Browse Category: Spending

Are you an impulsive buyer?

Do you often drag yourself into impulsive buying?

 

“An impulse purchase or impulse buying is an unplanned decision to buy a product or service, made just before a purchase.One who tends to make such purchases is referred to as an impulse purchaser or impulse buyer. Research findings suggest that emotions and feelings play a decisive role in purchasing, triggered by seeing the product or upon exposure to a well crafted promotional message.”

impulsive-purchase

 

In your day to day life, knowingly or unknowingly you go through instances where you succumb yourself to the lure of impulsive buying. The product companies are out there in every shop, every mall, every online marketplace – blaring adverts, offers, packaged deals to you. We have seen earlier that Supermarkets do extensive research on how to push their products and how to compel buyers to spend more in their stores.


Can you give me some example so that I can relate whether I am buying stuff impulsively? As far as I know i am not into impulsive buying

  • When you go to supermarket to buy monthly grocery, you pick up few ready to eat meals as they are packaged beautifully and kept in the front area of supermarket. They always have “buy one get one free” offer

  • You go to shopping mall to purchase refrigerator and you end up buying that 75inch LED TV also just because there was an offer going on that. You , being a sincere shopper, got charged emotionally and purchased the big TV just because your conscious felt that you are saving substantially on this purchase. You didn’t even give a  thought to what you will do with the TV set adorning your living room which you bought last year in similar fashion

  • How many times you have noticed that you enter mall for grocery shopping with a budget of INR5000 and end up spending INR 1500 on grocery + “something else” which had a GREAT offer?

 

Yeah that’s OK, but sometime you need to grab the offer that is going on else you will miss the boat and God knows when such offer will return?

A seasoned impulsive buyer always suffer with FOMO – Fear of missing out. If you add up all impulsive MISCELLANEOUS purchase over a period of time, you will be shocked to know the amount you have spent on these purchases.

 

Below I am listing few reasons – why people shop impulsively

 

  • Love of shopping – some people simply love shopping. For them shopping is like a therapy. They are always under illusion that few items here and there won’t disturb their bank balance.
  • Some shoppers are always in loss aversion mode. They fear that if they do not buy certain items which are on sale, they might end up at losing a big amount of money.
  • Some shoppers succumb themselves to twisted offer phrases. “Buy 2 get third free” , “buy this and get that free” etc. The moment they see these offers, they succumb to it without further researching about the product, service, and quality.
  • Some shoppers have genuine desire to save more. They succumb to the offers on supermarkets which says “you save INR100” , “Buy & save INR1000”. In order to feel good , they buy these items.
  • Some shoppers always feel that they should have an edge over others when it comes to latest gadgets, latest fashion , latest automobiles. They always pick up items which they feel will make them look cool among their social network.

 

 

Hmm.. Sounds right. I never knew impulsive shopping is such a bad habit and I must admit that I myself must have lost a fortune by now through impulsive shopping.

Yes, impulsive buying is harmful. By the time one realise this, he/she would have lost a huge fortune on it. This could hamper your financial planning, your early retirement, your retirement plan and can pose a big threat to your financial independence planning.

Below I am keying in few important actions through which we can avoid impulsive purchase

 

  • Always make a shopping list when you go out for shopping – AND “Stick to it”
  • Follow a mandatory waiting period if you plan to buy anything. If you see anything which you wish to purchase, wait for 7 days and see if after 7 days do you have the same urge to buy that thing? Most of the time the urge is momentary and it dies down soon.
  • If you already owe the item you wish to buy and you intend to replace it, clean it. Now see if you have the same urge? E.g. if you have a pair of shoes and you intend to replace, clean the old pair, wash it / polish it. If you still feel that you should go for the new pair, then go ahead
  • Remember – only fools rush in. All gadgets, the first edition always have some glitches and service issues. Better to wait and go for later releases. They are relatively bug free and cheaper.
  • List down your impulsive purchases – revisit the list periodically so that you do not make the same mistake again
  • Keep decluttering your house often. This will keep you in check of all the items you have and you will not end up buying them again. This is specially applicable for stationary items and tools.
  • Avoid going for shopping with RICH friends or friends who are spendthrift. Believe me, you will save a lot by doing this
  • Don’t save your credit cards at online shopping sites. If you save then it’s a matter of few clicks and online order gets executed.
  • Buy all items cash. Parting with currency notes is much more difficult compared to swiping plastic cards.

