Finding Balance Between Saving And Splurging
To save or to splurge? That is the perennial question that you ask yourself, especially after receiving your paycheck.
It’s essential to save for your future, but so is spending for your basic necessities and rewarding yourself with splurges on services and products that make you look and feel good.
Since both saving and splurging is of equal importance, finding a balance between the two is crucial to achieving a healthy financial life.
1. Determine your income, basic expenses and non-essentials.
How much do you need to spend to live a comfortable and happy life without running out of money? This can be answered by identifying your basic expenses, wants and savings goal based on your income.
- Basic Expenses. List all your monthly essential expenses, like groceries, bills and debt repayments.
- Non-Essentials. These are products and services that you want but don’t technically need to survive, such as designer clothes, movie and concert tickets, Netflix and the latest gadgets. You can pay for these “wants” using your discretionary income, which is the money left from your monthly net income after paying for your basic needs. You can also stop paying for those that you don’t really get much use of.
2. Decide on your savings goals.
Once you determine your needs and wants, you can easily make a realistic savings goals that will help you enjoy a secure financial future but also won’t leave you feeling deprived.
- Setting aside 10 to 20% of your net income in savings is the general recommendation.
- If you want to be financially free sooner rather than later, save 30% to 40% of your income.
- If you have plenty of bills and debts to pay, it is practical to just put away around 5% of your income in savings.
- If you can’t find the extra money to save, see what you can cut out from your spending.
3. Create your financial plan.
Once your needs, wants and savings goals are determined, creating a financial plan is easy.
When it comes to financial planning, savings should always come first. Save 10% to 20% of your paycheck on your emergency fund for three to six months. Afterwards, you can direct the same amount of money towards your retirement account.
Next, take care of your bills and debt repayments. Find a way to cut back on your basic necessities, like buying grocery items in bulk and making your home more energy efficient. Also, prioritise paying your debts, especially on credit cards, to avoid interest charges.
Room for Spending
Always leave some room for spending in your budget to avoid depriving yourself of the things you love. Living on a tight budget even when you can afford to spend some more could leave you feeling deprived and unhappy. Once this happens, you could wreck your budget, in turn, your financial goals.
Fund for Fun
Budgeting for non-essentials and setting up a “fun fund” is important to keep your spending under control. By focusing your spending budget on the areas you love, you can also cut back on the expenses you don't really need. If you don’t have enough money every month to buy designer clothes or a plane ticket, for instance, you can save for this purpose over a longer period of time.
4. Go for the occasional splurges.
Spending money on unplanned items or experiences is not entirely bad, as long as you don’t do it frequently. The spontaneous nature of splurging is what makes it fun. It also gives you a break from frugality and prevents you from feeling deprived while living on a budget.
Budgeting can leave you feeling restricted and weary, especially when you’ve been doing it for a long period of time. Tired of scrounging and sacrificing, you could just give up and throw all your savings efforts away and end up spending more and amassing debt.
Occasional splurges allow you to be spontaneous of your hard-earned money, refreshing your daily routine and helping you work towards your financial goals.
Just remember not to get into debt when splurging and to keep it as it is— occasional expenses.
5. Make adjustments as necessary.
Change your financial plan according to your life’s changes. You might have started your plan based on a monthly income of $6,250 last year, but a lot has changed since that time. You were promoted to a senior accountant position, got engaged and bought a new car. Your income and priorities changed, so should your financial goals.
Use your financial plan as a roadmap to achieving your money goals, helping you stay on track and not getting you stuck on a path that no longer works. If your financial plan does not fit your goals, simply adjust and move forward with determination.
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