How to spend your money to grow your wealth?

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Unless you have unlimited financial resources, which is unlikely, you will no doubt find yourself reaching limits in the amount of money that you have available to spend. All of us have a salary or income that has a ceiling. This means that what you spend your money on, is probably the single most important choice you have to advance our financial independence. Every day, month, and year you have expenses that have to be paid. Some are fixed and others are variable. This will affect the amount of money you save or whether you even have any money to grow your wealth.

Make sure you have a budget in place, if you not sure where to start, check out our article: 8 Ways a Budget Helps Achieve Financial Success.

Assess your expenses and the value they add?

In order to control their finances, most people will resort to reducing their expenditure as a strategy to create savings. The problem with this methodology is that 9 times out of ten, by cutting expenditure you might well create a shortfall in another area of your life.

For example:

Let’s say you decide to cut spending on your mobile phone. So you cancel your contract and migrate to a pay-as-you-go service. Initially you save the dollars you were spending, but now you find that on your pay-as-you-go service, you have less capacity to communicate. On top of that, your costs are higher when phoning or using data.

This can happen for a variety of different expenses. This is why it is important to calculate the cost-saving vs the alternative cost for not spending on that service or product.

Another example:

You decide to move to a cheaper residence. It’s further from your work and from your children’s school. On paper it looks great, you going to save a packet of money. Then you move to your new apartment. Suddenly you see your fuel costs skyrocket. You didn’t factor in all the additional trips and extra driving required to do what you would usually do for less in less time.

Do a cost analysis before making financial decisions

The key is comparative cost analysis is to determine if your cheaper option is truly cheaper! There are always hidden costs and these need to be assessed or you might just find yourself spending even more than you budgeted.

If you decide to reduce expenditure on anything, assess how will this affect you. If it is a non-essential product or service you can live without, drop it! If you going to incur more costs in the long run by saving a buck now, then its not worth doing.

Ask yourself the following questions:

Do I need this product or service?
What will it affect if I don’t spend money on this?
What is this expense saving me in other areas?
What expenses will I incur by not having this?

Identify whichever expense you can live without and remove them from your list. Then consider investing the savings into areas where you need to build better resilience.

What other strategies could you use to build financial stability?

One option is, instead of obsessing about saving money, spend your money on things you know you always need. You know there are monthly expenses you cannot live without. Expenses like food and groceries, pet food, school fees, or whatever is an essential expense.

Instead of operating from fear and trying to save, focus on spending your money on what could save you down the line. Purchase more items you can’t live without.

For example:

You purchase one jar of coffee each month. So this month buy 2 or 3. Then do the same on other items you can afford, start small. The key is getting ahead of your expenses, you can’t get away from spending money, so use it to leverage capacity.

Wealth is not purely about how much money you have in the bank, wealth goes deeper than that. It is about capacity and what you can do:

  • How long can you live without needing income?
  • How long can you live on the resources you already have?

By being ahead of your expenses will give you the room you need to deal with the bigger financial issues, like paying up any debt. It will also allow you to save up for larger financial goals you might be working toward.

Break down your expenses into two sections:

Fixed Expenses: Expenses like rent, home loan, policies, etc. that have a fixed monthly amount

Variable Expenses: Expenses like groceries, fuel, entertainment, etc. that can fluctuate.

Now assess your variable costs and find opportunities to invest in areas that are critical.

  • Categorize your expenses from high to low.
  • Start with the lowest expenses first.
  • Assess which of these you could go without and commit to not spending money on them.
  • Now for one month invest in one or more of these items.

By investing in things you always need and having several months’ worth in stock will allow you to invest in other items next month.

You can repeat and apply this to higher and higher value items until you have grown your capacity to a point wherein a few months you can go a full month without paying for many or all of those items.

This will free up money for expenses that you are not able to currently afford. It could give you the needed sum of money to settle an outstanding account that has been pending for months!

Control Your Spending or you will Waste Money

Spending money is not the problem, we all have to spend money to purchase goods and services we need every month. The problem lies in how we choose to spend that money. If you spend it wisely and grow your investment in the things you need, you will make more money available for the things you truly want.

The true secret to growing your wealth is not necessary just increasing your income. It is even more important to evaluate how you are spending your money! Are your expenses growing your financial capacity or are you being wasteful in your spending?

How important do you thinking your spending decisions are in your progress to achieving financial success?

Want to learn more.

Check out our tips to improve your financial independence:

7 Strategies to Improve your Basic Financial Literacy

6 Great Alternative Investment Options To Supplement Your Strategy

What happens if you don’t have enough money for retirement?

How to Manage Two Jobs and a Family?

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8 Ways a Budget Helps Achieve Financial Success

How to stick to a budget

Budget is a smart way of managing available finance. Coming up with one allows you to shop for specific items that are essential and utilizable at that period. Sticking to the planed list when purchasing goods and services has proved to be a challenging exercise, and many give up and spend money aimlessly. Impulse buying remains the primary cause for failure to stick on a budget. Emergencies and forgotten items are two more reasons people spend funds in ways they had not planned. We’ll show you how to stick to a budget.

