Bank balance less than $100 at the end of month? Postponing bill payments and expenses till your next paycheque? Not able to manage credit card and other payments? Then you have arrived at the right place. Yes that’s the case with most of us since at some point in the month we face a cash crunch. I am not going to give you a detailed do’s / don’t list or how you should change your behavioral traits (maybe later?) to manage your finances better.
The answer is much simpler. If anything you shouldn’t change plus have the same outlook towards bill payments
We humans tend to be more sincere towards things like bills and mortgage payments. Take advantage of this inherent behavior to improve your finances by
Adding yourself as the #1 item in your expense list
Do that and you have taken the first and most important step towards better financial management. Many great finance experts have stressed on the fact that we need to save and invest. The fact is people do want to save and invest but they don’t have surplus money to do so. Therefore a good starting point is to first answer ‘How to have surplus in order to save and invest’. A few investors have attempted to answer this indirectly like Robert Kiyosaki (author of Rich Dad Poor Dad), with his balance sheet depictions of middle class vs rich people. I am going to mention an approach which actually works and runs in parallel to those balance sheet depictions.
Why should I pay myself?
Most of us have heard time and again to keep our expenses in check (As if we didn’t know that). Paying yourself will solve this problem.
Let’s say, hypothetically, it’s first of the month and you receive $1000 salary deposit. You might be having a ton of items to pay off like YOURSELF, mortgage/credit cards, car lease, house bills etc. Initially it feels adding one more item (yourself) to the list will do worse but trust me it won’t.
$1000. Out of which you will pay yourself say $100 or higher if you deem yourself worthier ;). Next up mortgage payments and car expenses, say you pay that off with additional $450. Further, you need another $250 for the basic necessities, fitness, and mobile bills. That leaves you with $200 for expenses over and above this (read unwanted expenses). This could be used towards subscriptions, shopping, travel or any other miscellaneous expenses which you otherwise don’t need to do.
See what we did there? Without explicitly adding saving or investing to the list, we have spared $100 (i.e tagged to yourself) specifically for that. Of course, these percentages are not fixed and would vary for each individual but you get the overall idea.
Add yourself as a recurring monthly payment with your bank or financial institution. Of course, by ‘yourself’ I mean — savings account, mutual funds SIP’s, demat account, mortgage prepayments, etc. All of these would help you generate more future income or leave you with more disposable income.
Instead of seeing how much money you have for saving after expenses, do the other way around. See how much money you have for expenses after saving (paying yourself) and paying necessary costs (like mortgage etc.).
Add yourself as the #1 expense and you will make sure that —
- You save and invest regularly
- You have control over your expenses (indirectly)
- Your money (investments) could make more money for you
Long lasting benefit
Finally, there is a tight correlation between paying yourself first, minimalism and financial independence. It’s like a chain reaction, do one of these and the other two will follow. No, it won’t happen in a month but will definitely happen over time.
Hope this helps you to start actually “saving” and keep your expenses in check. Leave your thoughts in the comments. Happy Saving!
This article is for informational purposes only, it should not be considered financial or legal advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions