Spend Wisely, Avoid Debt

Past Debt

Debt is anyone’s worst fear. Well, at least for me, it is. I remember when I was working in Malaysia, I handled money poorly. To be honest, I was already spending too much when I was doing degree studies. Worst still, I was using my parents’ money instead of getting a loan or even thinking of doing a part time job while studying. Everything came too easily. Just a phone call and money was banked in. It was the same when I was working in Malaysia. Whenever my car broke down, I just asked my parents for money without even having the thought of paying them back the money.

Things became worst when I applied for a credit card. My spending was out of control and I soon found myself in debt. I ignored it. Calls after calls, letters after letters and the news soon reached my parents as the bank had my home address. My father let me off lightly and offered to help me to pay off some of it if I agreed to pay the bank on a monthly basis. Promise after promise, I failed to make monthly payment. In the end, my father paid it all. Not only that, I had owed phone bills and I was black listed by a couple of mobile phone providers.

The debts happened in the past. I have started fresh since I moved to UK for work and I considered myself very sensible in controlling my spending as well as making regular savings. No more money related calls to my parents.

My father once told me that we should at least save a third of our earnings a month. If possible, we only spend a third of our earnings. I live by that rule and I am proud to say that I have not been in debt since.

Write them all down

One of the easiest was to start with is to use a piece of paper. Write down your earnings per month and divide it by three. Also, write down the total of your fixed expenses per month.

A – Earnings

B – A third of your earnings

C – Expenses

Hence, if

1. C > A = Save B

2. C < A = Save A – B

3. C almost equal to A = Cut down expenses and save as much as possible

If you are in condition 3 and you do not own an asset, then the view of your future is quite limited. There must be some ways that you could cut down your expenses even if it only saves you a few pounds.

I have a habit of collecting every receipt and record them on an Excel spreadsheet. This way, I will be able to see my spending every month and it helps me to identify my spending pattern. I have been doing this for the last two years and it definitely helps me in taking better control of my monies.

Bank

I used to save a certain amount of money through automatic transfer for a fixed period of a year. It is a good start and helps to control the itchiness of spending at the beginning of every month. Better yet, the account that the money is transferred into should be untouchable. About half a year later, I got used to it and when the fixed period ended, I am confident enough to do the transfer myself. I have not failed to do so since.

Credit Card

Or plastic card is a good way of managing our money. However, we must use it wisely. Most credit cards give customers a period of one and a half month to clear the bill but a lot of credit card users have misunderstood the meaning of it. The one and a half month is not the period after your statement arrives. The one month is usually the month when your spending is made while the half month is the grace period given to you after your statement arrives.

Learn to read credit card statement and identify the payment to reach by date.

I tend to ditch the payment protection plan as you will end up paying some fees if you do not clear your bill within a month. It kinds of forfeited the half month period. Avoid paying just the minimum payment. I would rather use my savings to pay the full amount rather than being charged. Anyway, control your expenses and you will never need to question yourselves as to whether or not to just pay the minimum amount.

Car is a Liability

When studying accounting, we were told that car is an asset. In the real world, car is a liability. It causes nothing but trouble. I own a 1999 Ford Focus which I bought for £2000. I recently had a MOT plus repair bill of £1000. A lot of people asked me why don’t I just ditch the car and get a new one. £1000 is a lot but getting me a new car will even cost more. I got a car that will take me from A to B and that’s what I want. I would rather save the money to buy a real asset.

Mobile Phone Contract

I have always been on Pay As You Go and I only spent a maximum of £10 every three months. I must admit that I have only ever used my phone for mobile internet and texting. Most of the time, I will be in the office and I often make use of office phone to make phone calls. Making phone calls over the internet is often cheap and easy to do. Skype is one of the services that I would recommend as my mobile phone provider offers free Skype access. Hence, I can login to Skype anytime using my mobile and make cheaper calls without using my Pay As You Go credit.

Some Voice Over Internet Protocol (VOIP) services such as VOIPStunt offer free days every time you top up.

Sometimes, it’s cheaper to buy a mobile phone on its own rather than signing a contract which you will most probably not be using all the services provided.

Most mobile phone service providers charge for paper bill.

Broadband and TV package

Broadband is essential to me while TV is more like an additional service. Both my broadband and TV are on standard package and I see no reason to upgrade them both to have higher speed broadband or more TV channels. Freesat and Freeview are good alternatives in getting free TV service. To save even further, view everything online by just paying a single broadband price.

Most service providers charge for paper bill.

Conclusion

Rule it before it rules you. I believe that you will be a happier person when you watch the amount in your savings increase month by month instead of looking at your increasing collections. Allocate your money from the moment you receive your earnings and stick to it. Last but not least, implant the “one third” rule into your mind.