Spending your finances without a management plan can seem justifiable, but it destroys your financial status, throws you off balance, and you lose control. Unbudgeted spending can be disastrous as it requires you to go back for your savings. When you have depleted your savings, the left option to finance your spending is loans. The pile of debts creates financial stress, and before you know it, you become financially insecure.

8 Successful Ways on How to Stick to a Budget

1. Do not Spend more than you Have

Every fraction of your income is allocated to its purpose on a budget. The amount of money assigned to complete a particular activity should be enough to support it. When the funds are inadequate, you go back to your budget and re-evaluate if you aimed too high or minimize the number and some commodities forgone to keep the account in line. Resist the urge to source finances from external sources to boost your funds. Do not compromise on your savings to finance other personal projects unless that is the planned intention for saving. If what you have at your disposal is more than enough, you can always add to your saving in case you urgently in the future.

2. Shop Online

Shopping cart isolated on the computer keyboard. Online shopping concept

Users who buy items online have little or no interaction with marketers online. When navigating with a cart, promoters have no interruption who persuade you to carry more items compared to local stores. A customer does not have a chance to try different things, limiting their option in selected commodities. Physical absence is a significant factor in eliminating impulse buying. Online items are also offered at low, relatively competitive prices, and commodities are high quality. Free shipping services provided by online sellers will help you save on your time, fuel, and energy. If the shopping exceeds your budget, you do not have to initiate a purchase. You have an option of temporarily abandoning your cart and cone save it later when your finances are in order and finalize the purchase.

3. Lower your Credit Limit

Limit the maximum amount of money that your financial institution allows you to use before maxing out. Consumers who have fewer credit card funds will be strict on their budget to avoid running out of credit. You cannot spend beyond your limit. Eventually, this will amount to less debt when paying back for the credit service to your financier. Exceeding the limit set would provide relief but impact heavily on your credit scores and the vastness of the debt. Find out more about Basic Financial Literacy, it will help you to make the right choices.

4. Think Long about your Purchases

Rushing your shopping process can make you pay for unnecessary items that you pick along with the required items. Since you paid little thought to the things you choose, you spend more money than budgeted. To avoid this error, take your time as you budget, which will help you narrow down to only essential items. The shopping list will guide you throughout the shopping process. If you encounter a new product and are somehow moved to purchase the item, take your time, and think before buying it. Evaluate its uses or applicability; it might have no utility in your home and save you an extra coin.

5. Eat at Home

A meal prepared at home has a variety of benefits. Besides the healthy ingredients, the homemade meal will save you money. Buying foods from restaurants and the food market is expensive. You do not pay for only food but for all the other services, including renting and maintenance expenses. You do not have control over the portion you are served and could keep o ordering until your stomach is full. Make your meals and leave your house after you have eaten to avoid feeling hungry in the streets. If you are working in an office, make it a habit to carry your lunch from home and brew your coffee in the office other than buying in the streets.

6. Use Cash (run out of money, you are done for the week)

Prefer cash transaction to credit cards. When you transact using cash, you avoid funding goods or services that do not make sense. Losing money on unimportant issues could be a somewhat painful experience. You calculate on every purchase and rethink because you are parting with such a massive amount of your cash and end up holding to it more. As a buyer, you will get better deals in the market if you are using cash. Negotiate the price to the amount your money in the pocket can finance. Cash also allows you to portion your money and carry a tiny amount with you on your shopping activities.

7. Compare Brands (Find Cheaper)

Make it a habit of comparing prices from different stores before you make your purchases. You will realize that different stores price their commodities differently. Some stores have fixed prices while others can offer discounts to their customers on purchases. Second-hand stores have refurbished or older gently used items to get at low prices and still serve the purpose. ensure you get the best deals out of every purchase that you make. Do not compromise on quality as you go for cheap commodities; it could be expensive in the long run.

8. Go Minimal

You do not have to quit shopping altogether to save money and stick to the budget. Minimizing the number of commodities, you buy in a shopping exercise can help you stick to the budget. Going minimal allow space for priority goods and services. You are more focused on the vital products, and the process of allocating the scarce resource becomes simple. If you have different commodities that are not useful around your home, you can resell them and retain more money. Perishable things will go bad if they are not utilized on time. There is a possibility of items going out of fashion, and if you had concentrated on purchasing maximum items, it would be challenging adapting to the new lifestyle.

If you want to learn more about minimalism, check out this blog on the 8 Essential Principles of a simple lifestyle.

In Closing

Becoming financially independent can be tasking but rewarding to a patient and focused individual. If your income is under your control, then you can enjoy a stress-free lifestyle. The benefits of budgeting and sticking to it are not to be underestimated as they create more balance in life. Your savings are essential in times of emergencies, retirement, and re-investing. When you take your time to manage your finances, the chances of spending money that you do not have and accumulating a considerable number of debts on unwanted goods are eliminated. Manage your money correctly and track your expenditure and account for every dollar spent.

Learn ways to save and invest using traditional as well as alternative investment strategies.

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