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Psychology of Spenders And Savers

There are two types of people in the world: those who spend and those who save.

SPENDERS

Compulsive spenders do not want to delay gratification. If they want something, they will purchase it right away…as long as they are happy. It worked so well in the past, so they stick to the same habit. But, when expenses and debts extremely increase then, it is the time they realize that they need to kick that habit away.

Here are 3 ways to prevent your impulses and to help you save:

1. IDENTIFY YOUR FINANCIAL GOALS

How much do you need when you retire or how much do you need to pay for your child’s education? Ask yourself these questions to identify your financial goals. Then, be vocal about it to your friends and family.

2. NEED VS WANT

Before purchasing anything, evaluate and know whether you need or want the item. Then, purchase according to your budget.

3. STAY AWAY FROM THE PLASTIC CARDS

By using mainly cash and withdrawing it from your bank account, then you became more aware of your spending and your account balance.

SAVERS

For financially aware individuals, the act of spending can activate neural activity in the anterior insula and amygdala. These two parts are responsible for the mood and unpleasantness felt. This is why the more these two are activated; the less likely a financially aware individual will spend. On the other hand, the act of saving will bring immense pleasure to them.

While many people take pleasure in purchasing things, some savvy savers do not feel the same. Instead some of these people are uncomfortable when shopping, they constantly look for the price tag and calculate the total, and they feel emotionally painful when they are paying. If you are not experiencing enough pleasure in life, you deserve to loosen up and enjoy spending every once in a while.

So, what brings the pleasure back as a savvy saver that is spending?

1. STAY AWAY FROM THE PLASTIC CARDS

Give yourself the vacation or rest day you deserve by budgeting a portion of your money to a category called “personal incentives”. With that money, you would not need to use your credit or debit card since you have already set aside the cash to cover it. Now all you can do is relax and take your mind off the expenses.

2. PURCHASES=REWARDS

At the end of the month and once you meet your savings goal, reward yourself with the pampering you deserve for working hard and doing so well. To prevent frugal fatigue, reward yourself by using a responsible amount of 4% – 8% of your savings.

3. THINK OF THE FUTURE

Study has shown that people are happier when they spend their money on experiences (e.g., sky diving) than in goods (e.g., Gucci bag). So, do the same with your personal incentives. Do you really want to regret experiences you did not take because you don’t want to spend money on enjoyment?

Image Credits: Tax Credits via Flickr

Even though you belong in one category now…you can still change! Whether you are a saver or spender, you hold your financial present and future.

7-Day Spending Cleanse Ideas You Must Try

It is amazing to start the Lunar New Year with a clean financial slate and increased savings. So, begin the year with a 2015 spending cleanse: short yet impactful exercise to help you clear your mind, focus on your goals, and improve your buying habits. There are no excuses because a short-term intervention (7 days) is a good place to start.

In just a week, your financial awareness can help you stop spending on unnecessary items and eventually help you break the bad habits. Try these 3 Spending Cleanse Ideas and come out more motivated, focused, and richer.

You must first figure out a budget plan that helps reach your financial goals before starting the cleanse. Seek guidance from family, friends, or YouNeedABudget.com.

1. ELIMINATE THE UNNECESSARY

Plan: Identify a category where you are overspending then, slash that problem area.

Purpose: To allocate more money for shopping, emergency fund, and savings.

If you a person who does not pack for lunch and only go for local restaurants, gourmet counters, and coffee shops everyday then your expenses can take about S$450 of your income. With this cleanse, you will have to go on cold turkey and avoid buying for outside food for 7 days. You will find yourself save more afterwards.

Just by reducing expenses in one category such as switching back to basic cell phone plan; you can save up for your dreams in just a few years. It is so simple! There is no sense if you go back to your unpleasant ways.

2. HAVE AN “AUTO-SAVE” SYSTEM

Plan: Program regular account transfers to help you reach your goals while having a busy schedule.

Purpose: To save money for retirement, emergency fund, and vacations before you spend it all.

Contemplate upon your budget and begin writing a list of the things you want to save for from your needs (e.g., emergency fund) to your wants (e.g., Christmas vacation in Paris). Divide your income to the needs first then, divide what is left to your wants. You need at least two bank accounts: one for your needs and one for your wants. The next step is to set up automatic transfers or direct deposits that will move your money into each account on payday.

3. NO MORE PLASTIC CARDS

Plan: Withdraw the week’s spending from the bank in cash. When it is gone…it is gone.

Purpose: Saying no to credit cards will cut down the impulse purchases.

Most people talk about how important their long-term financial goals are but their regular buying decisions do not support their goals. This cleanse will have you keep your credit and debit cards at home so you can easily notice when you are losing money for every purchase. Before the week begins you must spare 25% of your income and divide it to your spending categories and put all in different envelopes.

Image Credits: wikihow.com/Do-Envelope-Budgeting

This will be your only allowance for the whole 7 days and all for purchases shall only come from it. Research showed that the act of relying to cash for spending makes you savor the paying process, think more, and spend less. Trust me, it works.

3 Simple Tips To Stop Living From Paycheck to Paycheck

Living barely within your income is not a laughing matter. When you are living paycheck to paycheck, you live a life of constant stress, worry, and dread that you might be stuck in an unfortunate debt. It is a struggle to gain control of your money and your commitments. So, here are 3 Simple Tips To Stop Living From Paycheck to Paycheck…

1. CREATE A SYSTEMATIC FINANCIAL OPERATING SYSTEM

In order to cease your worries, a huge turnover can be money flow management. You must give conscious effort to know about where your money flows in and out. Once you have control over your money flow. Then, you will be able to create a systematic financial operating system that consists of: money flow management and budgeting.

