6 Money-Smart Changes To Make Towards Financial Freedom
One of the signs of adulthood is being able to manage your finances efficiently and responsibly. However, many feel challenged or even fail when they find themselves faced with an empty wallet, a depleting bank account, or worse, a mountain of debt because of overspending.
Financial independence means being able to live your life without worrying about money or being in debt. Effective money management can take a while to learn for some, but it doesn’t mean it can’t be done. Here are some ways to curb your spending to help you achieve your savings goals, and hopefully, take you on the path towards achieving financial freedom.
1. Track your spending
Tracking your spending is the first step in understanding your spending habits. By listing down all the items you typically spend your money on gives you a clear picture of where your money goes each month, while also identifying where you can cut back on. How to do it: Make a list of every item you paid for each month. You can keep receipts and then set aside some time weekly to list them down or have a handy notepad in your phone where you log all the cash you take out from your wallet or the times you use your credit card for a purchase. Remember to log all expenses—including minor expenses and especially online shopping!
Next, categorize them accordingly. It may be sorted into these categories: Utilities, Groceries, Eating Out, Shopping, Entertainment, Transportation. Once sorted, you’ll be able to see which area you tend to spend most on. Is it on eating out and entertainment? Utilities? Or shopping?
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2. Set a budget
Overspending tends to occur when we don’t set a budget for ourselves. A monthly budget helps you identify all your payables and expenses vis-à-vis your income, while setting a budget for every purchase helps by placing a limit to only what you can spend without feeling deprived.
Don’t know how to do it? Start off by putting down your monthly income, followed by listing down all the items you pay for and spend on. This includes rent or mortgage, transportation expenses (such as taxi fare, gas, parking fees), and utilities (mobile phone plan, electricity, water), along with other necessities you might need to pay for each month. Set aside a specific amount for these; you can identify the exact or estimated amounts for each category once you track and review your monthly spending.
3. Identify needs vs. wants
Sometimes we buy things impulsively, only to realize later on that we don’t necessarily need them. The key is being honest with yourself and learning how to identify when what we want to buy is a real need or necessity or just a ‘want’.
How to tell the difference? A need is something that you have to have for survival, while a want is something that you can do without. For example, you might need a phone if your work requires you to communicate with people or be online 24/7. For this, you will need a smartphone with a data plan, perhaps, but this can be a “want” if you feel you absolutely have to have the latest high-end smartphone that can set you back thousands of pesos.
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4. Buy smart
Frankly speaking, spending less means buying less. The present movement towards minimalism and zero-waste lifestyles are bringing an awareness back to reducing consumption, reusing what we already have, and recycling what we can, which in reality also saves us money.
Need to purchase something? Check first if you really have to buy or if you can simply borrow from someone. Do you really need to buy another dress for that evening affair or can you just borrow from one of your friends? What about the tent and sleeping bag you wanted to buy for your child’s camping trip? Maybe you can borrow from one of your friends, since you might just end up storing that in the garage after you’ve used it once.
If you think you have to absolutely purchase an item, then consider buying the best quality you can buy – and only within the budget you set. Some products or brands may be more expensive than others, but remember that you’re paying for durability, life span of the product, and maybe even after-sales support such as warranties and complimentary repair services. Always consider your purchases as a worthy investment, and make sure you get value for your money.
5. Eat healthy
After tracking your monthly spending, you might discover that like most of us, you also tend to spend a lot of your hard-earned money on eating out. Cutting back on eating out means spending more on groceries, yes, but this also gives you more control over what you eat, hence, more opportunity to eat healthier.
While processed food and junk foods may be cheaper than some healthy food, remember that eating healthy food doesn’t mean buying organic or even purchasing pricey ones from specialty health food stores. Just buy fresh produce and lean meats, less sweets and bottled juices—and drink good old water. Also, eating better and being healthier means you have more energy to work efficiently, can take on side jobs if needed, and won’t need to spend much on healthcare or medicines.
6. Avoid using your credit card
When shopping or doing your groceries, keep in mind your budget, as well as your payment scheme. Try to pay in cash as much as possible to avoid incurring credit card debt. Also, limit your spending by shopping only when you actually have the money to pay for what you want to buy.
Just because your credit card has a significant credit limit, doesn’t mean you get to spend just as much. Only use your credit card for purchases when you know you have the cash on hand to pay for it. And finally, if you do end up paying with your credit card, remember to pay your balance on time, and pay with as much as you can so as not to incur any extra charges or interest.
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These are simple, practical steps you can adopt to help curb your spending. Once you master these, you will feel more comfortable going further into managing your finances. Soon you will feel more empowered to expanding your financial knowledge.
Photo by Sharon McCutcheon on Unsplash.