When you take stock of your finances at the end of each month, do you squeal in delight at the growth of your savings, or do you scream in horror at the growth of your deficit? What's that? You don't review your finances at the end of each month?
Never fear! If you try out the following ten tips, you just might find your deficit shrinking, or at least feel less intimidated by task of whipping your money into shape. Here are the first five. The rest will appear in Part 2!
1. Pay cash whenever possible.
Admittedly this is easier in a country like Japan (where I live), in which fewer businesses force you to use credit cards. Although there are some merits to using credit, such as cash-back perks and frequent flyer mile givaways, you really can't afford to be complacent. If these perks are working for you, and you are able to manage your credit balance, good for you! If not, I suggest going all-cash for a while, say three months or so (to whatever extent is possible--if you have to use your card to fly or book a hotel, that's OK) to get out of the habit of impulse-buying things on credit. Once you've retrained yourself, it's up to you to decide whether or not to reintroduce credit cards.
2. Always accept the receipt you get at the store and keep a ledger.
Whether you shop online or at brick and mortar stores, you will probably receive some kind of record of the transaction. Save the receipt. If you have a little ledger book, you can use the receipts to help you keep track of your spending. You can break down your purchases into categories to see where your money goes. In my case, my biggest expense every month is rent, followed by food, my cell phone, and then each of my utilities. I know this because I keep a ledger. It can be fun to tally up the money in all of your bank accounts to get an idea of your net worth, and ideally watch it grow.
3. Save 20% of every paycheck.
This is part of paying your bills--you pay yourself first, as they say. I find it easiest to do this if I transfer money into savings BEFORE my monthly paycheck is deposited into my main account. Speaking of accounts, make sure you have a savings account separate from your checking account. If you don't, you will have trouble saving money, as the money in your checking account sure looks like money you can spend. Of course, it goes without saying that you also pay your bills on time. If you are in debt, the formula will be a little different, but you still need to save. Having savings will help you avoid plunging deeper into debt to handle emergencies. Paying off your debt is also in the same category as bills and savings.
4. Pay into your retirement scheme, whatever it is.
In my case, my company pays into my Employee's Pension Fund (kosei nenkin), but if you are older than 20 and live in Japan, you should be in either an employee pension scheme, or the National Pension system. If you are a student or qualify for "impoverished youth" deferrments, keep in mind that these are deferrments, and not exemptions. You have a ten-year window to pay your arrears, but remember that the government charges interest. If you don't pay it back, the amount you get when YOU retire will be that much lower. The whole system may very well collapse under the weight of the baby boomer generation, but you never know. Besides, you don't want your grandma to starve because young people skipped paying into the system. I went to graduate school, so I deferred my national pension payments for seven years. Now that I'm 30 and in full-time employment, I'm systematically paying it back. Even if you aren't in Japan, it's still a good idea to include retirement planning in your day-to-day money management. Be sure to save as an individual (see 3 above) just in case the pension system does collapse before you retire.
5. Minimize eating out.
Having food allergies helps me with this one, but it's still valid. Sure, your fast-food lunch may be less than 500 yen, but if you bring a home-cooked bento every day, this is cheaper. Shopping and cooking for one can seem wasteful, but if you're spending 3000 yen every two weeks on groceries and getting 28 meals out of it (lunch and dinner every day for two weeks) that's a bargain. If you have a freezer, use it!
Stay tuned for Part 2!