How to Control Spending
As I have said in one of my post, one of the keys in achieving financial freedom is to earn more and desire less. Desiring less means controlling your spending. It has been said that no matter how huge your income is, if you don’t know how to control your spending and save for your future, you would end up nothing in the end. As one of my favorite quote in savings says: “Ubos ubos biyaya, bukas ay nakatunganga.”
The first thing that you should do is to pay yourself first. Put aside a set percentage of any and all payments you receive, whether from work or other sources. Kiyosaki recommends buying three piggy banks, one for saving, one for tithing to charity, and one for investing. Put coins and paper bills in each piggy bank each and every day. At the end of the month, deposit the money in the savings piggy bank in a secure savings account or mutual fund. Give away the money in the charity piggy bank to a qualified charity or a religious organization of your choice. Deposit the money in your investment piggy bank in an investment savings account, and don’t take it out until you’re ready to invest it some other way.
If you absolutely cannot pay yourself first because you have huge amount of debts, Kiyosaki recommends some course of action outlined below, up to the point where you eliminate unsecured debt. Then try once again to pay yourself first.
Here is what Kiyosaki’s program:
- Control spending
- Eliminate unsecured debt
Control Spending:
When you find yourself deep in a hole, you need to stop digging. And that means curbing your spending—avoiding the temptation to buy doodads like a laptop, a digital camera, or the newest mobile phone. Admittedly, this requires will power. Nowadays frugality is out of favor. To get out of debt, though, you need to adopt the old-fashioned virtue of delayed gratification.
Personally, that delayed gratification is what I have been implementing. Since then, I was used to it. Even though I’m in love with gadgets, I was not tempted anymore to buy the latest ones. To satisfy my cravings for some time, I need to assure myself that the cash that I would use to buy them do not come from my main source of income but from the income from “assets” that I own like this blog. In addition, I was not used in buying brand new since gadgets depreciates fast. Undeniably, they are doodads as Kiyosaki said.
Rich Dad Tip:
“When you find yourself deep in a hole, you need to stop digging.”
By cutting back on doodads, you’ll increase the percentage of income you keep. It’s important not to consider this a temporary step. If you truly want to stay out of debt and enjoy security, comfort, or riches, you ought to make purchasing assets instead of doodads a life-long practice.
In order to control your spending, you must know how to budget. There are a lot of tips on budgeting. As an additional tip, here are some of the articles on different ways on how to save money and control your spending:
15 Ways to Save on Food Shopping
Save Money on Entertainment Expenses
Ways to Save on Water and Electric Bills
Ways to Spend Less in Shopping
Kiyosaki recommends a Waste-Watcher’s Diet:
Write down enough belt-tightening measures to yield as much as you can realistically save, then commit to shedding your budgetary flab. Your financial health depends on it.
Rich Dad Tip:
“There’s a good reason it’s called disposable income: most people throw their extra money away. That’s buying doodads! How will the assets ever grow?”
Eliminate All Unsecured Debt:
Simply speaking, there are two types of debt: secured debt and unsecured debt. Secured debt is debt with collateral behind it, such as your home mortgage or car loan. Unsecured debt is debt with no collateral behind it, for example, personal loans, medical bills, and the charges on your credit card. Once you’ve cut expenses, the debt you should attack first is unsecured debt. While some unsecured debt is unavoidable—most is unnecessary, the result of unbridled spending.
For Kiyosaki, there are also two types of debt, good debt and bad debt. Review your unsecured and secured debts to see if they are good or bad debts. Kiyosaki would consider most unsecured debt bad debt. Remember, good debt is debt that buys an asset, so it is usually secured debt.
Credit card caveat
Credit cards are one of the best example of unsecured debt. One reason many people get mired in debt is that credit card companies make it so easy. Every day, it seems, an offer for a new card arrives in the mail. Credit is a consumer’s dream—and soon-to-be nightmare. What can you do? Simple: Don’t get sucked in. Instead of considering it as a burden, take advantage of your credit cards.
As an end, here are some other Rich Dad tips from master Kiyosaki:
“Every time someone lends you money, you become his employee because your debt becomes an asset in his asset column and a liability in your liability column.”
“Late fees, over-limit fees, annual fees—credit cards can eat a big hole in your pocket. Paying only the minimum required on your card will keep you in debt forever, making you an employee of the credit card company.”
Source: Robert Kiyosaki’s Coaching Program
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Tagged with: credit cards • kiyosaki • savings
Filed under: Personal Finance
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9 comments
Great info sir Tyrone!
“Ubos-ubos biyaya, bukas ay nakatunganga”, a precise saying about my situation.
Ok, I don’t have debt but also can’t save. The problem is I can’t control my bad habit… which is overspending.
This article is so timing, thanks for sharing!
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that’s why I deactivate my credit card. Credit card change my habit be more consuming.
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Tyrone Reply:
October 19th, 2009 at 4:26 am
As for me, I have 6 credit cards. I already requested the other one to be cancelled since the credit card company doesn’t want to waive annual fees. How can they charge if I haven’t used it even once?
As for the other, I also had the annual fee cancelled. There is only one credit card which is actively used and I see to it that I pay the whole amount due in due date through online banking to avoid hassle and inconvenience of lining up.
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Hi Tyrone,
Very helpful article about controlling spending! especially when you include the worksheet for the reader to list down their spending and saving commitment. Your article inspired me to write my own version of spending control as well, but i further look into the emotional side of the spending behaviour. You might be interested to have a look
Regards
Zen
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i know the basics of controlling my expenses but i never thought of this: “three piggy banks, one for saving, one for tithing to charity, and one for investing”
it maybe simple but a lot of people dont realize it (i only have one piggy though)
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your article is so true. one must really know how to control spending.
i used to have a lot of credit cards then deactivated most of them and currently maintaining two for emergency. i pay cash for the items i need to buy. i maintain one envelop for all my little spendings, buying items not in my priority list. if the amount exceeds what’s inside the envelop, then, i must postpone buying that item and wait til i accumulate extra cash! =)
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Tyrone Reply:
October 26th, 2009 at 2:03 pm
That’s nice Nel! That is probably the extension of the “envelope method” that you are using as they say in personal finance. It is one of the methods used in budgeting.
In the “envelope method”, each and every necessary bills or expenses has its own envelopes. Every time you receive your income, you would take away portions of it and insert those in each envelope that you have alloted to pay the bills. Take note of the word “necessary” and these should pertain to needs and not wants.
Furthermore, the most important of all envelopes is “Pay Yourself” envelope in which it should be your priority “expenses”. Setting aside savings first before spending the rest would enable you to buy the most important thing - your future.
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if you make $100.00 a month,
* you can save $25.00 in a bank. yearly you have $300.00,
* re invest $50.00 in your jobs.
* you can spend $25.00 if you want.
this is a my tricks.
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great article article…
keep posting
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