Expense Control
Investing your money wisely will help grow your wealth.
In the previous articles we looked at different avenues of investment to increase wealth.
There is another aspect to consider while building your nest egg -the expense side.
Money saved is money earned.
In the pursuit to increase wealth sometimes you forget to curtail expenditure.
If you have just begun your journey in your career or independent family life, I would urge you to be aware of these points.
These are not new except that we most often forget to put these in practice.
I hope that it is also useful to others who have walked the long road to building wealth.
The article is specific for readers in India though most of the ideas expressed are universal.
Before we go ahead, it is important to distinguish between being miserly and controlling one's expenses.
There is a thin line, a fine balance.
The best way is to ask yourself if you are happier not spending on an expense which is actually of no real value.
If you have just started your journey it is better to show a higher self restraint and ease it as your savings increase.
In any race a head start gives you a clear advantage.
So too in building wealth the best way is to start early.
The advantage of building wealth is that you can enjoy what you do over a long time but if you squander away what you have made at the earliest opportunity then you have to sacrifice the good things and later wonder what happened or start building mountains of debt to keep living your life.
As our wealth grows and affordability increases we tend to dismiss little expenses as routine.
Live your life but live it sensibly and wisely.
Energy Bills Saving on your electricity bill not only puts more money in your hand but also allows you to give your bit to save the environment.
Power-off all electronic equipment when not in use.
The biggest power guzzlers are ACs and water heaters.
If you are using a blanket when your AC is on you are losing a lot of money.
Push up the AC temperature so that it is cool and comfortable without a blanket.
Use the sleep mode and timer to switch off automatically.
As for the heater please do not switch on as soon as you wake up and keep it on till you go to office.
Switch it on 5 minutes before you have a bath, open the tap just a little so that water flows out slowly.
This will conserve a lot of energy.
If you are buying any new household appliance go for the 4 or 5 star [Bureau of Energy Efficiency (BEE) certification] equipment even if it means a few thousand rupees more.
Replace regular bulbs with CFL.
Gadgets The lower the numeral in the gadget that you have the lesser is your cool quotient.
iPad 1, 2G mobiles are pass.
If you tote the latest I-pad 2, have a 3G I-phone 4 and game with PS3 remember the feel good factor is at the expense of your deflated wallet.
Gadgets are the greatest present day wealth destroyers.
Manufacturers create hype around the product launch and consumers are encouraged to be early adopters and upgrade the gadgets.
It is better to question if you really need a gadget.
The same goes for the new generation TVs and digital cameras.
Keep questioning your buying decision.
Do not squander that bonus or performance incentive for buying something that will be outdated or available at half the price in the next 6 months.
Car Buying a car is a personal decision.
Make sure you do your homework when you buy the car and the purchase is based on what you need.
Do not spend on fancy accessories.
Alloy wheels and fog lamps and fancy fittings can come once you can actually afford it.
Once you have a car it is very important that you follow the service schedule strictly and follow safe driving.
It would be a good idea to take an extended warranty at the time of purchase itself as it will cost very little but protect you from costly expenses once you are out of initial warranty.
In case your car does not have a dead pedal take your feet of the clutch while you drive.
Clutch plates do not come under warranty and they can cost a packet.
Regularly check the tire pressure and rotate the tires at every service interval.
A few tips for saving fuel - Use the top gear as much as possible but do not make the engine unnecessarily knock.
When you drive in light traffic keep a good distance between the vehicles in front and slow down when you see traffic ahead.
This way by the time you reach, the traffic would have cleared or moved enough to handle it in the 3rd gear.
As you approach a signal, if traffic is light then slow down much earlier so that by the time you reach the signal it would have turned green.
If you have just caught the signal, switch off the engine.
If you are the type who cannot bear the heat then switch off the a/c and just run the blower.
Wear seatbelts and bikers, dump those excuses and get a helmet.
Brands Brands make a company.
Some really smart people are sitting in all these top class companies seeking out newer and innovative ways to persuade us to loosen our purse strings.
They are helped by some really creative guys who tell us to use our hearts to take a decision.
Advertisements are there for a reason.
It is to create a desire and remember the brand.
Building a brand needs a lot of money and you pay for it.
It does not mean that you should not go for a brand.
But choose wisely.
If it is just to boost your ego give it a miss.
Be aware that you are subsidising the advertising budget.
Try to stay two steps below what you can really afford.
It is only Rs.
10 As one earns more there is a tendency to think that certain denominations are really just a piece of paper.
I am sure nobody will throw a Rs.
10 note in the dust bin.
