When it comes to individuals financial profiles there are usually three categories of people. The first are the people who spend beyond their means, the second kind of people who are able to just spend what they have and then the third group of people will spend less than they can afford.
It’s been estimated that 90% of the world’s wealth is spent by only 10% of the global population. And even if it were to be distributed evenly, it would take less than seven years for all the money to get back to its original unequal state. This shows us that how difficult it can be to change your personal spending routines. But what most people don’t realize is that taking a step back and looking at the way you spend can be a vital first step in maintaining a healthy financial balance. [Check out: Books on Investing]
Here are three tips to help you analyse your current situation and plan for the long-term.
First of all you should look at what current profile you fit in to and understand what needs to change. For this there is a 3 point action plan –
Once you’ve worked out where you are, you then need to start thinking about where it is you want to be. An example goal could be to have paid off all your debts in 24 months. On paper that two years can seem like such a long time way and make it almost seem unrealistic. A great way to make this end goal seem much more achievable is to break it down into bite-sized pieces. By setting yourself weekly or monthly goals, it’s much easier to see how much of an effect the small changes have on your financial situation. This will then help to reinforce your new money managing practices and help you eventually reach your final goal. [Check out: Personal Finance tips from Warren Buffett]
Budget your money
If you’ve worked out that you often spend more than your needs, one of your first steps should be to create some sort of budget. This can be as granular as you require and will help you keep track of where all your money goes. To begin with, start with recording all of your expenses on a weekly basis. It will soon become clear where you are wasting money and what areas you can make immediate cut backs. If you find that you spend to your means, this can be a great exercise to help you find opportunities to start building up your savings. If you find you spend below your means, you’re in an excellent opportunity to save. Writing a clear plan of how you are going to spend your money is a great way for you to realise just how much you save and how you can afford to try new things or spend a bit of extra cash every now and then. It’s great to have lots of money sitting in the bank but where’s the joy in living if you never get a chance to enjoy what you’ve earned.
Re-evaluate your plan
Just because you’ve set yourself a plan of how you are going to spend and save your money, doesn’t mean there is no room for change. It’s a good idea to keep revisiting your plan ever few months and making sure it’s the right one for you. There is always a scope of improvement.
Also, once you’ve started to adopt more financially sound ways of spending on a day to day basis, you may find it easier to cut back even more. By keeping a close eye on your recent spending you can make informed decisions on how best to manage your money and how you can reach your long-term goals.
What’s your take?