How to develop financial discpline

[Sassy_Social_Share] Management of expenses is one of the most talked about topics in Personal Financial Planning. Indeed in the course we run, it is the subject we deal with first otherwise nothing else will make sense. If you look around you will not meet many people who mismanage their expenses and have still created wealth. Many people use the excuse that their money is too little to manage or account for.  They are waiting to have bigger amounts of money and then they will draw up a budget or become aware of what they are spending.  Someone once told me that if you cannot manage Shs 100, you cannot manage Shs 100 million. The same attitude you are carrying with money you consider little is exactly the same attitude you will have with a lot of money.  This is proven by the fact that people who get a lot of money instantly tend to loose it very quickly.  For example many people who win millions in lotteries find themselves in a worse off financial position a year or two later.  And what goes haywire with the funds they usually get? It is the spending.  The world is never going to run out of things to buy.  There is a new version of the phone you may have purchased two months ago. Inflation means that even general living costs will continue to rise as long as you are alive. So the vicious cycle of working to earn an income to spend is never going to end unless you make the choice to take control of your spending irrespective of what new items there are to spend on and increases in lifestyle expenses.  As it is Christmas is just round the corner.  Firstly Christmas is not a surprise so it should not be something that distorts your finances and secondly you do not have to buy everything that is being advertised for everyone.

Management of expenses is an essential part of the wealth creation journey. It fosters discipline, which is a very essential part of the character needed to create wealth.  Discipline with your finances means you able to control yourself and thus your spending. You are able to delay or forfeit the purchase of certain things today in order for the bigger picture.  You are able to make the choice when required to change your lifestyle for that bigger picture.  In the years I have been writing this column, most of the questions I receive around expenses revolve around lack of discipline.  Many ask how they can control impulse spending or even spending money they don’t have.  I did this exercise a while back for myself and also implemented it in our current class. We have had people tell us it has helped in coming to grips with the implications of their spending and provided motivation to watch what they are spending. You see many times we spend bits and pieces of money here and there without any awareness.  You may have Shs 50, 000 in the bank on pay day so you don’t really find it a big deal when you go withdraw 5, 000 for a night out. The reason is, it is not an automatic response to think about what it takes for you to make 5, 000.  If you are evaluating your decision to spend simply on the money that is currently in the account you may make many wrong choices.  To put it another way if you tell most business owners to spend Shs 50, 000 on something, they will think about the benefit before they do because they can instantly relate and remember how difficult it is to make that money.  Try doing the same evaluation with your personal money. Let’s say you earn a net income of Shs 50, 000. You work eight hours a day, five days a week.  That is 40 hours a week and a total of 160 hours in a month. Every hour, you make Shs 312.50 (Shs 50, 000 divided by 160 hours = your hourly rate). Do use your own personal figures as you do this exercise.  It takes a full hour to earn Shs 312. Contemplate what you need to do every hour that you are at work. Maybe you respond to client queries, have meetings, work on projects, design a website etc.  You may be thinking right now that your hourly rate is very low.  However, let’s look at the other side of that equation.  If it takes a full hour to earn Shs 312, how quickly do you spend it? In some instances, does it even take an hour to spend that money?  Do you even think about it when you go by lunch on a daily basis for Shs 300?  It would mean that on every lunch, you are literally spending an hour of your labour! You have got to start asking yourself whether it is worth it.   As for the night out on payday, that cost you 16 hours of labour (in four hours).  Again, is it worth it?

 When you start becoming aware of what it takes to earn the money you spend, you start evaluating your choices before money comes out of your pocket. Sometimes you will do it.  Yes, you may go on the night out but maybe you will not do it every weekend.  You may decide eating lunch out is not that important and carrying lunch from from home can work. One of the participants in our current class said she was now able to walk away from buying a pair of shoes when she realised how many hours of labour it would take to pay it off.  Also she said when she does decide to spend it is in line with what she truly values and something she has consciously thought of. This process makes you more aware and you become an active participant in the management of your expenses. Having a budget is good, but that’s not all there is to it. How successful you are in cultivating this discipline is at the end of the day reflected in your spending choices.

 

 Waceke runs a program on personal financial management. Find her at waceke@centonomy.com| 

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