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You Won’t Die if You Don’t Buy. Here’s Why.

You Won’t Die if You Don’t Buy. Here’s Why.

Are you grappling with finances? Advice on how to make money is everywhere – from investment planners, successful start-up CFOs, online gurus, and self-proclaimed experts sitting next to you at the bar. They’re all focused on getting more income into your wallet, which is great! But no one talks much about where your money disappears to. I’m not offering a complicated output analysis or turning you into a miser. Consider these suggestions to keep expenses in check. Whenever you’re tempted to purchase on  impulse, I’ll be the voice in your head that asks ,”Will you die if you don’t buy?”

Here’s an interesting statistic: Black Friday is a peak U.S. shopping day. A National Retail Federation Research shows the total spent on Black Friday in 2013 was a staggering US $57 Billion! That’s a lot of buying.

Let’s begin with questions that help you find and plug the holes in your wallet.

1.  What do you spend the most money on?

You won’t forget the restaurant bill last weekend anytime soon but how much in any given month goes to groceries, eating out, fuel/car maintenance, the children and school-related expenses? Numbers in black and white jolt you with a picture of your spending patterns. You’ll know your monthly expense totals per spending category and payment medium like cash, credit card, or check payments. You can then plan which areas to cut down on. You’ll also see exactly why your expense total shot up. If you don’t buy unnecessarily, you’ll stay within limits.

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Tracking expenses requires that you keep all receipts and spend some time once a month to record and add them up. Initially, you need to prepare customized templates using any spread sheet – one form for cash payments, the other for credit card and check payments. Tally your expenses by relevant categories such as groceries, eating out, phone and other utilities, car, etc.

2.  Do you know how much money you have?

Sure you know how much you make and yes, you have money squared away, but do you make sure there is money left after paying your monthly bills? Again, recording your funds in black and white guides you to prioritize your necessary expenses. Don’t buy anything else if your funds are low.

3.  Are you able to pay your credit card bills in full?

If the answer is no, don’t use one. In her book Women and Money: Owning the Power to Control Your Destiny,” Suze Orman describes this as “the downward spiral of paying less than the entire bill and being charged interest on everything you don’t pay off.” Imagine if you had multiple credit cards! Interest on credit card debt is an expense you can avoid. Don’t buy on credit if you cannot  pay  the statement amount in full each month.

4.  Do you know when bills are due?

It’s when bills catch you by surprise that you hastily issue a check and don’t realize that it is not supported by your account balance. Or else, you opt to pay the bill late. You get slapped a penalty for issuing a bad check or you pay interest for late payment. Both are avoidable.  Prepare a monthly and yearly schedule that shows when mortgage, taxes, insurance, school fees, and utility payments are due. Don’t buy at all on the week or month when big payments are scheduled.

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5.  Don’t buy before asking, “What if?”

You’re thinking of buying a new outfit for a close friend’s wedding. What if you look deep into your closet for that cocktail dress you hardly used and jazz it up with a glittery wrap?  What if you borrow a dress from your sister? You want to buy a new grass cutter and a tent for monthly barbeques. What if you rent instead? You’re shopping for a present for your favorite aunt. What if you make her a bead necklace or an embroidered pillowcase? It’s your hobby and you have the materials already! Buying is not the only option.

6.  Mindful shopping can be guiltless, rewarding, and fun.

Review your intention and answer these questions.

Why? Shop only to buy something that’s needed or to get a treat you’ve been saving up for.

How? Make a list and keep to it. Learn the discipline of buying only one major thing at a time. Don’t buy an expensive pair of shoes plus an outfit or a bag at the same time. It builds restraint and guards your cash flow.

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When? Shop only when you can afford to. It’s best to time it during a sale. Don’t go shopping every weekend or simply because there’s a sale. That’s the reason you have a closet full of unused stuff and higher-than-usual expense.

With whom? Don’t shop in a group. You’ll end up with purchases made from getting carried away. Maybe someone else bought it or somebody said “Buy it. It’s such a good deal!” It’s hard to think clearly with opinions flying about, but going with a level-headed friend can curb your impulses.

Working as hotel expatriates, a group of 5 of us single women often shopped together. We were of the same built and shoe size. We bought – in one go – similar outfits and shoes in varying colors and styles. It was really fun but even then, I was the voice of reason (and party pooper) always asking “Will we die if we don’t buy?”

What? Buy the original. Go for quality and versatility. Be willing to pay expensively. The number of times and ways you’ll use good-quality things will be worth their price. There is no real excuse to buy knock-offs or pirated stuff which don’t last and add to landfills. Instead, save up and buy the original or choose good quality, unbranded products. Never buy products from endangered species. Animals should not unduly die just so you can buy.

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Where? Have a list of personally preferred brands you use and shops you buy from on the basis of quality of product and service. This builds relationship and rewards. It also keeps you from unscheduled purchases in random places.

Who? Consider the makers’ and sellers’ corporate social responsibility record: do they pay fair wages, sustain the environment, minimize waste, and give back to the community? Choose to spend your money in support of people who’re doing good things.

By sticking to a set of criteria, you simplify buying decisions and actually save money. Check out these other money-saving enjoyable experiences, too.

7.  Do you block the flow?

Doing all these suggestions could reveal you’re not doing so badly, financially. Don’t forget other people who are not doing so well financially and be willing to help them out. Help could be in the form of a small monthly donation or a one-time donation to a cause you care about. Or it could be a loan to a struggling friend. Be part of the flow and respect the law of abundance. When you cascade some of what you have to others, you also make space in your wallet for more.

Featured photo credit: cohdra via morguefile.com

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Last Updated on November 27, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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