Money, they say, makes money. It is an undeniable truth.
There is no guarantee, however, that the money you have will stay with you indefinitely.
Money, like a tree, can grow from a tiny seed into something huge. Also similar to trees, you can plant multiple seeds and nurture them to reap a rich harvest later on.
The Difference Between Investing and Spending
When we treat money like a tree, we call it an investment. Like a tree or a crop in a field, we also need to harvest and consume what we produce.
But, chopping down the entire tree would put an end to your source. Consuming the produce that you sow is like spending money. Doing it in a measured way would be more beneficial for your finances.
Spending money is easy – investing it is not. If you are looking for financial health, you need to put aside some money for investment every month. But, to have cash available for investing, you need to control your spending first.
Here are a few ways that you can balance your money between investing and spending:
Investing Your Increment
Salaried people typically get a salary increment every year. As you earn more, you will spend more as well unless you control your spending.
It would be ideal to invest the additional monthly amount into an investment vehicle. Set up an auto-debit from your account. You can add a small amount to round it off.
Plot out Your Monthly Expenses
This exercise is best done on an Excel sheet, although you can also write it down on a piece of paper. Make a note of all your major monthly expenses. Ensure to record one-off spending as well, like a birthday gift, an anniversary celebration, household repairs, and so on. Look at the total money you spent in a month.
Now, look at the list and see how much surplus you have left, if any. It is the money that you can use for investing. It would be best to look at ways and means of increasing this surplus by ruling out unnecessary expenses. Make sure that you’re saving time while doing so. For example, if you have a credit card, you can find out a way to pay your credit card bills conveniently online.
You’ll be in a better position to control your costs once you determine where your hard-earned money is going.
Ask Before You Pay
There’s a thin line between being tight-fisted and being plain shrewd. Although people may sometimes look down at shrewdness, where it concerns money, it can be a good thing.
It involves your hard-earned money, so why be ready to part with it so quickly?
Ask yourself whether you can avail of a particular product or service free of cost. Can you pay less? There are several schemes where you can get free stuff that the sales staff conveniently ‘forget’ to tell you about. Moreover, there’s no harm in asking for a discount – you’ll be surprised at how many places you can pay less if you only ask.
Maintain Additional Bank Accounts
On the one hand, having multiple bank accounts can confuse how much money you have and where it is. On the other, opening a couple of additional bank accounts can be a good idea. Once you have listed out your monthly expenses, you can put your money into separate bank accounts to use.
Place all your expenses under three heads and designate three bank accounts for the three categories. The first category would be fixed payments like a mortgage and life insurance premiums. Secondly, you have variable expenses like groceries and household expenses. And the last one would be for investment.
Strictly use the money from each account for the specific purpose under each category. You can set up standing orders for paying your monthly investments.
You can even maintain an additional “jam jar” bank account. Whenever you find that you are left with a bit of extra cash, you can add it to that account. It can total up to quite a significant amount in time.
Think Before You Buy
Look around your house, and you will see proof of all your impulsive purchases. Things that you bought on a whim, but you never used, and perhaps never will.
When you are attracted by something in a store or on the net, ask yourself these questions – Is this going to last long? Will it break the bank? And, lastly, do I really need it?
The convenience of online shopping can be counterproductive to your financial management. There has been a spike in online shopping since the coronavirus pandemic of 2020 began.
A survey conducted by Capgemini in April 2020 highlighted an increase in online shopping channels and the number of online customers. According to the survey, a projected 72% of buyers in India would prefer to shop online by the year-end.
If buying something will take out a sizeable chunk from your bank balance, you need to ask the above questions. If you answer any of those questions in the negative, you can walk away and forget about it. You will be richer by a few bucks for something that you never had in the first place.
Control Your Shopping Sprees
Before you set out happily on a shopping spree, take with you a companion, a timer, and a budget.
You will indeed have some idea about your bank balance, or if you use a credit card, your credit status. Decide on a particular limit that you should spend on the trip and share these details with your companion.
Your companion will monitor what you spend and urge you to stop when you have reached the limit of your budget. Keeping a timer set like the stopwatch of your phone will tell you when it’s time to go home.
Imposing a “Tax”
We all like to enjoy the good things in life. Of course, you work hard for your money and are entitled to spend a bit of it. You may go on a vacation to get away from it all or have a sumptuous meal in an expensive restaurant with your family. But it would be best if you controlled it at some point.
You can put a check on such spending in a simple way: levy a “tax” on yourself.
Every time you splurge, invest an equivalent amount. That way, you will think twice before splurging, because you know that you have to spend double the amount each time you splurge.
Don’t Spend to Maintain Your Image
We tend to buy things for the benefit of what others might think. Stop buying things to impress other people and start spending your money on what you need or want.
Whether it’s a car or a pair of shoes or sunglasses, you will be using it, not others. You will end up saving a tiny bit of money once you start doing this.
Continue with Your Instalments
If your mortgage on your car or home gets paid up, don’t stop allocating that monthly amount. You can continue to divert that money into a savings plan. Start a long or medium-term investment and put the same amount into it every month. You can increase it by a small percentage, to add to the value of your investment.
You may not feel the pinch, because it is money that you were spending every month, anyway. Arrange for a monthly standing order to pay the amount from your bank account. You will not even get to see that money every month, but one fine day, you will thank yourself for what you did.
Do Not Be Lured by Quick Money
Unless a rich relative dies bequeathing you a windfall, there is no such thing as “quick” money. Even if you come into a sudden inheritance, there are all sorts of riders attached, like inheritance tax.
Historically, even winning a lottery is not the best thing that can happen to a person. The sudden wealth becomes a difficult thing to handle. In most cases, the money doesn’t stay with the person, and it ushers in all sorts of woes.
In the book Marauders of Hope by Aruna Ravikumar, a whopping ₹7 lakh crores have been swindled from people in India to date on multi-level marketing frauds, otherwise known as “Ponzi” schemes.
Avoid quick “get rich” schemes as they paint a rosy picture with false testimonials. If you look carefully, you’ll see several terms and conditions in the fine print. Thanks to these loopholes, you may end up spending more money than you earned if you earned anything at all.
Curtail Your Spending to Boost Your Savings
You work hard to earn your money. Today, money is not easy to make – it never was.
If you don’t look after your money, it won’t stay with you for long. You need to learn to respect money for what it is. Without being too “money-minded,” the fact is that money gives you security and even power. Money speaks.
You will observe a thin dividing line between having money and not having it or not having enough. But, if you plan carefully and follow these ten tips, you can make your money work for you. There are hacks to this, like, investing in the right instruments, choosing the correct investment duration, making processes more convenient like using the best credit cards, instead of debit cards, because they give you offers and cashbacks.
In essence, you must strike a balance between spending and investing, which is the best path for financial security and peace of mind.