Budgeting tips: Saving is a lifestyle choice

Last updated 12:00 29/07/2013
IGNORE THOSE SPECIALS: Don't let those two for $5 deals turn your head.

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If you have no self control, then you need a budget. That constitutes about 98 per cent of the population. You need this goal to ensure you have something you see in-front of you all the time. It will inherently manage your spending habits and quickly define what you want from what you need.

My budget is a simple three-step process:

1. Save (x) per cent of my salary. Part of the reason I can do this is because I have minor debt.

2. Pay rent. I don't own a house because I see an investment in a business as a far better option, hence the savings.

3. Spend the rest. The little I have left is kept in cash and put on to my credit card to chisel away at my fixed costs such as insurance, gym etc.

This approach makes sense to me for several reasons:

* Saving money gives me comfort for a rainy day.

I always have cash when I need it for big ticket items or to pay for the matters we dread. In my case this is fixing my car. I have term deposits and savings accounts spread across banks to keep my savings. In addition I have equities to spread my portfolio into a few riskier assets (I hope for a return greater than 3.25 per cent per annum).

* I carry a small amount of debt on my credit card.

I pay interest but I don't mind doing it. Debt is a fantastic management tool. I spend significantly less on junk when my credit card is loaded to the max (about $2K). The quality of the $2K purchase is, however, of significance. My debt is currently related to an overseas trip. I have been chipping away at the debt for months now and still owe some. I don't care about the balance nor the interest, because at the end of the day I am getting an amazing holiday (a large ticket item of significant value to me) and at the same time I am saving money and it costs me a small amount of money each month to have this facility. So the interest of, let's say $50 a month, stops me from wasting $250 on food, drink and clothing I don't need. Debt makes me sweat, I stress about it all the time but in the end I know it stops me from wasting. Try it.

* Cashflow

I can't stress this point enough. You should have a fixed amount of money you spend on core items. Food is a good example. When you go to the store you should have a fixed amount you are willing to spend. Supermarkets are smart and upsizing deals are absolute killers. I never spend more than I set out with (working with cash helps this process).

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My favorite example is chocolate, it is a consumable and you can consume plenty of it on a regular basis. Supermarkets have recently had huge sales on chocolate in my area. Some of the stores offer two for $5 deals. Where a single block would cost $3. I always take the $3 block and avoid the upsize.

They want you to spend $2 more because that is where the real margin is and the stock turnover. More importantly it makes you spend more than what you actually wanted to. I rather spend more on the individual item and less on my overall bill. Manage your cashflow, it can make a significant difference to your savings.

Saving is a lifestyle choice, you can still have a good life, save money, manage your debt and eat what you want (in moderation) if you manage yourself like a business. It is not easy but the fundamentals work for me.

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