How to realistically manage money if you have a spending problem

“The first six months of the year have been great in terms of my work flow and income. I have been working as a freelancer for close to two years now. My average monthly income touched new highs this year and safe to say, that I have finally aced the freelance game. However, my bad spending habit remains a pain point and ironically despite having clocked higher remunerations than ever, my financial health has been a cause for concern,” narrates 30-year-old Angad Singh.

Singh feels that the mindset that he has more than enough room to spend on his indulgences because his income stream has been gushing led him to spend way more than his budget usually allows him to. “It brought me to terms with the fact that better incomes are like two-edged swords – it’s simply not enough to earn money but managing money and using it wisely is an equally important task. A higher income flow means nothing if most of it gets spent on your vices and temptations,” Singh says.

Millennials have been unfairly smothered with a reputation of being absolutely terrible at money management with parallels being drawn with the older generations. Their spending habits are fundamentally different from that of their parents and short-term goals and experiences take a higher precedence for them than long term goals. They are not particularly driven by the virtues of austerity and simplicity when it comes to their lifestyles as opposed to older generations who have always prioritized saving for the future. The penchant for short-term gratification, new experiences and following one’s passion has made money management a challenge for many millennials. Also, given the deluge of distractions and the peer pressure that this generation is subjected to, thanks to social media, it is much harder for this generation to follow a stricter budgeting routine.

Singh says in order to change his habit of buying impulsively, he is working on tweaking his access to monetary resources in a way so that wasteful purchases are reduced to a trickle. “Yes, budgeting is important but even the most carefully drafted budget can be blown to smithereens if you do not have enough willpower. In my case, that is a bigger issue and I realized budgeting can be the next step after I have gained some degree of control over my expenses,” Singh shares.

A biking enthusiast and a food connoisseur, Singh says the improvement in his income levels nudged him to buy an expensive bike for which he sought a loan. However, after a few months the realization kept gnawing at him that he could have bought a cheaper bike and his current bike wasn’t really serving the purpose that warranted such a significant financial drain. “Every EMI payment feels like a pin prick and that is when I came to terms with the need to discipline myself strongly. I made it a point to invest in mutual funds through SIPs every month as soon as I got my payments – this has helped me in keeping money out of my sight that would have otherwise been wasted on some frivolous purchases. And depending on my income and outflow scenario in a particular month, I would also transfer some amount to another account which I am using as an emergency stash,” says Singh.

If the bike purchase for Singh may have been a result of the feel-good factor arising out of enhanced income levels, day-to-day impulses can be harder to reign in. Older generations whose definition of buying or shopping was incomplete without an actual trip to the market place were spared of having to play mental tug of wars with their wants. The millennial lot, thanks to the advent of ecommerce and social media, has to wage that battle 24X7 because advertisements are an omnipresent feature of our online lives. Singh says, “I have bought so many clothes and shoes without having any need for it and just because I spotted an ad on Instagram while scrolling randomly and liked the product too much to control the urge. One scrolling session on social media and my bank account gets lighter by 5k-7k. This problem is not unique to me – all my friends and relatives have shared similar troubles about not being able to stick to a budget because they saw something online which they couldn’t resist buying.” This made him conform strongly to the realization that what would help him was keeping his money in avenues where he couldn’t simply waste on unwarranted expenses.

For Singh, the mutual funds path worked because it helped him evade the choppiness of stocks and the sluggish returns and inflexibility of fixed income instruments. “The biggest advantage with mutual funds is that you don’t need a lumpsum amount to invest and the SIP route allows you to invest at different points in the market cycles and thus you can reap the benefit of rupee cost averaging. Now, I have been able to plan my finances in a way that even if I am keen on indulging myself I choose to accumulate the corpus through short-term liquid funds instead of simply swiping my credit card or using funds from my bank account.”

Shalab Gupta Bubhab, founder of Bibhab Capital says, “There is an instant kick that can be derived by driving new imported cars or a sprawling apartment which has been bought on high. Your materialistic escapades should not be at the expense of your future needs and goals especially if you are channelizing money in depreciating assets. As a thumb rule you should be amply insured and ensure that 40% of income is going towards long term equity SIPs.”

Key takeaways

– As crude as it may sound you need to have a plan ready for your child’s well-being in the event of your untimely death. A solid term insurance policy is absolutely essential should any untoward incident happen to you.

– Once your children attain a suitable age, it is judicious to make children privy to financial matters and equip them with basic financial literacy. This way they can be better prepared for emergencies and also have sound financial habits as adults.

– It is found that investors give priority to wealth creation over debt management. But if you don’t keep your debt under control, it can create a huge impact on your long-term wealth creation policy.

– You can simply repay that loan monthly with your savings to get rid of it. If repayment is not allowed immediately due to a certain lock-in then you can use a simple RD for accumulating a corpus to repay the loan as a lump sum. You can also use an arbitrage fund to accumulate the amount. This option is more tax-friendly.

-While equities for long term goals is an absolute must, no investment should be made with the hope of winning a jackpot.

This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.