Regulating your spending is a key factor in financial growth. As we move up the levels of personal financial management, it becomes harder and harder for most people to make prudent decisions about their finances.
Earning money is quite easy for most people but controlling their spending becomes a big challenge. Some people earn millions every year but they have nothing to show for it because they cannot control their spending.
When you get income, you can either consume (Spend) or save for purposes of investing. That means that if your consumption is very high, you will have very little left to save and invest. It is what you invest that makes you wealthy. Therefore, if you cannot control your consumption, you will never create wealth for yourself.
Live below your means
When it comes to spending, you have to live below your means. Do not spend more than 50% of what you earn. If you earn 20k every month, limit your spending to just 10k or less.
This may sound impossible but it is necessary. You have to move into a cheaper house that can accommodate your income level.
You have to do away with all luxuries like going on holiday now and then so that you save money to invest. If you do not invest, you will struggle forever.
Reduce your expenses to the bare minimum. For you to do this, you have to lower your pride and do what is best for your future.
In case you have a family, you have to make them understand the austerity measures so that they do not expect too much. They have to be prepared to sacrifice for the sake of the future.
Spouses ought to support each other in this regard because when it comes to personal finance management, families are one unit. The husband cannot be talking of austerity measures while the wife is insisting on sustaining a high lifestyle.
If you decide to move into a cheaper house, all members of the family have to agree. They have to understand why you are doing it. If they do not, they may not support this cause.
Prudent spending calls for DELAYED GRATIFICATION. You should delay consumption as much as possible. If you feel like taking an expensive trip to Dubai for fun, you have to fight that feeling by delaying it as much as possible.
The more we ignore a desire, the more it reduces. The problem with people is that they do what they feel like other than what is good for them.
Feelings are never rational and logical. Feelings do not think about the future. They just want to be satisfied now rather than later. You have to learn to resist the feeling of wanting if you are going to build your financial future.
The rat race
As we pointed out, when people get a higher income, they tend to also increase their consumption. This is called the rat race. They now move to a new house in a posh neighborhood, buy a bigger car, and take more holidays.
They have increased their spending instead of investing the extra income so that it can generate more income. Such people have to work for the rest of their lives. They have to spend their lives working for money.
When the time comes when they cannot work again because of old age and failing health, they now become beggars. They are miserable because they cannot finance their luxurious living again. Now, they do not have any income to hold on to.
They become angry with their children because they expect them to give them money now and then without considering that they also have their lives and families to take care of.
It is therefore advisable to increase your investment when your income increases rather than increasing your consumption.
When it comes to making purchases, delay purchasing items for around a WEEK or more. If you do this, you will have enough time to think through the purchase. Is it a want or a need?
A need is something you cannot do without. A want is something you can live without. A want is just a mere desire.
When you delay purchasing for a week, the desire will have faded if it was just a want. If it was a need, you will still feel the need to make the purchase. This is very important.
If you spend your life buying wants, you will never be wealthy. You have to sacrifice what you want now in a bid to get something better in the future.
When a person sacrifices buying a personal car now to invest in a business, they might afford a private jet in the future.
When you sacrifice local holidays to invest in real estate, you will someday afford to travel across the world. You just have to be patient. Patience is a great virtue when it comes to making wealth.
Live below your means and save as much as you can. Invest everything you save and avoid using it in the future for further consumption. The problem we have is that we save and then consume it later.
You will save for several months to start a business and something happens and you spend all the money. You have to have self-discipline so as not to consume money that you have put aside for investment.
Do not spend your savings to please people, including your family and friends. People nowadays pretend to be so nice that they want to please everyone. They buy their friends drinks every weekend.
They take their girlfriends out now and then, pay their rent and feed them and then they leave you after milking you dry. Some men are just stupid. They spend all their income on women without minding about their future. When it comes to settling, they cannot even provide for their own families.
Other married men are investing heavily in their side relationships. They become sponsors. This is not just immoral but also financial stupidity. You spend all the money you would have invested in someone who cares less about you other than your bank account.
They are just with you because of what they get. They do not like you, they talk ill of your behind your back, they are just using you to get what they want.
Do not be too generous now
When it comes to financial management, do not be over GENEROUS. I am not saying you should not give, giving is good for growth. I am saying that you should not give even what you are supposed to invest in.
Some people are guests in every local fundraising. They give everything and yet, they are not financially free and stable. You are supposed to be mean for a while as you invest so that you can give more in the future.
If you do not invest, you will not be able to support even bigger causes that have more impact on society. I may sound like the devil’s advocate but this is just the reality.
It takes tough decisions to create wealth. If you are mean to your children today to invest, you will leave them with massive inheritance. This is more important than pampering them with everything today and leaving nothing behind.
Focus on the future
Good spending is only gotten when you focus on the future rather than on the present. You have to have a long term vision to be able to control your spending today. For you to OVERCOME your desire to consume, you have to have a strong why.
This strong why will keep you disciplined. If there is nothing you want to achieve in the long term future, you will have no reason to reduce spending and save more money. A vision will consume your mind and help you overcome short term temptations to consume more than you should.
The problem today is that for most people, getting a bigger job and going up the corporate ladder is their greatest vision. This does not require investment and prudent spending. You can get a bigger job even without being a prudent personal finance manager.
Because their vision does not need money, they end up having no reason to save it and invest later. Without a vision, there can be no self-discipline.
Founder/ C.E.O- Wealthy Wolves Consulting & Giimark Ltd/ Best-selling Author/ Speaker.