Some people can’t help but spend to support their lifestyle. They have the latest gadgets, they visit the casino too often, or go on frequent vacations. Soon enough they realize that they are deep in debt with no clear plan or way to pay them off. However, there are people who save and save and save. Very frugal persons who restrain spending even on the essentials just so they can save. These are opposite ends of the spectrum. The trick lies with balancing the two. To be financially independent, you have to know when to spend and when to save.
When to save
You have to save when your income is not far from your current expenses. If this is the case, you have to cut back on your expenses to allow yourself to save more money. Some of our current expenses are not really necessities. Shopping for the latest gadgets, splurging on restaurant dinners, or indulging on some shopping-therapy will wreak havoc on our budget. Run a tight ship for a couple or so months. Spend on the necessaries only and save the excess.
When you are already in debt, all the more do you have to change your spending habits. Remove all unnecessary expenses so you can have some extra money left over. Start to pay off the debt from the excess money saved. If you want to get out of debt sooner, sell some of the items you bought through the years.
Surely, there are valuable items that are not of absolute necessity. That Louis Vuitton bag collection or those jewelries you bought from five years ago can save you from bankruptcy if you sell them to pay off your debts. Get a second job. Rent out a spare room in your house or offer the guest house for time sharing. Pay off the debts first.
When to spend
Now that you have paid off your debts, it doesn’t mean you can spend uncontrollably again. That will just put you back to the same position you were in before. When you household income is higher than your expenses, allot a specific percentage that will go to your savings. Now, after subtracting the savings from the income, as well as the expenses, whatever is left is your free income. Use it however you like it. Buy that coveted jacket or book a vacation to a nearby beach. Enjoy your hard earned money.
However, make sure that your unnecessary expenses don’t go over your budget. Don’t touch the savings fund. If you want to spend for a grander vacation or a big ticket item, it might be better to put the extra funds into savings first until you get to a comfortable amount.
What can you spend on? Necessary expenses are those that you have to pay for no matter your circumstances. This will include expenses for utility, food, and rent. Unnecessary expenses can be deferred to a later date, when you are comfortable that making them will no longer put you in debt again.
