Introduction.
Managing your expenses is the best way to become wealthier. I must admit, it can also be an uphill battle. Just like in business, your personal wealth is maximised by increasing your income whilst reducing your expenditure. It is therefore imperative that in addressing personal finance aspects, you put key consideration on expenditure management. Here are some of the strategies you can employ to manage expenses:
Budget
The first key consideration that you make is to develop a budget and implement it. The budgeting process is not a simple exercise and will require you to periodically review it so that the budget remains realistic. The key determination in the budget process is that given the income you are expecting to receive in a particular period, how much will be allocated to savings, expenditures, investments and insurances.
There are many budgeting systems that you can employ such as the ‘traditional pen and paper’, online software and spreadsheets. The most important consideration after the budgeted period is that you analyse the actual expenditure versus the budgeted expenditure. The results of such analysis will then be used to review and revise the budgeting inputs for subsequent periods.
Stop impulse buying
Impulse buying is the urge to buy goods or services without you planning to do so in advance, as a result of a sudden whim. The best way to deal with impulse buying is that you always have a list of what you need to buy, research on the pricing of the products and the shops you will buy from. In the event that you come across something that you may want to buy, add it to the list of future purchases. This way you will always be within your budget.
Manage your debt
Debt can be an albatross if not managed well. As a general rule of thumb your monthly debt repayments (excluding mortgage payments) should not exceed 20% of your monthly income. In order to manage your debt, you can consider some of the following:
- Clearing your debt completely.
- Talking to your creditors to negotiate better rates
- Refinancing the debt with cheaper debt
- Filing for bankruptcy
Keep Mortgage and Rentals Reasonable.
Although housing is a basic necessity do not burden yourself with huge housing costs or stay in slumps when you can afford decent accommodation. It is therefore imperative that you take on housing that you can easily afford, as a general rule of thumb the housing cost should be between 25% and 30% of your monthly income.
Don’t be a debt guarantor
This is as simple as it is, just don’t guarantee or cosign any debt for someone else. If that person fails to meet their obligations, you will be responsible for repayment.
Be adequately insured
At any one point in time you should be adequately insured. Be sure that you have adequate insurance on your health, your home, its contents, and your vehicles. In the event of the unfortunate, the bills relating to illness or accidents involving your home or property can run into several thousands of dollars. It is therefore prudent to be covered all the time.
Conclusion
It all starts with you, “our life is the sum total of all the decisions we make every day, and those decisions are determined by our priorities.” – Myles Munroe. Make every dollar count!