Meeting of the Minds

In this post, I want to take a closer look at impulse buying. Impulse buying is an enemy of healthy personal finance. You can earn a lot of money, but if you have the habit of impulse buying then you may spend all of your money and have practically none left to save. It can destroy your personal finance easily so it deserves a closer look.

Impulse buying means buying something unplanned just because you are suddenly interested with it. More often than not, you will eventually find that you actually don’t need what you buy. In most cases, the thing you buy will only sit in the corner collecting dust without ever doing something useful for your life. Of course, you feel happy when you do the purchse. After all, you get your want fulfilled. But in the long term, the stuff you buy does nothing for you. Repeat this over and over again and you will find your personal finance in a bad shape.

In my previous post, I’ve written about how using a shopping list can help you defeat impulse buying. Here I want to give you one more trick. Whenever you feel the urge to buy something, resist yourself and give yourself 30 days before you decide to buy. Just write it down and look at it again after 30 days. Then ask yourself: do you still want to buy the stuff? Since it’s been 30 days, the urge of impulse buying is no longer there. Now you can make a rational decision. If you decide that you still need it, then there’s nothing wrong with buying it. But I’m sure that most of the time you will no longer feel the item necessary.

One thing that can make you spend way more money than you should is impulse buying. Impulse buying is unplanned buying that you decide on the spot when you find something interesting. This is dangerous for your personal finance because you can easily spend a lot of money this way.

A good way to fight impulse buying is by creating a shopping list before you go shopping. List everything you need at home before you go to the grocery store. Then, when you’re there, just find and buy all the things in your shopping list and nothing else. Since you already have a list at your hand, it will be much easier to get rid of impulse buying. When you find something interesting, you know that it’s not in your list and therefore you shouldn’t buy it.

Of course, for it to be effective you need to be discipline to stick with your shopping list. Don’t forget to strictly follow your list. What if you find something interesting while you’re at the grocery store? Well, just write it down for your next visit’s shopping list. There’s a good chance that later you will realize that item is actually not necessary.

On the other hand, if you go shopping without a shopping list, you risk buying a lot of unnecessary stuff. This is something you definitely need to avoid.

To get your personal finance in order, you need to reduce unnecessary expenses. One important thing you can do for that is building the habit of being frugal. If you’re frugal, you won’t spend money on unnecessary items. You won’t spend money for something more than it should.

But don’t misunderstood: being frugal doesn’t mean being cheap. You don’t always look for the cheapest deal in everything. That’s not a good thing because many times you will sacrifice quality for price. While it might seem good in the short term, in the long term you will actually spend more for maintenance and buying replacement.

Being frugal means getting the most value out of your money. If something is more expensive but has way more value that you need, there’s nothing wrong buying it. While it’s not the cheapest option, it will give you more value for your money in the long term.

You can start building this habit in your daily life by being careful before buying something. Make sure that you get the most out of your money. Do research and compare prices. Find out about the quality of the products. If you have this habit, you will be in a good position to improve your personal finance.

When it comes to managing your personal finance, one important thing you need to do is keeping track of your expenses. If you don’t do that, you have the risk of spending your money out of control. Many people think that they don’t spend a lot of money until they look at the actual numbers. Numbers don’t lie; they tell you the truth. That’s why you need to have them by keeping track of your expenses.

To do that, just write down whatever expenses you have. Specify the amount and the purpose of each expense. This isn’t easy, especially in the beginning, but it’s important habit to build. Build the discipline as soon as possible to make sure that you get your personal finance under control.

What tool should we use for it? There are many available options you can choose from. Some people like to do it using just pen and paper. Some other people prefer to use computer programs like Quicken or Microsoft Money. Some other people just use a spreadsheet for that purpose.

The tool isn’t essential; you can use whatever tools that work for you. The important thing is for you to build the habit of keeping track of your expenses. That will make a lot of difference in your personal finance.

Speaking about emergency fund, how big should it be? There are different opinions on this. Some people say that you should make it at least 3 months of your living costs, while others say it should be 6 or even 12 months.

Of course, the bigger your fund is the better from the emergency perspective. Why? Because you will have more cushion in case something unexpected happen. Having 12-months-worth emergency fund will give you more room to breathe than 6—months-worth fund.

But, on the other hand, you shouldn’t put too much money into the fund. The reason is that you will get better return on the money if you invest it. So you should put just enough money into your fund and invest the rest of the money you have.

While there are different opinions about it, I’d say 6 months is a good number to aim. It’s not too much, but it also gives you enough room to breath if something unexpected happen. If you got laid off from your job, for instance, you will have full 6 months to find a new job. In the current economy, that will give you enough time to get a decent job.

Besides eliminating debt, the first thing you need to do for your personal finance is building an emergency fund. This is essential because – as its name says – it prepares your for emergencies. Nobody wants to be in a situation where they need significant amount of money immediately but not having it.

One situation where emergency fund plays an important role is when you are laid off from your job. That’s a situation where you no longer have income to support yourself and your family. If you don’t have an emergency fund, life will be difficult for you and you might need to get into debt. But if you have emergency fund, you will room for breathing. You can use the fund to cover your living costs while looking for a new job. It helps you keep you and your family in good condition until you find a new income source.

So aim to build an emergency fund as soon as possible. Don’t wait until everything is too late. Do it now with whatever amount of income you have. Assign a percentage to it to an account that you set up specifically for the fund. Then avoid the tempation of using fund unless you’re in an emergency. Make the commitment to keep the fund there until you really need it.

Automatic saving plan could work well here since you don’t have to manually assign the money. This way whether you like it or not your fund will automatically be built.

One importat thing you need to do to improve your financial situation is reducing your expenses. This is necessary so that you can start saving your money to build an emergency fund and investing. If you live from paycheck to paycheck, you increase the chance to get caught in financial troubles.

The first thing you should do in order to reduce your expenses is taking notes of your them. By doing this you will know for sure where you spend most of your money so that you can focus your effort there. Don’t based your decision only on your estimation. Many people make the wrong estimation since they don’t realize that they spend a lot on certain things. Get the real numbers in front of you so that you can make the right decisions without making incorrect guesses.

After identifying where you’re spending most of your money, you can start focusing on those areas. Check whether or not something is really necessary. Find cheaper ways to obtain it. Avoid impulse buying on every occasion.

Of course, you need to monitor your effort to cut expenses. You need to know the progress you’ve made. Once you’ve been successful in one area, shift your focus to another area.

Financial planning is essential if you want your personal finance to be in a good condition. Without planning, it’s easy for you to fall into many financial pitfalls. The end result is a lot of financial problems that won’t allow you to enjoy your life.

Through financial planning, you take control of your personal finance. You don’t let other people or your own bad tendencies to take over. Instead, you take control of it and direct it to whatever direction you want. In addition, because you look ahead through planning, you avoid unpleasant surprises that might wait you along the way.

You can start the process by assessing your current financial condition. List your assets and liabilities. Also take note of your income and expenses. Many people think that they do well financially until they look at the numbers. That’s why it’s important that you start calculating these numbers. This way you know for sure how your financial condition is instead of just guessing.

There are many personal finance software you can use for this purpose like Quicken and Microsoft Money. Alternatively, you can also use a spreadsheet program like Microsoft Excel or OpenOffice.org Calc. Just use the tool you’re convenient with.