Last Updated on August 4, 2021 by Yetty Akindele
There’s no better time than now to take a look at your budget, cut down on your expenses, and start making healthy financial decisions, however little. It may seem daunting, even insignificant at the present moment, but it could turn out to be a lifesaver in the future.
The COVID-19 pandemic has shown us just how easily circumstances can change, especially when we’re unprepared. Many people have lost their source of income, companies have shut down, and economic growth has plummeted drastically around the world. Here in Canada, the unemployment rate doubled to a 14% high between February and April. The foreseeable future does seem bleak economically.
One sure way to adapt to the unprecedented times is to review and make adjustments to your spending habits. This may be uncomfortable at first, but with time, it becomes easier. Better spending habit ensures you save money and also assures financial security during difficult times. Who wouldn’t want that?
With a minimalist mindset, you can focus on your essential needs, and ensure that they’re always met. In this way, you intentionally shrink the exorbitant spending, and have more to save, or invest.
By doing this, you have topped one more dollar on your savings. Your finances will get a boost, and you’ll be on your way to financial security or freedom. You can begin taking steps today towards ensuring that your financial future is on track.
Let’s look at some habits you can adapt to be on your way!
Budget Your Earnings.
One of our biggest money problems is impulse buying. Put simply, when you buy something you didn’t plan to, and which you don’t necessarily need, you are guilty of this.
Marketing agencies spend millions of dollars trying to entice us with attractive ads that make it easier for us to spend more money than we initially intended. Before we realize this, we are stuck with things we don’t need and have little or nothing left for savings.
One way to avoid this is to create a budget plan and stick with it. At the beginning of every month, create a list of your proposed expenses for the month. These may include groceries, clothing, electricity bills, rent, etc. Then, for every item, include the estimated cost. It mustn’t be precise; however, it would give you a picture of where and how your money is being spent.
A good system you can adopt is the 50-30-20 formula. Budget 50% of your income on needs, these may include food, rent/house mortgage, transportation, healthcare, etc. Then, budget 30% of your income on wants, these may include new clothes, new furniture, dining out, shopping, and entertainment. Finally, budget 20% on savings. These may include your emergency fund, retirement, and investing. If you’re new to savings, 20% for savings may seem unrealistic. However, you can start with 10% or 5% and grow from there. Baby steps are important.
The second part, which is often ignored, is tracking your expenses over the month. Your budget is not set in stone. It should evolve based on your circumstances and goals. Without tracking, your budget becomes lifeless. When you record your expenses, it gives you a clear picture of what you underestimated or missed and what you overestimated. This ensures that your next budget is more accurate.
More importantly, it makes you extremely aware of what you’re spending your money on in real-time. For example, you may find out that you are on a monthly cable subscription you don’t use, because you are either too busy with work, or mostly on your laptop. It becomes rational then, to switch to a cheaper service, or cut it off entirely.
Sometimes it can be tempting to give up on keeping track when you’ve overspent on too many categories. Instead, keep tracking these expenses until the end of the month, and then make necessary adjustments. Also, remember to buy in bulk where possible to save more. Tracking your expenses won’t take more than a few minutes per day, but it can have a profound effect on your spending habits.
Use Money-Saving Apps
As effective as budgeting and tracking can be, it can get messy on paper which can be discouraging, plus some of us still have nightmares about math classes. Thankfully, there are apps you can leverage by employing to help you track your Money-Saving habits.
Here are some finance apps that could do the bulk of the work for you. So, you can rest easy.
WealthSimple: With this app, you can earn up to 0.9% interest while saving for an emergency fund, or short term goals like a vacation, or a down payment. Also, every purchase you make is rounded up to the dollar, and the difference is sent to your savings.
Rakuten: With this app, you can get anything from 4% to 30% cashback on your purchases. Some retailers are Amazon, eBay, Nike, Sephora, best buy, etc.
Mint: It makes your budgeting easier by setting spending limits and records monthly bills. It also updates you on your cash flow daily.
A quick tip
It is advisable to have a separate saving account also known as a ‘parking’ account. So, rather than mentally categorize your spending activities, you could simply track your progress on existing savings, and be motivated to save more! A good parking account should be a high-interest yielding one like EQ Bank!
Limit Your Credit Card Usage
Most Canadians have a credit card. It’s straightforward to impulsively swipe your credit card, and buy things you cannot afford. If you want to get ahead with your finances, you can’t ignore the part that debt plays. By sticking to your budget, you can incur less debt. Your priority is to ensure that you have a high credit score (700 and above) on your credit card. With a good score, you can qualify for the best interest rates.
With the average interest rates at 19%, with some as high as 29.9% credit card debt can put you in a financial hole that may take you years to get out of. The best approach is to limit the use of your credit cards as much as possible. At the same time, make sure you pay a bit more than your minimum monthly bills to avoid overcharging.
If you can’t pay off the entire balance at the end of the month, pay off at a minimum the statement balance rather than the minimum balance. Credit card companies also charge you higher interest rates for late payments, even if it is by one day. If you have more than one card, each carrying a different balance, focus on paying off the high-interest cards first.
You should also take advantage of cashback credit cards that allow you to earn a certain percentage of your spending back as real cash, not points, or travel miles.
Cook More Often
Considering that most Canadian families spend 9.8% of their income on food and groceries, you can make a lot of progress by cutting down on how often you eat out or make food orders. It’s almost five times more expensive to order food from a restaurant than it is to cook from home. If you saved $10 a week by cooking from home, you’d have an extra $500 saved by the end of the month. This saves you money, and it is also a healthier alternative.
Do It Yourself (DIY)
There are many things you pay others to do which you could do yourself. Granted, it could take more time, but it will save you some extra cash. For example, you can probably save more money in a year by doing your laundry. The same goes for simple repairs at home. So, get out of your comfort zone, go to the store, buy some detergent or a hammer, and get to work!
As you save more, it’s more advantageous to put some of your money into investments. Do your research on the best stocks and bonds available to you and invest. Similarly, you can invest in no-fee ETFs. You can also look into buying some real estate, either to flip (sell again), or to lease (hire out).
If you aren’t comfortable with investing in stocks, you can consider investing in Gold bullion and other precious metals. This way, your money compounds with time, and may eventually double. Investing will give you more returns than savings, especially if you’re looking towards a long-term goal like retirement, or your child’s education.
Resist Parkinson’s Law
Parkinson’s Law states that expenses rise to meet income levels. This is the reason you spend more, as you earn more. As a minimalist, you must fight this tendency by maintaining the same spending habits even when you get a raise, a bonus, or an inheritance. Save the surplus instead. You’ll get farther ahead.
So, what’s next?
You can’t go wrong with a healthy savings culture. With it, you can secure your financial future. There are many ways to track your expenses and make wiser financial decisions. Baby steps are essential in achieving your financial goals. Save a dollar at a time, and you’ll be on your journey to attaining financial security. If you can adopt these minimalist spending habits, you will definitely be on your way to financial freedom!