How to spend less is what people who start their financial education ask themselves. And most of them focus, for the first time, on the budget. I see things differently and start from the objectives. I determine what I want to reach the budget: income-expenses and later to establish the right strategies and vehicles.
How to spend less? The budget!
The budget is divided into inputs and outputs; income and expenses.
Income has several areas: salary, bonuses, meal vouchers, bonuses, interest/dividends.
Expenses are divided into: fixed expenses, basic: food, maintenance, rent/installment, clothes, education, installments, transportation and extra or variable expenses: outings, hobbies, vacations, etc. The extra expenses category can include a lot, and the subcategories are very diverse, depending on individual interests and personality. We also include impulsive expenses here.
From my experience as a financial planner I have identified that most money is spent in the extra category. Why? Because there is no fixed amount, no record of them. If the bills have a fixed or approximate amount, the expenses for going out vary. Entertainment differs from month to month, even from week to week. Money for vacations is usually not set aside month by month, and is made either from the income received in the month in which you go on vacation, or from the last two months before the vacation. In these months, the budget is turned upside down.
The month of gifts: December is the most expensive month; a month in which there is no evidence. It is also an emotional month: there are meetings with family, friends, spending time in the most wonderful moments; moments devoid of the pecuniary sphere. This is how the biggest expenses occur.
Decisions and emotions
Our decisions are made emotionally. If we bought an expensive tree, we will argue: “Christmas is only once a year and we should feel good!”. Arguments appeal to emotions. They will only appeal to logic in January when the tree is thrown away or when the veil evaporates and “we have no more money”.
On the other hand, if we had an envelope for “gifts”, then there would be no pressure on the budget during the month of gifts.
The envelope method
There are many methods of saving in circulation. Each one belongs to a category of financial personality. Among them is the envelope method. It is very much up to each individual whether they appreciate the method of saving divided by percentages for large categories of expenses more, or the balanced and detailed version: for each individual expense. What I recommend is a personalized division of expenses.
In principle, the recommendation is to save 10% of your income. This money goes, depending on your goal, into the right vehicle: savings account, deposit to build short-term reserves and medium and long-term investments. Then you pay your fixed expenses, namely your bills, and for extra expenses: you cross out the categories and make an envelope for each.
Fixed expenses that do not have a monthly frequency, such as: home insurance, car insurance, tax, are established as follows: the amount and its frequency are established, divided by the number of months and the monthly amount is found, which is placed in an envelope. We thus have an envelope for tax, one for home insurance, one for car insurance. Also, maintenance in the winter months, when the cost increases, an envelope can be made based on the monthly average. Each month, the maintenance is taken from there, in the winter months there is the surplus necessary to cover the high level.
For expenses such as vacations or events (weddings, baptisms, gifts for various holidays) an envelope is established and the monthly amount is put according to the calculation: the total amount needed depending on the number of vacations/events per year divided by 12. The same happens with expenses for clothes/cosmetics where I saw that there are fluctuations. The frequency with which these purchases are made is established and an envelope is made. For each purchase, you take from there.
For outings, a monthly amount is established that is divided by weeks and by outing. This is not put in the envelope. Just keep it in mind so that you know that you will not spend more than 80 lei /outing, let’s say.
How can I plan my expenses to benefit from discounts?
Question: Since it’s still the season of discounts, how can you benefit from them while still keeping your plan to achieve the important financial goals in life?
Answer: If you have such a budget, divided into envelopes, you have no problem buying the book you found on sale and are interested in, the watch or perfume you want, the shoes or clothing you like.
How do I manage my money?
I am often asked how I divide my expenses. I am a person focused on security. My personality does not give me the comfort of keeping a detailed and strict record of things. It tires me. Thus, I put aside 50% of my income. They go into savings and investments. I still save, although I have a large financial security fund, for short- and medium-term expenses and investments. Short-term investments are in products that I make, such as: books or toys that will appear soon, or stock market declines as they happen during this period. I pay the bills, and the remaining money is for miscellaneous expenses: food, clothes, cosmetics, going out, hobbies, books.
During this period, being discounts, I did some shopping and I like to buy at discounts, because that’s how I save. I bought books from Elefant. You can buy them here: . They have the biggest discounts: up to 80% and not just on books . I recommend the books that I have read and consider useful in financial life. You can find the article with the recommendations here: https://www.psihologiabanilor.ro/10-carti-de-educatie-financiara-care-iti-marcheaza-viata/
What I buy the most and where I have a weakness are footwear, especially shoes and boots and bags. I usually get mine from here: , and, as for handbags, I don’t have a specific place, that’s why I often buy from Emag because I can find them in several stores: . Now you can find discounts in many stores.
I always bought because I needed it. Very rarely did I buy because I wanted it. Of course, I always argued that “I need it”.
From the category of desires, what I bought, buy and will buy again because I really like itis jewelry. Although I don’t need it and can’t wear it most of the time, because I’m allergic to any kind of metal, I can hardly resist buying it. I usually buy wherever I can find it. Elefant keeps tempting me with many elements:
How to spend less? Decisions!
Everyone decides to act according to their needs, desires and plans. We need to be tempted to see the capacity for patience and restraint. Planning correctly depends on the important goal for you. Act as you wish, be aware and choose; the decision belongs to you!
Success in becoming aware of money and expenses in your life!
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