Before buying that luxury car or the swanky smartphone which has just been launched in the market, just ask yourself: Do you really need that car or phone, or are going to buy just because your neighbor or friend has got that the other day? The fact is, even the smartest of people do stupid things with their money and usually have budget leaks — whether it’s careless spending or tiny indulgences that add up over time. And while they keep worrying about where their money actually goes, these spending holes drain their hard-earned money without them ever noticing it.
Here’s a look at some common ways people waste money and how to plug their spending holes:
Stop Instant Gratifications
You must be aware that money saved is money earned. Therefore, stop giving in to instant gratifications like eating out tonight, buying that new costly phone, and going out on impromptu trips etc on a long weekend. “It may be fashionable to say ‘I live to travel’ or ‘If I don’t do this, what’s the point of living’ to justify any unnecessary expense. Ask yourself one question before spending any money — is this really required? If the answer is not an immediate yes, you can avoid it. Do not succumb to modern peer pressure. Just because your close friends, family or acquaintances are doing something, it does not mean you too have to spend on the same,” says Anil Rego, Founder and CEO, Right Horizons.
Make Budget & Spend Accordingly
Another way to avoid wasting money is to make a simple budget at the start of every month (before salary or monthly income comes in). List out all the must-do expenses you will incur. As the month progresses, tick off the expenses one by one. If you stick to the list, you will save some money. This money when invested properly can lead to the creation of wealth. When you save a little bit money, control the urge to spend it. Instead, spend a small portion (5-10%) of it to reward your discipline. Stop associating your happiness with spending; instead, link happiness with saving. If you cannot stop spending, try to save as much as you spend. This can also help.
Save & Invest Smartly
Saving money is 50% of what rich people do. The rest 50% is investing in avenues where you will get good returns that beat inflation. “Did you know that if you save and invest the monthly Netflix charge of Rs 800 per month for thirty years in an investment instrument that yields 15 per cent annually, you can accumulate Rs 55 lakh? That is the power of investing smartly. If you are below 30, invest a bulk of your savings in equity/stock-linked products. Debt should only be a small portion of your savings. Through mutual funds, you can spread your savings across a variety of funds. Take 5% exposure to gold. Do not invest in real estate with a 5 to 10-year term; there are better options,” says Rego.
Being rich does mean that you are free of any debt. Most rich people do not carry any individual debt on their heads. None of the industrialists, who otherwise run debt-ridden companies, are personally declared bankrupt. But a common person takes debt because they don’t have money to spend now. When you want to spend money that you do not have, you will need a loan. So, you borrow your future income and repay that income along with hefty interest. If you repay more than you got, how will you ever get rich? Loans or debt take away the power of our income because they ultimately get deposited in a bank’s or financial institution’s account. If you pay Rs 20,000 EMI every month for 15 years, you are unable to take advantage of the Rs 36 lakh you are paying. If you carry debt, you will never be rich.
Pay Your Bills On Time
If you are one of those people who – willingly or unwillingly – don’t pay their credit card and utility bills on time, then you are wasting lots of money without realizing it. For example, if you have 2 credit cards and you just forget to clear the minimum amount due on time, you would be paying lots of money in late charges alone. Suppose you are paying Rs 1,000 every month as late charges. However, if the same amount is invested every month in a scheme that earns, say, 8% annually, it can actually fetch you around Rs 15 lakh in 30 years. It goes without mentioning, thus, that not paying our bills on time is one of the biggest money mistakes which we usually make and which needs to be avoided first!