Think back to the last time you took cough syrup. You probably poured it into the special measuring spoon that comes with the medicine. And you certainly didn’t use a huge cup hoping to get the dosage right. Similarly, personal finances should be treated the same way. This means pouring a certain amount of money into the right container (bank account) each month to make sure you are using (spending) exactly what you need. However, spending often equals not how much you need to spend, but how much you can spend.
How to realise you’re spending extra
To work out if you’re wasting money, pay attention to a few signs:
You’re saving less than 5% of your income.
Your credit card payments aren’t decreasing.
Your personal credit score is below 600 points.
You don’t have a financial “safety cushion.”
You have never budgeted.
You have paid a fee for exceeding your credit limit.
Even if you don’t have a problem with overspending, controlling your spending can help you increase your savings and start managing your money better according to your values.
How to organise control over expenses
The system of separate expenses will help you to keep your budget correctly. To switch to it, it is necessary to do the following:
Make two separate bank accounts: one for current living expenses and primary household needs, the other for entertainment.
Regularly transfer a fixed amount of money to each account.
Use the accounts only for their intended purpose.
This system will allow you to spend a strictly defined amount of money on entertainment. If you don’t set up a separate account for this, you will have to manually keep track of how much you spend, for example, by recording everything in notes or a banking app.
The separate account approach doesn’t require you to keep tedious records, you just need to keep a regular eye on your balance. Once a week, assess the status of both accounts and every time before you go to the cinema or meet friends at a restaurant, check how much money you can spend from your entertainment account.
How to balance your budget
Replenish your emergency fund
It comes in handy in situations when you need to pay several bills at once, and the arrival of funds on the balance for one reason or another is postponed. The ideal amount is all of your priority living expenses for the month.
A quick, but not the most enjoyable way to build up an emergency fund is to give up entertainment completely for 1-3 months. If you are not ready for such sacrifices, then gradually top up both accounts.
