Manage your spending
If you’ve been following our series, so far we’ve talked about cash flow management and diversification of income. In this third part of the series, let’s talk about spending.
When talking about financial success, we can’t only talk about income, we have to talk about expenses too. In part 1 of this series, one of the elements of cash flow management was understanding where the cash is going. Let’s take it a step further and look at the management of the expenses themselves.
If you want to build wealth and achieve the financial success you must develop your ability to manage your expenditure both personal and business.
Here are 7 tips for managing your expenses.
1. Track your expenses
You can’t manage what you do not know. Whether you are managing personal or business finances, it’s important to identify and track your spending. Review bank statements and/ or business transactions to identify spending habits and patterns. When you identify the expenses and pattern you can then review them to make better spending decisions.
2. Set a budget
The fastest way for spending to get out of control is when there is no budget. A budget helps keep you on with your spending by identifying spending limits. Based on your priorities, use the budget to set how much you are going to spend on each area. Stick to the budget and be diligent with it.
3. Look for value for money
Management of expenses requires you to be reasonable and look at the value of the spending. Is the expense worth the value of what you are getting? Managing expenses though doesn’t mean being miserly don’t spend $500 when $100 will do.
4. Save more than you spend
Remember the surpluses and deficits from part 1 of the series? You can’t achieve consistent surpluses if there is constant spending. Try to develop a savings habit.
5. Beware of the charge
A credit card is a double-edged sword. Hooray for reward points but ouch for that interest rate! Credit cards are certainly useful and paying them off on time can help you develop a good credit score in the long run. However, you must use it to your advantage. Only charge to the credit card what you can afford to pay back within the statement time. Any balance you leave unpaid at the end of the month attracts interest. So your unpaid balance will continue to grow thereby increasing your expense.
6. Better decision making
Generally speaking, expense management requires better decision-making when it comes to spending. Except for emergencies, avoid hasty or the spur of moment spending. These can throw off the budget and leave you in a deficit at the end of the period as they are unplanned.
7. Review recurring expenses
Recurring expenses is an area where wasteful spending can occur without you noticing. Even if it’s budgeted for, its recurring nature means there is no active decision to pay it every month. A good exercise would be to review such expenses to see if they are still relevant. You may even be paying for a service that you no longer need! Or even worse, the price may have increased and you didn’t notice!
Managing your expenses is one of the most important aspects of financial success. By following these tips, you can make sure that your spending aligns with your goals and helps you reach your long-term financial objectives.
Stay tuned for the final part of the series.
- Develop a long-term plan – imagine Ceasar – Rome wasn’t built overnight –
- Build wealth is a Journey
- Set your long-term plan
- House 2 years
- Travel the world – 5-year plan
- Retirement 10 years
Develop a plan. Rome wasn’t built in a day so too is building wealth. At best, there should be a healthy balance of both long-term and short-term goals, allowing you to spread your actions over a period of time. So take a look at your next 5, 10, or even 20 years and then break them down into different key goals e.g. buying your house, taking that special trip, or even retirement. For each goal, quantify how much you need then further break that down into the individual steps you may need to take. And then voila! You’ve got a roadmap on your journey to financial success.