But when you go out to shop you may buy a really wasteful thing for Rs.
10.
You justify the purchase thus "After all I am earning so much it is only Rs.
10.
" [the zeros will increase according to perceived wealth].
The problem with this line of thought is that it becomes a habit and you are drained of your hard earned money and your house turns into a junk yard.
Debt control - Personal Loan,Credit Card Loan, EMIs I have covered this in my article on financial discipline.
It is important to remember that interest paid is a cost.
Nobody is going to give you easy money.
If interest is low then other upfront/onetime charges will surely be high.
So do not fall for that mouth watering loan /EMI offer.
It is best to use Cash while shopping.
This way you cannot spend if you do not have cash in hand.
Debit cards are dangerous as well; if your account has idle balance you might want to make that impulse purchase.
If you are the spending kind keep your cards in the house when the shopping bug bites.
Managing insurance Overloading your investments towards life insurance linked saving products is a bad idea.
Do not buy moneyback policies or Unit Linked Insurance plans (ULIPs).
They drain your wealth and gives your investment poor returns.
It is always better to go for pure term plans.
Take a health insurance even if your employer offers you medical reimbursement.
Your health insurance from the employer stops the moment you resign or in the unlikely event you are asked to move on.
If you have a family, take a family plan.
If you keep a lot of valuables in your house it would be a better idea to take a locker at a nearby bank and transfer your valuables or take burglary insurance.
Be ready for life's uncertainties.
Insure wisely.
Habits Human beings are creatures of habit.
Old habits die hard, more so if they are undesirable.
Smoking, Alcohol, chewing paan, gutka drain your wealth and have serious effect on your health.
Stop them.
Idling money in Savings bank accounts Though not on the expense side this is worth a mention.
Once you get your salary make sure that you leave only the minimum amount in the savings account.
Start a recurring deposit or an SIP in a mutual fund.
Many banks offer sweep in facilities.
Make use of it.
Do not idle your money and maximize your overall return.
The above points for saving are not exhaustive.
There are many more and readers are encouraged to contribute ideas for expense control.
It is easy to give advice and easier to read and forget them.
The key to expense control is to be aware that unnecessary expenses constantly eat away our savings.
Start with small steps and you will find that things slowly fall into place.
Do not over do it as that is likely to make you unhappy.
Get the right balance and you will see that your wealth and health start improving.
In the previous articles we looked at different avenues of investment to increase wealth.
There is another aspect to consider while building your nest egg -the expense side.
Money saved is money earned.
In the pursuit to increase wealth sometimes you forget to curtail expenditure.
If you have just begun your journey in your career or independent family life, I would urge you to be aware of these points.
These are not new except that we most often forget to put these in practice.
I hope that it is also useful to others who have walked the long road to building wealth.
The article is specific for readers in India though most of the ideas expressed are universal.
Before we go ahead, it is important to distinguish between being miserly and controlling one's expenses.
There is a thin line, a fine balance.
The best way is to ask yourself if you are happier not spending on an expense which is actually of no real value.
If you have just started your journey it is better to show a higher self restraint and ease it as your savings increase.
In any race a head start gives you a clear advantage.
So too in building wealth the best way is to start early.
The advantage of building wealth is that you can enjoy what you do over a long time but if you squander away what you have made at the earliest opportunity then you have to sacrifice the good things and later wonder what happened or start building mountains of debt to keep living your life.
As our wealth grows and affordability increases we tend to dismiss little expenses as routine.
Live your life but live it sensibly and wisely.
Energy Bills Saving on your electricity bill not only puts more money in your hand but also allows you to give your bit to save the environment.
Power-off all electronic equipment when not in use.
The biggest power guzzlers are ACs and water heaters.
If you are using a blanket when your AC is on you are losing a lot of money.
Push up the AC temperature so that it is cool and comfortable without a blanket.
Use the sleep mode and timer to switch off automatically.
As for the heater please do not switch on as soon as you wake up and keep it on till you go to office.
Switch it on 5 minutes before you have a bath, open the tap just a little so that water flows out slowly.
This will conserve a lot of energy.
If you are buying any new household appliance go for the 4 or 5 star [Bureau of Energy Efficiency (BEE) certification] equipment even if it means a few thousand rupees more.
Replace regular bulbs with CFL.
Gadgets The lower the numeral in the gadget that you have the lesser is your cool quotient.
iPad 1, 2G mobiles are pass.
If you tote the latest I-pad 2, have a 3G I-phone 4 and game with PS3 remember the feel good factor is at the expense of your deflated wallet.
Gadgets are the greatest present day wealth destroyers.
