The famous quote “Before you spend, earn” by William Arthur Ward are word that we should all try to live by. However with so many tempting purchases and services to spend our money on, following this advice can be certainly difficult.
The big question is, how does one manage one’s finances to become financially independent and have the ability to enjoy today’s lifestyle? According to Maslow’s Hierarchy of Needs, human beings are motivated by safety, belongingness, love, esteem, self actualization and self transcendence. Now if we combine these with the most physical basic needs which are food, shelter and clothing then we have a multitude of things to spend money on.
Food becomes a costly experience as the psychological need to be accepted and have a high self esteem will urge us to choose the most expensive restaurants to dine at. Shelter combined with safety and esteem will result in a high priced house with the most state of the art security system. Although not necessarily a negative thing, spending more than what we can afford is a decision that will have disastrous results.
So, how do we go against human nature and successfully manage our money? Here are some excellent tips to jump start you on becoming financially independent.
- Price vs Cost
There is a popular misconception than when you want to save money, you should opt to purchase items or hire services that come at the lowest price. However, this opens you up to low quality and poor service. The cheaper choice is not necessarily the best one.
Instead of looking at the price alone, consider the cost of your decision. If you buy something cheap then there is a big chance that you may need to get a replacement soon. This decision will ultimately cost you more money in the end. Higher priced items and services may be the better option as these often come with a guarantee and warranty.
Always consider purchasing products that will be worth the money you spend on it.
- Spend on Investments
The term investment does not just apply to transactions that we make with financial institutions. This can also refer to our purchases. We often make a pact with ourselves that we will only buy something that we absolutely need. We do try very hard to stay committed to this pact. However, it’s easy to find something that we feel is an absolute necessity. Like when we want to upgrade our mobile phones or cars.
When we label this purchase as a luxury, it would be easy to feel guilty and end up not maximizing our upgraded things. Consider this purchase as an investment instead. A better phone offers new features that can help us perform our jobs easier. A newer car model may have better mileage on gas. We just need to find how our upgrades can help save or make us more money in the end.
- Increase your cash flow
A well paying job is a great thing but should not be “the end all and be all” of our finances. We should always work on finding ways to improve the cash flow coming in. This is certainly possible without violating our employment contracts
If you like doing crafts or baking, then you can turn your hobbies into money making ventures. Don’t be afraid to start out small with your available network of friends and family members.
- Reward Yourself
Our commitment to managing our money is much like going on a diet. The more we deprive ourselves, the more enticing it is to cheat. The best way to overcome this is by celebrating little triumphs. However, it is important to remember that the reward must be appropriate to the achievement. If you’ve managed to go to work on time for the entire week, splurging on a brand new phone may be a little too much. Avoid getting yourself in debt by buying your rewards on credit.
- Save Up for what you want to buy
Saving up for an expensive purchase such as designer shoes did not go out with the dinosaurs.This is still the best way to shop for luxury items.Although swiping your plastic will get you the things you want faster, the backlash will certainly not be worth it.Interest rates can be tricky and the item might end up being more expensive than it actually is.Plus, it gets really frustrating when we end up breaking something even before it’s been fully paid.