At the beginning of each year, I make a decision and resolve to be more prudent financially that year but for some reason, I falter along the way and soon, this resolution fades away as the year goes by. This year, however, I decided to be more disciplined as I realized the need to be a better steward of money – ”To whom much is given, much is expected”.
I have come to learn that it isn’t necessarily how much one makes or how much income flows in but how well you manage whatever resources come in by ensuring that your expenditure does not exceed your earnings while making room for savings and long-term investments. And that is what financial prudence is about, simply; financial planning and discipline.
In this age of globalization and the acceptance of the theory that an increasing consumption of goods is economically beneficial, we are continually being bombarded with a plethora of options and are spoilt for choices when it comes to entertainment, fashion, food, electronic gadgets and so on. To further compound matters, there is easy access to credit cards and easy credit availability supporting extravagant lifestyles and encouraging overspending. These factors culminate in making it difficult to be financially disciplined rendering many unprepared during contingencies.
Below are 6 Financially prudent habits to save money and reduce expenses.
Budgeting is the process of creating a financial or a spending plan (a budget) for a specific period. A budget is mainly an estimation of one’s revenue or income and expenses. Budgeting helps you track and take control of your spending. It encourages prioritizing so that you are able to distinguish between your wants and needs and thereby live within your means. Practice self-control and stick to your budget so that you are less susceptible to impulse buying.
Pay Credit Card Bills Promptly
Try as much as possible to limit your credit card usage. This is a decision we made in our home because we realized that when shopping with credit cards we tend to overspend and the tendency to impulse buy is high. Credit card debt can end up costing you so much more than you initially borrowed because of the interest rates. Ensure that you never miss paying your monthly credit bills on time to avoid late fees, if possible, pay them in full to avoid paying huge interests on your debt and do not be lured into making just the minimum payment every month. The ideal will be to use your credit card for purchases only when you have the money in your accounts to pay back. This way it becomes easier avoiding debt and maintaining a good credit score.
Saving money is an essential principle in managing one’s finances, so crucial that some financial advisors encourage monthly-automated transfers into your savings account. A more natural way to save is to see it as paying yourself. With a savings account, you always have emergency funds in case of contingencies. Experts say it is necessary to have emergency funds covering at least 3-9 months of your living expenses and bills, that way you have your peace of mind during unforeseen events. Even though I believe you should save consistently no matter how small, according to the popular 50/30/20 rule, you should reserve 50% of your revenue for essentials, 30% for discretionary spendings like travels, luxuries, and hobbies, and at least 20% for savings. In my home, we make it a point to devote 10% of our income to tithing.
With savings comes investments. An aspect of financial prudence is investing in areas to ensure high returns to make your money grow. Investing your savings and letting your money work for you can set you on the path to financial independence. It is always safer to stick to tried and tested investments like mutual funds and bonds than to get involved in risky get-rich-quick schemes, which end up wasting money.
Reduce High Utility Bills
Keeping utility bills low and paying them on time to avoid late fees is a way of saving some money. Since my family moved to Los Angeles, our utility bills have tripled so our challenge for the next couple of months is to try to reduce our bills by a quarter. A few things we have decided to do: limit microwave use, turn off electronic gadgets and lights when not in use, using energy saving bulbs among others. Practicing periodic maintenance in our home is also a sure way of avoiding higher bills later in the future due to breakdowns.
Take advantage of deals
Take advantage of coupons, deal and cash back apps like Ebates and Dosh. Finding coupons and finding a deal especially on holidays is an excellent way of saving substantially. With cash back apps, every quarter, I look forward to receiving my check from Ebates. I just do my regular online shopping (can be used in-store as well) which I would have done anyway through the app and voila! I get paid.
In summary, if we develop the habit of financial prudence, we can avoid debt, reduce wasteful spending to the barest minimum and generate wealth that will ultimately lead to the financial soundness and stability we all desire.