Spending: How much more are you spending needlessly?

This is the first of three parts that I will be writing on about personal finance basics. In this article we will be discussing about excessive spending and cost cutting.

Everyone know its a pain in the ass to save anything substantial, given the high costs of living and mediocre incomes. However, most people are spending money that they (do actually) have instead of saving them up due to several reasons.

SPREADSHEET HERE:

https://docs.google.com/spreadsheets/d/1zHo3mQDZ2MAlAYQ0YhG4Xn8ubzuYInsjkdVuLDAFDd0/edit?usp=sharing

In the spreadsheet included, I have made a list of additional costs that people tend to spend on, on top of what is reasonably frugal. For example, one taxi ride a week is considered normal. However, someone taking 5 rides a week would be considered taking 4 more additional and thus the additional costs would only arise from the 4 extra rides.

One Starbucks or bubble tea per week would be considered normal, but in the spreadsheet it is assumed that the person consumes 2 additional beverages, so 3 in total. You get the idea.

In short, the regular person, taking into accounts extra miscellaneous costs that might not be listed and probably not spending everything listed, they would be spending $400 on save-able costs.

One of the easiest outflow of cash is actually under the regular category, where activities are easily identifiable and tends to be taken on without much thought. It is the regular category which requires the most discipline, planning and resolve to carry out the savings.

Ways to reduce spending would obviously be to take buses and MRTs instead of cabbing. However, that is not as easy as it seems. Most people result in taking taxis because of the lack of planning, and realizing that they might run late, or snoozing that additional 15 minutes in the morning. It takes some training and discipline to start cutting off these costs. Additionally, also try to go for non-alcoholic activities with your friends so you can still take the bus home instead of cabbing.

Saving on buying additional beverages might be harder if there is peer pressure, especially when your colleagues are all mass-ordering KOI together. However, just cultivate a habit of rejecting the first few time and it will definitely get easier (you really have to try to not be a snob about doing it though). Who knows, you might even make everyone be a little healthier and richer.

Regarding social activities such as clubbing, going to bars, movies, try to go or organize free ones such as walks, nature parks, free workout sessions by HPB, or free events such as iLights or just going to someone's house and play console instead.

Coming to the occasional category, there's no way about it, the solution is simply - don't go overseas so much lor. Under normal circumstances, one budget trip a year, spending approx. $1000 is still okay, or you could save up 3-4 years and go for a major one that costs $4000. However, any additional trips on top of that would put some stress on your finances. In the spreadsheet it is assumed that the trips are additional. Feel free to still go Malaysia or Bali once a year.

Other than that, stop buying luxury stuffs, nobody really cares to be honest. If anything dressing up rich might make people borrow money from you, invite you for costlier activities and probably would result in you spending more instead.

Lastly, regarding financial obligations, the most common scenario of funds getting tied up are super-long duration savings plans or giving your parents money.

These would probably be the '$300 a month for 25 years' kind of plan your insurance agent friend sold you when you started working. Well if you are already in it then it's too late. If not, try to seek out higher-yielding investments with lower duration ones instead. Believe me when I say that endowment/saving plans returns are atrocious for their duration and obligations. Most plans give a final annualized return of about 2-3% with a certain amount of guaranteed return. However, for 25 years you can easily get 5-6% annualized returns, which difference would result in a sizable difference.

This might sound controversial but in some scenarios, you actually do not have to give your parents money unless you actually owe them money for paying your school fees, they have some medical requirements or they are really depending on your money for living essentials. Most middle or even lower-middle class families' parents can sustain themselves for the basics unless there's some major spending involved.

Understandably most people will give for the sake of filial piety or perhaps some slight coercion/pressure from parents to do so. However, if they clearly do not need your few hundred dollars to survive, try to reason with them that the money is better off invested than to sit in their bank account or to spend it 'just because they can' instead. Then again if your parents are really financially savvy in investments then yeah.

In a future post, I will also mention a little about the power of compounding your savings.

A dollar saved is a dollar earned, happy saving!