Do you struggle to control your expenses? Do you feel your long-term goals are getting compromised because of your inability to limit spending?
If yes, this is a serious problem. When you spend irresponsibly, you are borrowing from your future. If you spend too much now, you won’t have much to spend in the future. How do we get around this?
The good part is many of us already appreciate the problem. Just that the issue lies in execution.
In this post, let’s look at a few ways that might help in the execution. This is not a holistic list, just a few that I have found useful, yet not very restrictive.
#1 Automate Your Investments in the First Week of the Month
Set up the SIPs in mutual funds and installments for recurring deposits in the first week. Even monthly investments in PPF and SSY can be automated. This is the finest way if you are struggling to control your expenses. It is our nature to manage with what we have. Once all the requisite investments have been made, you can spend the remainder of the money freely.
“Requisite” is subjective. Do NOT set yourself too small a monthly investment target. First, figure out the amount you need to invest to achieve your financial goals. Invest such amounts. Use the remaining amount for your expenses. However, do not go overboard either. Many of us set ourselves very aggressive financial goals. Investing for such goals would mean little is left for expenses. This is neither practical nor advised. Use your discretion.
#2 Have a Separate Bank Account for Expenses
Transfer a fixed amount to this bank account (from your main bank account) every month. And make all the regular spends from this account. This fixed amount could be the monthly expense limit you want to set for yourself. With this, you just need to look at the balance in the new bank account and figure out how much more you can spend in this month.
However, there is a simple loophole in this system. You can use your credit card and continue to splurge. Therefore, it is extremely important that you pay all your credit card bills etc. from this account. Since the credit card bills also have to be paid from the same bank account, the maximum you can do is to defer the debit from your bank account by a month, not beyond.
Please understand UPI apps like PhonePe, GooglePay and Paytm won’t help here. Rather, these apps alone won’t help. Why? Because the debit happens from your bank account. These apps are just facilitators. You don’t need just an app that can help break down your expense pattern. You need a different bank account.
Point to Note: Paytm offers a wallet, UPI app and a bank account. So, it is not just a UPI app like PhonePe and GooglePay. Very slick and intuitive. Therefore, a Paytm bank account could be the new bank account for expenses. There are many fintech firms/neo banks that can provide you with a good user experience. For instance, Niyo has partnered with Equitas Small Finance Bank. When you open an account With Niyo, a bank account is opened with Equitas SFB. Essentially, Niyo provides the wrap over Equitas bank account.
For this purpose, you can also open an account with a traditional bank like SBI, ICICI and HDFC. While their mobile banking apps may not provide the user experience of new age banks, the apps are still quite good.
#3 Limit Your Credit Card Spends
This is likely the genesis of problems. Since you do not have to pay right away, you can overspend. Therefore, the overspend problem can’t really be addressed without looking at the core issue.
This would require discipline. Keep an eye on the balance on the monthly expense bank account before you swipe your credit card. Or use a debit card instead of a credit card. Now, UPI is widely accepted even in small towns. Use UPI for payments.
If you are keen on using credit cards, here are a couple of steps you can take. If you have too many credit cards, reduce the number of cards. Now, you can also set monthly spend limits and even per transaction limits for every credit card. You can use this feature smartly to control your spending behaviour. For instance, your credit card may give you a limit of Rs 3 lacs, but you can modify the limit to say Rs 25,000 per month from the mobile app or net banking. Or set up per transaction limit at Rs 5,000. These minor nudges can go a long way in controlling the expenses.
Which Approach Should You Choose?
You can select the approach that works with you. You don’t have to use one approach. You can use a mix. For instance, you can use all the approaches at the same time. You can automate investments, have a separate bank account for monthly expenses and set transaction limits on your credit card.
And this is not a complete list. Everybody does it differently. Therefore, there are many roads to the same destination. How do you control your expenses? Let us know in the comments section.