the necessary peace of mind. Here’s a look at some of the effective ways to save and spend your money wisely.

• Prepare your budget: Laying budget is nothing but jotting down all your fixed expenses such as EMIs, fuel, groceries, utility bills etc. After deducting all such fixed expenditure, next in line must come savings from the residual amount. Post that the remaining amount can be utilized for luxuries such as shopping & entertainment. Usually, people start with spending first, saving later and then end up short in completing their fixed responsibility. This step will help you in analyzing the amount you are eligible to spend, by taking care of your fixed responsibilities as well as your savings.
• Buy what’s necessary: Almost each one of us have fallen prey to impulse buying for one reason or the other and every time it has put each one of us in a tough spot. It does not mean you live frugal, instead planning your purchases will make a huge difference in your financial stability. Impulse buys not only creates gap in your budget, but also affects your future budget planning. Impulse purchases are often purchases which are not necessary or are victim of marketing skills. Therefore planning your purchases along with curbing unnecessary shopping will help you keep on track with your budget and create a sustainable purchasing power.
• Avoid wayward spending: Most essential part for successful personal financial planning is avoidance of wayward spending. This can be anything from stopping unnecessary purchases to determining the worth of the product or services and from dodging outside food for eating at home to doing research for product comparison and trying to be wise by enjoying benefits such as discounts, cash back or even redeeming your vouchers or credit card points. Avoidance of wayward shopping is a vague subject, however simple tips can lead you to better planning and independence.
• Spend without influence: Every individual has a habit of discussing any purchases with the friends, office colleagues, family, relatives or even marketing personnel. Unless you are a firm personality you end up getting influenced by their views and purchase something which you were never supposed to. The problem is not the view because the givers are not aware about your budget and your need, instead it lies in ignorance of the budget. The only person who knows the budget thoroughly is none other than you, yourself. Therefore it is never wise to fall victim to other people’s choice and unless you are a firm decision maker, it is better to shop alone and avoid this chaos.
• Ignore credit, adore cash: Credit cards or EMIs does nothing but makes you spend the money you do not possess. It only postpones the payment but in reality if you miss the due date of payment it attracts huge interest and penalties which not only makes the purchases more expensive but also disturbs your creditability. Use of credit cards must be made only for reward points or emergencies such as medical. Moreover the payment must be made in full and not in parts to avoid interest. Cash is the best resource available for any purchases as it neither levies interest nor incurs any penalty. Therefore always use cash for purchases and be smart in using your credit cards for availing other benefits.
• Live for yourself not for others: An ordinary human spends least 10% of his/her income trying to impress people he lives and hang out with. This habit results into unnecessary expenditure in buying stuff that was neither required nor wanted. It is a common habit which should be avoided at all costs, because one it is unnecessary and two you never know if it is really going to impress the people. Instead if you purchase things you require and love, you will not only save money but also feel content in its shopping. Simplicity is the greatest impression, and it will do a world of good if you please yourself rather than others.
• Overcome expensive habits: Visiting expensive restaurants, shopping every month, late night movies on weekend etc., are all habits which can cause a stress mark on your face when the month comes to an end. However giving up on them will not do any good for your mental health as well, so how to resolve this dilemma? You can plan your favorite restaurant visit or catch your favorite movies on weekdays instead of weekends and save up to 10 to 15 % of the costs. Further plan your shopping days in advance and save for it, avoid hasty or unplanned purchases. Always explore for alternatives and discounts on every products and services, and then execute your purchases.

Spending money is like controlling a hungry dog on leash, it will always try and take you to the direction it wishes, unless you manage to control it and save it from danger. It does not necessarily mean giving up on your existing lifestyle, instead it will result into a comfortable one, by trimming certain unnecessary expenditure. Success is the product of mastering all small yet insignificant task, and to succeed in saving money if one can master the above steps, month end will never be damp again.

(The author is founder, Money Mantra. Views expressed are personal)