 

 

Great. Very practical points. I am sure I can implement these easily in my day to day life and I can save loads of money by doing this.


Yes, the advice given above is quite practical in nature and easy to integrate in your lifestyle. Always remember it’s your own hard earned money. By avoiding impulsive buying you can use your money in much better way.

 

Happy Investing !!!

Making a simple budget to improve your personal finances

 

Making a simple budget to improve your finances. This is an important step in reaching your financial goals and financial independence

I am sure there will be many among us who have never actually attempted to make a budget or even noted down their expenses on a daily basis. Many of us would have never experienced the need to see all their income and expenses in one single sheet – which is more due to negligence than lack of knowledge.

How to make a household budget

 

 

Why budgeting is important?
All large companies and organizations do their budgeting, write their expenses, do regular audits in order to see if their actual spend is as per the budget or not. They hire specialists to do this job as they want to prevent any money leak and also they want to be on top of their expenses so that they don’t lose money in a big way.

 

How about budgeting at my personal level?
At personal level, we do not need the kind of skill level that corporations employ to do budgeting, but a basic work on spreadsheet which is not too much time consuming is enough. This is just to have a quick access to your financial status at any given day and to plan any expense which is not a regular one like purchase of a new car, or a foreign holiday.

 

I don’t have knowledge of accounting software / tools required to do budgeting
No worries. For keeping track of personal expenses and basic month on month budgeting, you need to be an expert in using accounting software or tools. As this is Information Technology era and all of us are well versed with MS office (MS excel to be more precise), which is more than enough to do the designated task of budgeting.

 

What do I need to do with MS excel?
First make a list of all your spend in a month. For starters, make four columns in the excel sheet.

  • First one should have the date of expense
  • Second should have the place where you spent the money
  • Third should have the amount you spent
  • Fourth one should be the category of expense (classification as food, grocery, housing etc)

 

how to make budget in excel

 

Every single expense, I repeat every single expense you incur should go in this excel sheet. Why? You need data. This data will make foundation of your budget. And the data accumulated over few months will give you enough food to analyze your spending pattern and believe me; it will help you save tons of money.

At the end of the month, sum up all. You will be amazed to see how much you spend, when there is no budget for expenses.

Now – sort these expenses by category. Sum up the money you spent in each category. This category wise spend will be the backbone of your budget for the next month.

Easy so far? Isn’t it?

Now make a new spreadsheet which will be the budget for your next month. Keep four columns in this sheet.

  • First is category name (housing, food & groceries, fuel etc)
  • Second is what I spent on category last month
  • Third is what I intend to spend in this month on the category
  • Fourth is how much I actually spent on the category (this will be filled once the month gets over)

budget summary - household

 

So many things to do? This looks little tough for me. Do I need to carry this exercise every month?
This might look little tough as you are not used to of doing this. Only the first cycle would take time, then it’s a kind of a cake walk. Once you have completed one cycle, format is ready. You only need to enter the data from month 2 onward.

Ok got it. Now how is it going to help me save money?
If you are making your budget for the first time, there are good chances that your spending is more than your income otherwise you would not be taking pains to make the budget. Once you have data for a few months – say three months you can see and analyze the expenses you have incurred in each category. If you are spending way too much on eating out or buying cloths, it would be clearly visible in the category expenses figures. You can dig a little deeper to check and see if you can trim these high spend category expenses which are not required for survival or which are mostly want related expenses.

Armed with the data of few months, you can repeat the exercise of trimming the unwanted expenses. The money which gets generated from cutting down unwanted expenses will improve your cash flow and will give you an opportunity to invest this money in order to generate higher net worth. This higher net worth in turn will lead you to financial independence at a quicker pace. Wealth creation is all about the art of increasing the gap between your income and expenses and keep investing the difference across the investment spectrum to generate higher and stable returns.

Budget is one of the major steps in road to financial independence. If you master the art then you can be assured of sealing the money leaks in your month on month expenses.

Supermarkets are a big TRAP

Why Supermarkets are a big TRAP and also big money DRAIN !!!

All the supermarkets are intelligently designed. What item will come where and in which row is meticulously planned. No wonder why the retail chains hire MBA grads for such a higher salary. The planners sit in a plush meeting rooms, peeping at the historical data and planning how to fit certain useless high margin items in front row of the stores.

