I love making small tangible goals every year to keep myself engaged and focused on something. But when it comes to my finances, I have less goals and more philosophies. These strategies, or philosophies are distilled over a period of 4-5 years that I have nerded-out on learning everything I can about personal finance. Looking back at my financial journey of last three years, these are the things that worked for me:
- Track my spending: Big or small, I recorded every penny I spent/saved in some form of a tracker. I went through various method of tracking them – written notes, excel sheets, different types of apps – but the end goal was always the same, record every penny that comes and goes. Tracking is not equal to budgeting. I do not make budgets. I do not have any number assigned to expenses – I am ok to spend whatever I spend as long as I have recorded it and can track it down whenever I want. Over a period of time, looking back at my spending tracker – weekly, monthly, bi-annually and annually has helped me realise the necessary and the unnecessary costs I have incurred. It is the data accumulated over a period of time that helped me see and make decisions on what I can let go and what I am ready to pay for.
- Focus on Savings Percentage: Each month has it agenda. There are months where you barely spend anything and then there are months where half way through, you feel broke. Some months comes with sudden windfalls (bonuses, incentives, increments), some come with deductions (taxes!). Early on in my personal finance journey I struggled with having control on my monthly spend, but quickly realised that if I focused on my savings percentage, I can let go off my need to control everything. Meaning, irrespective what my income looks like in any month, I strive to maintain a minimum savings percentage. Currently that number is 30% minimum of my monthly net income. Of course there are months where I am unable to save even the 30%, but I don’t beat myself for it. I go back to my tracker, analyse, question my spending and start again in the next month. But the strategy remains the same – save/invest at least 30% of your net income.
- Spend on what makes you happy: I love books, so I spend on books. I have an obsession with a specific type of stationary (Moleskine journals), so I buy them whenever I feel like. I do not like to spend on makeup, shoes, bags, clothes, eating out – so I do not bother with them. I used to feel guilty for spending on books and stationary, but realised that its ok spend on things you love as long as you are aware of it and are ok to sustain those expenses without compromising on your future self (these spending do not affect my goal of financial independence). The most important thing I learnt was to not judge – myself or anyone else for the way we spend money. So now, I have made a deal with myself – to allow myself to spend on what I love and makes me happy and in exchange I will ensure not to let it affect my savings and cut out all expenses that do not make me happy.
- Focus on earning more: Tracking money, saving 30% and all such things are good strategies – but futile if you are not growing your income at a comfortable pace. There is no limit to how much you can earn, but there is always a limit on how much you can save. So it makes sense to focus on earning more – develop relevant skills, build network, acquire tools to help you get better at work, or start side hustles. The fastest way to reach a financial goal is to earn more money – all other tips and tricks are mostly trivial and only work in short-term. The real impact comes from having more money in the first place.
- Future Self is first priority: Whatever financial goals we have, tips and tricks we follow, if they don’t help us get closer to that ‘Ideal Future Self’, it is all futile. We should know where we want to be – a year, five years, ten years down the line and then break that ideal future self into ideal daily self. It’s a game of patience and single-mindedness. But the end results are always more satisfying.
Whenever I feel like I am not making a headways in my financial goals, I go back to these five philosophies (I have them written in my daily planner). They help me stay focused on the big picture.