Money flow management is accomplished by using a ledger or an app. There are a couple of efficient yet free apps that can help such as: EXPENSIFY, EXPENSE MANAGER, MONEYWISE, POCKET EXPENSE PERSONAL FINANCE, and MINT.

Image Credits: wikihow.com/Do-Envelope-Budgeting

Likewise there are a couple of budgeting such as STATIC or FLEXIBLE budgeting. For personal finances, I highly recommend a simple technique called ENVELOPE budgeting. It starts by storing the cash into separate categories of household expenses that are allocated in separate envelopes.

Budgeting will surely help you gain clarity and control. Start by writing down your monthly income, followed by your monthly expenses, and then subtract the two. Plan and search for a suited technique.

2. PREPARE MONEY FOR YOUR BILLS ACCORDINGLY

Some bills are due frequently while some are semi-annually. Prepare money for your bills accordingly by noting them down. If you have a monthly bill, you may try a trick called half payments. For half payments, you prepare the payment for the bill by subtracting half of the bill’s amount to your bank account per two weeks (bi-weekly).

3. BOOST YOUR EMERGENCY FUND

Prepare for the unforeseen events and financial failures by saving at least 8% of your income per month. You shall call this category your “emergency fund”. It is better to save a certain amount of money than to have nothing save at all.

How And Why You Should Save For Retirement Before Your Mid-30s

When you are young, in your 20s or 30s, retirement feels like a looooong way ahead.

Typically in your 20s, the only person you have to spend for is yourself. In your 30s, you will have new financial priorities such as the wedding, child’s schooling, house loans, etc.

If you consider all the aspects of your finances and fast-paced life today however, you will realize that it is the best time to start saving for retirement before you hit 35. Even the strategies to save for retirement are in-lined with the ideal to start saving while you are young.

Here are the 4 strategies to save for your retirement before your mid-30s…

1. PAY OFF YOUR DEBTS

It makes sense to pay off your debts or at least your high-interest debts before you save for your retirement. Since not all debts are equal, pay off your high-interest debts first followed by the lower ones.

2. SET UP A BUDGET

Systematically allocate your income onto different categories and stick to that budget. Do not spend beyond what your budget is for that month. This allows you to save regularly rather than arbitrarily.

3. SEEK FOR AN EMPLOYER THAT SUPPORTS YOUR GOALS

Image Credits: American Advisors Group via Flickr

As much as possible, look for an employer that supports your long-term goals. If your employer offers Retirement or Pension Plan then embrace this company benefit.

4. TRACK YOUR RETIREMENT SAVINGS

During your…

a. 20s

It is best to start saving at least 5% of your income or sign up for your employer’s Retirement Plan. Avoid debt as much as possible and get educated about your finances.

b. 30s

Invest your money and check whether it is in lined with your goals. Increase your contribution to your Retirement Savings while preparing for your child’s school fees.

c. 40s

Make thought-through decisions about your expenses and cut down the unnecessary. This is when you hit your savings to the maximum. By this time you should have at least S$80, 000 to your Retirement Savings.

d. 50s

During your 50s, you must prepare for the unexpected. Seek the financial experts’ help if you must. Then, plan your exit with glee because you are well prepared for it.

Note: This is just an ideal time frame for your Retirement Savings. Contemplate and reconsider the realistic measures that are suited for you.

Use Envelope Budgeting To Manage Your Money In Just 3 Simple Steps

According to DEBTSteps.com, envelope budgeting or envelope system is a popular way of maintaining a budget. It starts by storing the cash into separate categories of household expenses that are allocated in separate envelopes.

1. TRACK YOUR LAST MONTH’S SPENDING PATTERNS

One of the first steps that you have to take is to analyze your spending patterns, variable expenses and fixed expenses (i.e., monthly electric bills).

Fixed expenses remain the same every month (e.g. Hand Phone Plan, or HDB Rent). Variable expenses include food, entertainment, clothing, and other expenses that may change every month or year. The challenge now is for you to choose on which expenses you can reduce.

2. DEVISE A BUDGET PLAN

Recording all your expenses, no matter how big or small they may be, can help you plan your budget wisely. Categorize your expenses 7 or more sections such as Rent, Utilities, Electricity, Groceries, Gas, Entertainment, Savings, Loan, Childcare, Tax, Travel, etc.

For example if you are Fresh graduate living in your parents’ house and you earn S$1600 a month. Allocate your money with the fixed expenses first.
Rent- S$700

Utilities- S$150

Electricity- S$80

Student loan- S$100

Fixed Expenses Total: S$ 1,080

Then your variable expenses…

Savings- S$170 (transfer it to your bank account)

Groceries- S$100

Travel- S$100

Entertainment-S$100

Emergency- S$50

Variable Expenses Total: S$520

3. PUT YOUR INCOME IN SEPARATE ENVELOPES

Image Credits: wikihow.com/Do-Envelope-Budgeting

Use your marker to assign each category to each envelope. Use whatever size is best for you. It shall be able to fit easily in your purse or wallet. Follow the budget plan and allocate your money accurately. Spend only from the designated envelope and stop spending once you’ve emptied it. This practice of discipline will help you save a great deal of money.

Watch this simple video tutorial of the envelope budgeting or envelope system by NCNBlog:

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