Supermarket are money drain

 

The layout Trap

The layout of supermarkets are organized in such a way that daily use items are always found at the farthest place from the entrance. Once you enter to buy your supply of bread or milk, you need to wade through the entire store with each shelf literally shouting the offers to you – on useless items. And being a ‘good buyer’ we always end up picking a couple of useless products because of some stupid offers on them.

It is easy to avoid the TRAP

It is not that there is no way to avoid this trap. Impulse buying can be tackled tactfully by visiting these super markets with a written buying list of items you intend to buy. And you must stick to this ‘buying list’. The buying list is something that requires a little bit of effort from your end to make. This is in order to keep your list as efficient as possible.

Do keep the following points in mind for preparing an efficient buying list.

  • Plan main grocery shopping trip only once or twice in a month. This applies to the items like flour, pulses, rice, cooking oil, spices, supplies like sugar, tea powder, coffee powder, cheese, sauces etc. Estimate the quantity you would require of these supplies and enter them in your beginning of the month main shopping list. At the most when you enter the super market, you can strictly look at the offers on the items in this list and weigh them by arriving at per unit cost of item – with discount and without discount. Take whichever is the cheapest BUT the price point – with discount should justify the quantity you are buying. Use common sense; do not buy 25 Kilograms of sugar just because you get 10% discount on buying 25 kilograms pack when your monthly requirement is only 2 kilograms of sugar.
  • Reserve a weekly visit just to buy the stuff which is perishable and you need their supply often. This is for the products like eggs, milk, paneer, curd, juices, yogurt etc. You cannot stock these items for long at home and they are always better if consumed fresh as they come with a short shelf life. You can include your weekly bread supply too in this list. Go to the supermarket on a weekend, check offers on these products and purchase them. Here again use common sense when you are comparing discounted price with the quantity.
  • Add items from your main shopping list into the weekly list for which you are low on supply. For example, if you have some unexpected visitors at home for a few days, you are sure to go low on the supply of cooking oil, wheat flour, rice, sugar etc. Do not go separately to buy these items on a weekday. This is waste of time, fuel and energy. Instead, add the low stock items in the weekly shopping list and buy them on a weekend. Since weekends always have some discounts running to attract buyers, a chance of you getting a better price is always there.
  • Take review of the stock levels once in 15 days and again add items which are low in quantity in the weekly shopping list. Here again it should not be the case that you have monthly rice consumption of 5 kilograms and in spite of having 10 kilograms in stock you have gone ahead – added the item in the monthly shopping list and bought another 10 kilograms just because there was an offer running on the item.
  • NEVER ever enter any super market for shopping with empty stomach. When you are empty stomach, your hungry stomach guides you through the fast food stuff and compels you to buy stuff like cakes, pastries, ice creams, snack items. Your hunger makes you succumb to buy sandwiches and pizzas thus killing the purpose of entering the super market to buy grocery items and save money by buying your monthly requirements in one visit.

Super stores play mind games with people. Armed with the data and analytics, coupled with brainstorming of grade A pass outs from business schools, they literally direct you on what item to place in your shopping basket. You need to be a little smart and systematic to dodge the useless offers thrown at you when you enter a super market and only buy the items you need to buy.

A visit to the supermarket for grocery shopping could turn a big money drain and destabilize your budget for the month if not planned carefully. Over a period of time, these visits have potential to derail your financial planning and can make a big dent in your wealth creation plans.

Your Car is not your ASSET !

Your Car is not your ASSET !

Yes, you read it right. Your car is not your asset. Or as a matter of fact, none of your vehicle is your asset unless you are into transport business. If you ask any literate human being about “what is an asset?” you will get a spontaneous reply as “It is something that has value and the value appreciates over a period of time / or it generates some regular income”.

 

Car is not asset

 

But if you ask same person to list down his assets, he will most likely to write car as one of the line item. Cars are no ASSET. A fact which is hard to digest?

Car does not appreciate
• Car does not give you income, unless you are a taxi operator
• Car does not keep your principal safe (what you chipped in to purchase it)

When you are writing line items in your asset lists, cars are definitely no-no. They are money drain and are more status symbol in today’s world.

