Debt and bankruptcy have the effect of doing a great job of teaching one about financial discipline. I’m not the greatest student, but that fact hasn’t discouraged my teachers. They have never given up on me. Whenever I thought my finances couldn’t get any worse, they have been there to help me. This has been the case in a large number of areas of my life, and has been especially true in the case of personal finance.
Many of us do not realize how our financial behavior patterns and habits actually drive us further away from our personal goals and deeper into debt. A part of this apparent illusion comes from the insignificance of small amounts of wasteful expenditure that these habits involve. In the backdrop of our overall budget, addressing these habits seems to have a relatively low payoff. However, when we put all these habits together and look at their impact over time, they make up a significant chunk of money that could have contributed to savings or debt repayment instead. As part of my current mission to leave behind all that I believe is worth leaving behind, here are some small ways that you can stop borrowing from the future.
Keep Your Credit Cards Locked Up
Plastic wasn’t always recognized as one of the biggest threats to our future. From a useful alternative to carrying large amounts of physical cash, credit cards have morphed into instruments that let you spend money that you do not have. There is no denying that credit cards can be life savers in emergencies, but that is strictly what you should view them as, unless you have more money than you know what to do with, in which case, of course, the plastic is a lighter load to carry. If you have multiple credit cards like many do (yes, Ma, you are not alone), consider keeping only the one that has the highest limit, and cutting up the rest and mailing them back to the card issuer.
Don’t Fall for the EMIs
Purchasing on deferred payments schemes or EMIs can be a big trap, since it basically eats into your future earnings. You do not realize it at the time of the purchase but your available income shrinks by the amount of each EMI that you add on. Pretty soon, half your monthly earnings are gone servicing EMIs. They look small and deceptive, but can rip a huge crater into your monthly budget, so beware! If you have a big ticket purchase on your wish list, start saving up for it aggressively, perhaps at twice the amount of the EMI you were ready to pay, and then buy it with a full payment.
Keep The Change (Part One)
Most of us with a little degree of financial comfort in our lives get used to letting go of the change. Whether it is the cabbie or the waiter at the restaurant, the grocer or the errand boy, we rarely see change as a major source of expenditure or saving. We don’t think twice about paying 10 bucks when the bill is 9, and we don’t register paying 20 when the bill is 19. We do this pretty much all the time. At an average of 5% on all expenses, this translates to a hefty amount when you calculate your monthly expenditure on services and purchases. Do the math yourself. Set up a cumulative deposit account for that amount for the next 12 months, and start stopping yourself every time you are about to say, “Keep the change.”
Keep The Change (Part Two)
Dust your wallets, purses, and pockets down every day and put the loose change away. It might not tot up to a large amount even at the end of the month, but the logic here is that in your mind, the loose change is money that doesn’t exist. Keep it out of your daily spending money circulation by setting up a loose change jar. You can make this more exciting by having targets for what you want to do with this money. Setting up a target helps prevent you from cashing the change in when you are in a tight spot or when it looks too voluptuously heady and tempting sitting in that jar for so long. If you cannot think of a target, use this money to add extra zest to your debt repayment plan every time it fills the jars up.
Be a Champion of Thrift
Compare before you buy. Turn this simple shoppers maxim into a savings tool when you go for your regular groceries and provisions. Look out for discounts, coupons, and offers. The thumb rule for deciding how much to invest is to go by the shelf life of the item. If it will not stay for long, buy less of it, even if it is at a big discount, and vice versa. Use prudence when judging discounts. Most stores use discounts to move inventory that is not selling. There are two reasons for not selling, one – the product is no good, and two – the product is priced too high. A lot of people fall for the buy one get one free offer. Remember, you are not getting anything free; you are getting to buy twice as much but at half the price. Ask yourself whether you need twice as much, whether it is good value at half the price, and whether it will stay for the length of time you will take to consume twice as much of it. Check out discount strategies of your regular store and supermarket across times of day and days of week. Perishable goods tend to have wide variation of discounting during different times of the day. Most stores stock up around the middle of the week and are keen to let go of their older inventory at lower prices once they do that.
Put these seemingly mundane and common sense tips into action in a concerted fashion and you will be surprised at the impact they have on your personal finances. Remember that Rome wasn’t built in a day, and the only way you will be able to beat your finances into shape is through discipline and consistent effort on every front. That doesn’t necessarily mean having to do without things that you value. The tips above will not detract from your lifestyle in any way, but will free up money that you can use to create value in other areas of your life.
Subhorup Dasgupta is a Hyderabad based writer and artist who blogs at Subho