Achieving financial freedom needs you to manage money effectively and efficiently and implement your financial plan. Money management skills cannot be learned overnight. Effective money management is a practice that helps you attain financial stability at any point in your life.
Generally, people assess their saving capacity depending on their expenses. Whatever is left after spending on expenditure from the income is considered savings. Here, it is important for you to go by a famous quote from Warren Buffet1, the world’s successful investor – ‘’ Do not save what is left after spending; instead, spend what is left after saving.” The key to effective money management is developing self-discipline and striking the right balance between your savings and spending.
Budget and Portfolio Management
Savings, expenses, and debts are the three main elements of your budget. You need to have a budget rule to follow and allocate your income to each of these elements judiciously. Creating a realistic budget and building your investment portfolio with the right choices of investments is the key to financial success.
Savings Vs Investment
When you put your savings to better use by allocating them to the suitable choice of assets and different financial products such as equity, debt, gold, real estate, etc., it becomes an investment. Investing wisely may help you earn and save money even when you sleep with the power of compounding. It is important to invest wisely in each of your goals.
To create substantial wealth in the long term, it is important to strike the right balance between spending and savings. Let’s take a look at the five ways, among others, to balance savings and spending.
Five Ways to Balance Savings and Spending
1. Stick to your budget:-
Creating a realistic budget is a key step in successful financial planning. Once you plan your monthly budget, you may get clarity on your expenditure and the amount you may need to save for your future goals. Now that the festival season is going on, you will see attractive discounts everywhere. Offers on shopping apps online may make you impulsive to buy things that are not really needed for you at the time. Hence, it is important to consider postponing or putting an end to your impulsive shopping to cut down on unnecessary spending.
However, you must spend on your needs, but not on your wants irrationally. Hence, it is important to follow the ‘save first and spend later’ rule. Sticking to your budget by not spending impulsively might help you stay a disciplined investor.
2. Follow a goal-based investment approach:
As you define your goal and create a budget, it is important to draw an investment plan that is completely goal-centric. For example, investing in a liquid fund or a sweep-in fixed deposit may help you meet your emergency fund goal, investing in National Pension Scheme or pension plans offered by insurance companies for your retirement planning, systematic investment cum insurance plans, and the savings insurance plans offered by life insurance companies for your children’s higher education and so on. Each investment should be meant for a particular goal. Before you invest in any financial product, it is important to consider your goals, the time horizon to achieve them, and the target amount for achieving the goal. This helps you make the suitable investment choice.
3. Prioritise your goals:
Prioritising your goals in the right order is also important to achieve them successfully. Make a checklist of your goals priority wise. Having a checklist of your goals on a priority basis may help you spend and save wisely.
4. Maintain an emergency fund
The emergency fund acts like a safety net during financially tough times. Unexpected financial emergencies may arrive at any time due to ill health, job loss or pay cuts, etc. It is important to have sufficient emergency funds to deal with unexpected expenses and situations that are uncalled for. Having an emergency fund may keep you financially stable in any such situation.
5. Seek expert help
Whenever you find it challenging to plan for your finances, it may be preferred to get in touch with the experts and seek their advice. Consult a certified financial advisor and discuss your goals with them to draw a holistic financial plan for achieving those goals. A piece of expert advice can guide you on the right path.
Consider taking control of your finances and start investing early. Striking a healthy balance between savings and spending may help you lead a financially happy life. It also might bring discipline to your investment journey.
1Quote by Warren Buffett: “Do not save what is left after spending; instea...” (goodreads.com)