You might scoff at the thought of budgeting and putting money away just so that you can start investing. You might have a perception that investing is only for people who are wealthy, and not for people who have too much expenses to pay for. Maybe the thought of investing just made you think: ‘I’ll do it when I get there.’ Or ‘I’ll do it when I get a better job with a higher pay.’
How can you expect to get good results if you never put in any effort? Your thoughts of investing will only stay a dream if you do nothing about it. When will you have the opportunity to invest, unless you create it yourself?
The main reason to invest while you’re still young, is the advantage of the compounding interest. However, being relatively young comes with a disadvantage: you’re someone who is relatively new in your career with smaller pay and less recognition at the bottom of the corporate ladder
Tip #1: Keep your eyes on the prize.
Sticking to your budget requires you to be responsible and to have enough self-discipline. Whenever you feel the urge to give yourself a ‘cheat day’ from your budget, then you need to remember your goal. Why do you choose to save up money to invest? Probably to get a head start into retirement, or maybe because you want to own a car or a house in the future. Always remember your investment goals and always remember that your investments are there to benefit ‘future’ you.
Never waver in your determination. Investing is all about growing your wealth. Through the power of compounding interest, you can not only counter inflation, but increase the value of your investment as well.
Tip #2: Hindsight is 20/20
Have you ever looked at something that you own and think: ‘Maybe I shouldn’t have bought that item after all’, or ‘I shouldn’t have spent so much money on so and so’?
You should foster a habit of retrospection, that is, to look back on events that have taken place in the past, and in this case, it would be a habit to look back on your spending habits. Retrospection of your spending habits can shed some light on why your budgeting efforts might have failed.
Assuming that you have tried to budget your expenses, try looking at it again. See if you notice any particular spending patterns or habits. For example, you might tend to spend more on the weekends; or you are prone to splurge on unintended purchases whenever you see a good deal; do you have a sweet tooth or caffeine addiction and spend a lot for dessert and coffee/tea and so on.
Once you spot a pattern, it is best to nip the problem right in the bud. Correct these habits immediately by giving yourself a spending limit, maybe muting notifications on your phone so that you don’t get influenced by sales and promotions. If you ever get tempted, just remember this: ‘If you won’t pay full price for that item that is on sale, then chances are: you don’t need that item’.
Remember this famous quote from George Santayana: ‘Those who cannot remember the past are condemned to repeat it’. Learn from your spending habits and mistakes, and make budgetary allocations where necessary.
Tip #3: Having a Realistic Budgeting Goal
One of the many reasons that budgeting fails: not having a realistic budgeting goal. When planning a budget, it is important to write down the actual figure of your monthly expenses, rather than an optimistic figure, aka: ‘I think I can manage to only use this much money this month’. Don’t underestimate the amount of your expenses, rather, be honest about your expenses and start over the whole budgeting process again.
Tip #4: Live below your means
Learn how to lead a simple life and live with less. If you find yourself with little to nothing left from your monthly salary, then your salary might not be able to sustainably support your current monthly expenses.
In this case, the first thing that you might want to consider is to switch to jobs with a higher salary. However, this is normally out of your control, so the next plan of action will be to cut down on your monthly expenses instead.
First, try reviewing your lifestyle and see how you are using your money. You might not need to lower your standard of living, but a change of habit is necessary. For example, choosing to cook at home rather than eating out at a restaurant; choosing to work out at home rather than getting a gym membership; finding cheaper alternatives for groceries, and other ways of reducing discretionary spendings.
Make sure to also keep track of all spending changes and observe whether or not it is helpful in reducing your expenses. Beyond that, you should keep up the habit of spending less and slowly get used to living with less and reduced expenses.
Tip #5: Having a Healthy Source of Stress Relief
Another tip for successful budgeting is your ability to understand your emotions and how it affects your spending habits. According to this article, emotional decisions may mean making the wrong financial decisions. When you experience sadness, it increases how much you are willing to spend for the momentarily happiness that owning an item gives you.
This is also known as retail therapy, typically caused by underlying stress, which may cause you to veer away from your budget. Think about the stressors that you face every day: work-related stress, commuting stress or personal relationships. How have you been handling your stress and how has stress affected your finances?
Hence, it is important to have a healthy way to cope with stress, such as regular exercise, a hobby, socialising with friends, having good sleeping habits and so on.
There are many ways to improve the success of your budgeting efforts. Don’t get discouraged and try again. You should prioritize your future over the wants of the present you and from there, you can slowly build up a habit of budgeting for your investing goal. Start now, persevere through all the hardships and you’ll never look back again.
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