They depreciate quickly, they drain your money quickly –

  • You need to pay insurance,
  • You need to pay fuel costs,
  • You need to pay maintenance costs,
  • You need to pay registration and
  • You need to pay emission related expenses to keep them road worthy
  • You need to pay for wear & tear costs

Imagine, one fine day when you do not have a monthly income coming in, you are retired from your day job. Even though you have a big car parked in porch, it will not give you good or money to buy food. My point is this – a car cannot generate a regular income for you hence it is not an asset. An asset is something which generates monthly income for you like your real estate property given on rent, a fixed cash deposit with your bank, a commercial shop you owe generating monthly rentals for you, gold coins appreciating over the years.

Here I am not saying that Car is bad. I am aware of the convenience it brings when you are moving from point A to point B. My statement is just to make it clear to you so that you do not consider your car as an asset. I want to de-link you from the thinking that you are really doing well in your life by driving a big nice car which is taken on monthly payment. It is absolutely absurd to think that you look wealthy by owing a big car.

Bigger the car – bigger the money drain it is.

  •  You incur more expense on monthly payment,
  •  You incur more expense on insurance payment,
  •  You incur more expense on periodic maintenance, and
  •  You lose more money when you dispose it off

Cars are means to carry you from one place to other. They should not become status symbol in your life. Buy what you need, a decent piece not a luxury metal object.

Bottom-line is that if you keep buying expensive cars on payment and think your car as your asset, you are moving away from financial independence. An expensive car is never a good investment decision and is a hindrance in early retirement plan.

 

CHOICE is yours as MONEY is yours !!!

 

Lifestyle inflation – Why it is bad for you?

What is lifestyle inflation?

When you are fresh out of college, you get a job which is usually an entry level job. You start earning with this entry level job and you move out to a place of your own – either in the same city or some other place. Once you are on your own, you start spending money on all essentials. You have to pay for stay, groceries, internet, utilities, internet etc. You somehow manage all these expenses with your limited income. Gradually time passes and you get regular salary hikes. With these hikes over the years you increase spending. You now make frequent trips to restaurants, you move to a bigger home in a nice neighborhood. You now have a big car for commute instead of using public transport, you have pets, and you now wear branded cloths with the really nice Swiss watch to match your stature.  

lifestyle inflation

Lifestyle inflation comes in picture when someone raises his lifestyle – standard of living in relation to the increase in earnings. If you see it, lifestyle inflation is not a bad thing. After all we all work hard to improve our standard life & comforts. When we get promoted, we need new cloths to match our profile; we need nice vehicles that match our status to commute.

Lifestyle inflation creeps up slowly, we will not know unless we start having serious problems with money we earn. Our food expenses will skyrocket, fuel expenses, expenses to maintain home and vehicles will increase gradually and they will reach to an extent where the total outgo starts pinching us. Lifestyle inflation is a big hindrance to financial independence and wealth creation as once you succumb to it; you have very little cash flow dedicated to investments for future in order to have a sufficient investment corpus to fund retirement.

How to tackle Lifestyle Inflation?

One can easily tackle the lifestyle inflation. There are some ways which can keep you on track and combat lifestyle inflation

1. Budget the expenses and note down every single expense you incur. By doing this you can flag any expense which is steadily increasing. Once you single out any particular expense skyrocketing, you can easily curb it

2. Keep your financial goals in mind. Have the goals written and the plan to achieve them also in writing. This will help you in sticking to your plans. If you stick to your plans, lifestyle inflation cannot cripple you.

If one follows the above two simple steps, it’s easy to limit lifestyle inflation. The entire premise is to stay within your limits, never make expenses column more than income column in your life. Plan wisely and stick to your plan.

To Sum it up: Though there is peer pressure to incur expenses, but increased expenses with increased income to a certain extent justifies your lifestyle inflation. But if it increases more than your income then it will cause a serious dent in your future life. Take charge, have control on your spending and keep investing regularly is the mantra to beat lifestyle inflation. Once you master this art, you are set to taste financial freedom much before others.