Manufacturers create hype around the product launch and consumers are encouraged to be early adopters and upgrade the gadgets.
It is better to question if you really need a gadget.
The same goes for the new generation TVs and digital cameras.
Keep questioning your buying decision.
Do not squander that bonus or performance incentive for buying something that will be outdated or available at half the price in the next 6 months.
Car Buying a car is a personal decision.
Make sure you do your homework when you buy the car and the purchase is based on what you need.
Do not spend on fancy accessories.
Alloy wheels and fog lamps and fancy fittings can come once you can actually afford it.
Once you have a car it is very important that you follow the service schedule strictly and follow safe driving.
It would be a good idea to take an extended warranty at the time of purchase itself as it will cost very little but protect you from costly expenses once you are out of initial warranty.
In case your car does not have a dead pedal take your feet of the clutch while you drive.
Clutch plates do not come under warranty and they can cost a packet.
Regularly check the tire pressure and rotate the tires at every service interval.
A few tips for saving fuel - Use the top gear as much as possible but do not make the engine unnecessarily knock.
When you drive in light traffic keep a good distance between the vehicles in front and slow down when you see traffic ahead.
This way by the time you reach, the traffic would have cleared or moved enough to handle it in the 3rd gear.
As you approach a signal, if traffic is light then slow down much earlier so that by the time you reach the signal it would have turned green.
If you have just caught the signal, switch off the engine.
If you are the type who cannot bear the heat then switch off the a/c and just run the blower.
Wear seatbelts and bikers, dump those excuses and get a helmet.
Brands Brands make a company.
Some really smart people are sitting in all these top class companies seeking out newer and innovative ways to persuade us to loosen our purse strings.
They are helped by some really creative guys who tell us to use our hearts to take a decision.
Advertisements are there for a reason.
It is to create a desire and remember the brand.
Building a brand needs a lot of money and you pay for it.
It does not mean that you should not go for a brand.
But choose wisely.
If it is just to boost your ego give it a miss.
Be aware that you are subsidising the advertising budget.
Try to stay two steps below what you can really afford.
It is only Rs.
10 As one earns more there is a tendency to think that certain denominations are really just a piece of paper.
I am sure nobody will throw a Rs.
10 note in the dust bin.
But when you go out to shop you may buy a really wasteful thing for Rs.
10.
You justify the purchase thus "After all I am earning so much it is only Rs.
10.
" [the zeros will increase according to perceived wealth].
The problem with this line of thought is that it becomes a habit and you are drained of your hard earned money and your house turns into a junk yard.
Debt control - Personal Loan,Credit Card Loan, EMIs I have covered this in my article on financial discipline.
It is important to remember that interest paid is a cost.
Nobody is going to give you easy money.
If interest is low then other upfront/onetime charges will surely be high.
So do not fall for that mouth watering loan /EMI offer.
It is best to use Cash while shopping.
This way you cannot spend if you do not have cash in hand.
Debit cards are dangerous as well; if your account has idle balance you might want to make that impulse purchase.
If you are the spending kind keep your cards in the house when the shopping bug bites.
Managing insurance Overloading your investments towards life insurance linked saving products is a bad idea.
Do not buy moneyback policies or Unit Linked Insurance plans (ULIPs).
They drain your wealth and gives your investment poor returns.
It is always better to go for pure term plans.
Take a health insurance even if your employer offers you medical reimbursement.
Your health insurance from the employer stops the moment you resign or in the unlikely event you are asked to move on.
If you have a family, take a family plan.
If you keep a lot of valuables in your house it would be a better idea to take a locker at a nearby bank and transfer your valuables or take burglary insurance.
Be ready for life's uncertainties.
Insure wisely.
Habits Human beings are creatures of habit.
Old habits die hard, more so if they are undesirable.
Smoking, Alcohol, chewing paan, gutka drain your wealth and have serious effect on your health.
Stop them.
Idling money in Savings bank accounts Though not on the expense side this is worth a mention.
Once you get your salary make sure that you leave only the minimum amount in the savings account.
Start a recurring deposit or an SIP in a mutual fund.
Many banks offer sweep in facilities.
Make use of it.
Do not idle your money and maximize your overall return.
The above points for saving are not exhaustive.
There are many more and readers are encouraged to contribute ideas for expense control.
It is easy to give advice and easier to read and forget them.
The key to expense control is to be aware that unnecessary expenses constantly eat away our savings.
Start with small steps and you will find that things slowly fall into place.
Do not over do it as that is likely to make you unhappy.
Get the right balance and you will see that your wealth and health start improving.
