I would like to share 7 tips that can help on your expenses.
Shoot For 50% Saving Rate
- 50% is a reasonable saving rate for most people. Before you complain ‘I have mortgage to pay’ or ‘I have family to feed’, set an aggressive saving rate (at least 50%) and continue reading.
Study Your Spending Patterns
- This will generate many questions and lead you to think of solutions. For example:
- What’s your biggest category of spending? Housing, or tax? How can you reduce housing expense (loan refinance) or tax (tax relief)?
- How much do you spend on food, holiday, clothing, kids’ education, medical, etc? Which category increases year over year? What can you do about this?
- Do you always spend more during year-end holiday season? Or after you get big bonus? Can you make better use of the bonus?
Avoid Lifestyle Inflation
- It’s very normal to have lifestyle inflation, which refers to inflated spending when your earnings increases. When you earn more, you want to move from HDB to a private condominium, eat at shopping mall instead of hawker centre, drive a car instead of take MRT, go to Europe for holiday instead short trips to Malaysia. etc. One thing leads to another, and your expense can easily double or triple if you are not mindful enough.
- Once your lifestyle is inflated, it is very hard to go back to the old spending habits. There is a Chinese proverb “it is easy to go from frugality to extravagance, but difficult to go from extravagance to frugality’.
“Needs” vs “Want”
- When you buy something, is that a need, or want (nice to have)? If you don’t buy it, how it will impact your life, your work, your health?
- Ask yourself questions on why you need it. Will it be any ROI (return over investment)?
Try One-Week Cooling Period
- It’s good to have a cooling period when you really want to buy something. Give yourself a week. Don’t make impulsive purchase.
- Explore alternatives during the week. Do you still want to buy it after a week? Maybe you realise you don’t need it already?
Don’t Go To The Other Extreme Of Frugality
- Of course, life is short. You should not deprive yourself and end up regret in your dead bed.
- Ask yourself, if you don’t buy it, will it regret when you die? If the answer is yes and you can afford, then be decisive and just go ahead and buy.
Spend On Life Experiences vs Products
- Various study showed with the same dollar amounts, it’s always more memorable to spend on life experiences than spend on products.
- Examples of spending on life experiences include going for a family trip, attending a sports tournament, studying a new skill etc, these trigger long-lasting memories.
- Examples of spending on products include buying a watch or bag, these usually only create short-term happiness, and the feelings will quickly wane.
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