Needs Versus Wants

Today I am posting about a very important topic. It is must for us to draw a line between needs & wants. Today’s post is guest post – Courtesy my dear friend Sundeep

We have heard and some of you might have read a lot on wants and needs. And still most of us keep struggling with how to distinguish between them. Before we go there let’s understand these two words:

Need :- Without meeting these, your survival can be in a jeopardy
Want :- Some desires lurking in once survival is taken care of

 

Needs Vs Wants

 

Definitions look simple and understood by everyone. However when people have to apply it in their life many people classify things in wrong category and mostly this mistake is one way. Most of the people tend to count wants in the need category. There is hardly any vice versa case. Why should it be this way?

The answer lies in human nature. Gimme more! is slogan of human life. Being a social animal(don’t get offended I am just reminding we are animals at all), we have learnt to follow social rules, behavior, etiquette’s. In the journey we eventually started following each other’s desires, ambitions, materialistic goals. No animal kills\eat once it is full stomach i.e. once survival is taken care of. Man is the only animal who has so many problems to take care of once survival is taken care of. Life style, social status, peer pressure, relationships, bank balance, real estate,….

Note: Wants and needs are not necessarily limited to monetary things. There are other needs like emotional, psychological, spiritual etc. however those are out of scope of this discussion.

Let’s understand wants and needs in detail

Q: What are the basic needs of life?
Ans: Food\water, clothes and shelter.

Let’s say we have 3 families. Family A which earns 5,000 Rs\month. Family B earns about 50,000 Rs\month and C where it is 5,00,000 Rs\month. Do you think basic needs of life changes for any of these families?

No they don’t. There can be 10 other things listed as auxiliary needs depending on which earning class a person belongs to. However the basic needs don’t change.

What changes is the affordability factor which opens up choices for meeting their needs. Family A buys grains from government rationing store. Family B buys it from wholesale grain store and maybe C buys it from malls or super market. But all they are ensuring is to have wheat flour, rice, sugar etc. available at home. Although the expenses will be different they are still going towards needs.

Now suppose family A thinks that they should have some sweet dish occasionally for dinner. Howsoever small wish it appears, it still falls under wants. The same sweet dish at the the end of meal could be frequent for family B & daily for family C. But for them it doesn’t fall under wants, because they can afford it without altering or disturbing financial priorities. Similarly, there can be some wishes and demands for family B and C which will fall under wants.

This small example can help you apply the need vs. want test on bigger things. For this, you have to be truly conscious about your actions, to be able to judge the difference. Sometimes the line seems so subtle and mind plays games on you in judging a want as a need.

Note that, occasionally going for a wanted thing is no crime and actually sometimes it is required to boost and energize family, show your love and appreciation. One must only be conscious about the decision.

 

Here are few more examples of wants as a thinking exercise for you. Note that the list will change significantly based family income group. Here I am considering middle and well to do class.

  1. You are hungry and decide to go for pizza house instead of healthy rice-plate
  2. You keep changing your mobile, motorbike frequently
  3. You only shop from branded stores and often shop extra clothes
  4. You just had a full stomach dinner, still walking past an ice-cream parlor you give into your temptation
  5. You own two flats and can be easily convinced that you need to buy another one since you have sufficient balance and/or recently got increment in office
  6. You like to change your house interior once in 5 years
  7. Sizes of your fridge, car, wardrobes, TV sets, ornaments(and even body) grow bigger and bigger
  8. You have a masters degree and it feels gratifying to go for a distant learning MBA, although it is not at all relevant to your job profile
  9. Your mutual fund is providing decent returns but you would like to switch to one with even more returns
  10. Your child is doing good in studies, you want him\her to do better and register him\her at another famous coaching class
  11. Your child is good at swimming, but you would like him\her to be good at dance and also play a musical instrument because many friend’s children do that.
  12. You go for weekly shopping at a mall and return with at least twice the number of items you had on your list and when you cross-check items with your list, you haven’t covered even the half of it.
  13. .
  14. .
  15. List can go on…

From all above examples you can see that, mistaking wants for needs is going to take toll on your budget and eventually you.

Once you know that you must choose consciously, and you keep practicing it, it is not that difficult. In case of doubt, ask three simple questions to yourself:

  1. Are you doing something just because you can afford to do it?
  2. Do you think you may ever regret doing it?
  3. Can you do without doing it?

Now let’s take first example in the list and try to apply these questions. For better fitment I will put an outside student studying in city in the role-play here.

You are hungry and decide to go for pizza house instead of healthy rice-plate option

Q: Are you doing something just because you can afford to do it?
Ans: Yes. It is start of the month and I have just received monthly pocket money from home.

