We all grow with time and so do our income. We get increment in our office or we see increase in profits from business. Even though our income increases from many sources, our savings stands at the same level due to increased expenses. I was discussing saving with a friend with whom I started my career. We both looked at our growth in income and it looked decent, but we were sad to realize that our saving level didn’t change much. Our increase in income didn’t help us to increase our saving mainly because we were spending more than ever before. That was a striking moment for both of us as we both were happy even at our starting level income and thought that we could spend our life on this with just minimum growth (I know it is funny). But, the reality was different. We got growth more than we thought and in ideal scenario we should have saved more as we were happy spending less. I am sure most of you will be able to relate with this as we don’t understand where does our income disappear by the first week of every month.
Now there is another argument stating that there is nothing like spending more. My another dear friend told me that spending gives him pleasure which he defines as happiness. May be he is right. If not happiness at least spending gives pleasure. Then, why should we worry about increase in the expenses. We should live the life as it comes and spend wherever we can. For me, the question arise is how many hours I am spending on work to earn the income to pay any expenses. How many hours I am staying away from my wife and my daughter to earn that money? For how many hours I am not able to do things I like to do to make enough to spend? For me it is always a question of how much value any expense is creating in exchange of giving up the life I want to live.
If you are convinced that we need to take control of our expenses, then let us look at some of the reasons as why do our expenses increase when our income increases.
Past desires – In life we cannot buy everything we need due to limitation of our income. We feel depressed and helpless and we suppress those desires. As soon as our income increases, these desires come on the surface of our mind. These desires have an emotional attachment of our past. It reminds us that we were not able to purchase something we wanted. Now that I have increased income, i should buy it. We don’t analyze whether we really need it or not. For, e.g. we would have fancied going to those costly 5 star hotels, but could not go due to lack of money. But now that you can afford it you visit almost all 5 star hotels of your city. The point is that do we really enjoy blend food of those so called 5 star hotels?
Peer Comparison – This is the biggest contributor to increasing expenses. As soon as our income increase, people we accompany changes. We get into different circle of people who are at the same income level of us. This does not mean that we forget old relationships, but the amount of time we spend with them reduce over a period of time. Now this new circle wants you to spend like them. They want you to buy electronics they own, they want you to buy a car they drive and they want you to go to places they go for vacation. The catch is that they don’t do it directly, but they make you feel that you are more worthy if you buy all the stuff they own. You feel the pinch when you see latest technology gadgets in your new friend’s house. Even if you don’t need any new gadgets you still go and buy it.
Image to prove that we are growing – We are so attached to our image that we go to any extent to hold it. We are labeled as different classes based on our income in our society. They are normally tagged as poor, lower middle class, upper middle class and rich. Mostly people are not aware of other’s income directly, but they are defined based on the possessions. If you don’t own a car, then you are poor and if you own a luxurious car, then you are rich. As our income grows we try to tag our selves in the upside class. If we were in the lower middle class, then we will try to be known now as upper middle class. To prove that we buy a sedan and sell our hatchback car.
Don’t know what to do with money – We are used to live on particular amount of money every month. Now our income increases and we do not know what should we do with it. Instead of educating our selves on investing, we spend the extra money. To prove this let us look at lottery winners. Study says that 90% of the lottery winners end up in bankruptcy. They don’t realize that how they should use this money and spend more than they ever got.
There are some ways through which can get the control of our expenses.
List down all expenses – We need to list down all the expenses. The best way is to track every single penny that goes out of your pocket. Please don’t spare any single expense considering it is too small to keep track. It is not big expenses that makes our pocket empty, but all those small devils which goes out of our notice and make us wonder where did the money go. My friends tell me that they have done this exercise, but it did not help them. They are right. This exercise will open your eyes and will make you realize that you are spending too much. The main part comes in the next step.
Categorize into needs and wants – After listing down all the expenses, now it is time to categorize them into needs and wants. Now you have to be honest while doing this exercise. Need is something without which we cannot live, such as food, clothing, and house. You can add more depending on your situation. Want is something, which is good to have. Like your car, cable TV expenses or your Starbucks latte. The point here is that we need to start reducing our expenses belonging to want category. Expenses falling in want category became part of our daily life due to peer pressure or because we became the victim of advertisement. When we truly analyze, then we realize that all these expenses does not give happiness to us. I agree that when we first take the sip of Starbucks latte we felt great, but it does not give you happiness when we drink it daily. Another question we need to ask is that does any of these expense is worth spending our life energy (Amount of time you spend to earn that much money).
30 days rule – This works best for me. Instead of falling in the trap of advertisement, we should wait for 30 days before we spend money. So, you are roaming in a mall just for fun and you saw cool new video game and it is so attractive that you cannot stop yourself for buying it. Stop yourself there and take 30 days before you buy it. This 30 days can either make you feel that you don’t need any more video game because you have not played your last two games which you bought online or you can buy it as you still desire to play it. This rule has proved life transforming for many people as they reduced great amount of their spending after applying it.
Spend after saving – Some believe that we should not live in misery and should spend the way we want. For all those people who want freedom from keeping track of expenses we have one step, i.e. Spend after you have done enough saving. You decide that you will be saving 35% or 40% of your income and will spend the rest. You have to be very careful when you follow this as this might tempt you to spend more than you pre-decided amount. You should start automatic saving plan under which your saving amount will be deducted as soon as your salary comes and then you are free to spend rest. Do not use credit card for over expenses.