Q: Do you think you may ever regret doing it?
Ans: Yes. At the end of month if I run out of money received from home, I may regret this overspending.
Q: Can you do without doing it?
Ans: Yes. I can certainly have the rice plate and satiate my hunger.

All Yes means definitely you are falling for a want disguised as need. Revisit your decision. If all answers are No you can go ahead without any doubt. Even if occasionally you decide to go with your wants, make sure that a want remains on wants list. Don’t let your mind trick you into slowly converting a want into a need.

I would like to emphasize one thing at this point. One shouldn’t think that having to make this decision every time is sign of miserliness or deprivation,  because it is not. Rather this practice may help you refraining from making some silly or inappropriate decisions which may hurt you over a long period of time.

Respect your needs and be smart with your wants, that’s it. You will surely be in control of your financial conditions and also be a happier family. It’s a winwin for sure.

Overspending – the biggest block in financial freedom

We dream about having nice things, big cars, nice homes, latest gadgets, fancy cloths. The moment we start working after graduating from university, we start accumulating the things we dreamt as a kid or student. Thanks to the media around us – be it print media, social media, electronic media, TV channels blaring advertisements 24X7. They make us convinced that if we do not owe the latest, we are not human in sync with the world. The tone of modern day advertisements is that we are inferior if we do not have the latest gadget, latest fashion.

Overspending - hurdle in personal finance

 

Once the income starts coming in Post University, we welcome all the stuff, toys to keep us happy. We submit ourselves to frequent outings with friends and relatives and many more things which we could not do being a student. Owing the stuff and frequenting restaurants is considered as a new COOL. Suddenly we feel urge to buy new automobile because all our peers have one. We want to outshine our peers hence we want the best automobile, fully loaded with all amenities – just to show off and in our heart we feel “we deserve it”. We look to get hold of the well deserved large house in the toniest neighborhood which we were eying from long. Consumer credit is readily available. This gives us a good excuse to buy the latest 80 inch 3D LED. Obviously we need these gadgets to flaunt ourselves in our circle. Also this reflects in the society that I am cool and doing well in my professional life.

We try to do everything except saving & investing money. It’s always good to pretend that we do not have sufficient income to start investing now and we will have much better success with investments when we have higher income than what we are earning now. A big chunk of our earning is dedicated to the monthly payments that are going out for the nice house, a big car, 80 inch 3D LED and many more gadgets which we have accumulated – just to show off that we are doing well.

This tendency to spend salary as and when it comes makes us struggle financially month on month. Every month we have a list of TO BUY and the list never gets trimmed. One item leaves the list, another item occupies the place. So what can we do if we are making 6 figure incomes and still struggling to pay for necessities to survive day to day life? We must put a cap on non – essential spending. Cut it down so that we have precious cash saved for essential spending and investing. It will hurt for a month or two, but we will not die if we do not have latest iphone 7 in our kitty or if we do not have the latest Honda or Toyota parked in our garage.

Unless we stop spending recklessly, we will not come to know what is essential and what is non essential spending.

A simple plan: How can we check overspending

1. Make a list of monthly expenses without which we cannot live like Home loan EMI (mortgage), electricity bill, maintenance charges, telephone bill, and internet bill. Mark them as NEED

2. In another list, keep all expenses which are our WANTS, like eating out, buying latest phones, new cloths, and outings during weekends etc.

Now once the list is made, strictly write every penny that you spend under respective list. Over a month or two you will get a very clear picture that what you are spending on essential items and what is being spent on non-essential. Cut down on non essential, put brakes and see the magic. In a couple of months you will have a very positive cash flow and loads of money freed up for investing.

This is basic money management, not a rocket science. We need not to be an expert in finance to make money work for us.

Overspending has to be tackled at the earliest if you are not having a positive cash flow month on month. Overspending can ruin your retirement plans and can even upset your life’s balance sheet. If you wish to retire early to pursue your passion, if you are looking for financial independence, if you want to generate passive income so that you do not have to depend on your day job – you must sit down and do the basic exercise to assess your expenses and come harsh on overspending.

Believe me; cutting down overspending can work miracles on your cash flow. You can free up a lot of money which can be invested judiciously to generate good returns over a period of time.