The strategy is simple: just list down your needs and your wants. Try doing this if you want to improve your financial future.
What are your needs?
You probably know what are your basic necessities for survival. Utilities bills, handphone bills, basic groceries, cheap food and transport(bus & train) are some examples. Basically, these are what you need in order to survive.
After knowing your needs, estimate your budget for each month which you require to spend on.
What are your wants?
Your wants are something which you can do without but still survive. This can sometimes be hard to determine and may be different for each individual.
Let me give some examples of wants:
1) Eating out at restaurants
2) Watching movies at cinema
3) Extra or unnecessary and branded clothes
4) Decorative or accessories stuffs
5) New furniture when existing furniture is still working
6) Expensive starbucks coffees
7) Car and taxi transport expenses
Now don't worry, I'm not saying you can't spend on any of the items above. The key is knowing how much to set aside for spending on those want items.
Bringing your needs and wants together
Now after listing your needs and wants, its time to allocate how much you can spend on them. Your needs are more or less budgeted and you know how much you will roughly be spending on these necessities. Let's say you earn $3000 and you estimate you will spend $500 on it, then you're left with $2500.
With this $2500, determine how much you want to save for it then allocate some portion for your wants. Let's say you allocate $200 for your wants, you'll be left with $2300 to save each month. This is just an example but I hope it gives you a rough idea of how you can plan your finances.
To determine how much to save every month, you need to plan all the way to retirement. Yes, no matter how young you are, you can start planning for retirement. Determine when you want to retire (what age?), determine how much you want to spend per month during your retirement and determine how long your savings will last from retirement.
Here's an example: if you want to spend $1000 per month during retirement and retire at age 55 plus you expect to live for another 20 years till age 75, then you need a total savings of $1000×12×20= $240,000. This is just a simple calculation. Remember to factor in inflation. This means you will most probably need more than how much you are spending now. Chances are that the $3 noodles now may cost much more by the time you retire. Ask your parents what happened to the $1 noodles they had 30 years ago?
Spending 'fast' and spending diet
In the article from Yahoo finance, the author wrote on spending 'fast' and spending diet. When she was in debt, she went on a spending 'fast' which is eliminating all of her wants. This is like food fasting where you discipline yourself to eat certain food only at certain times of the day. A spending 'fast' has the same concept. By eliminating all her wants, she can pay off her debts quicker and get out of debt.
A spending diet is where she allocated a small portion every month to spend for her wants. This is what she did after paying off all her debts such as credit card debts, school loans etc.Without the burden of paying off debts, she can indulge in a little luxury(wants).
Spending, if uncontrolled, always rise to the level of your income. This is what I always believe in. This is also why someone who earns $10,000 can still spend all the $10,000 with no leftovers.
Listing down your needs and wants may be the most basic way of planning your finances. If you have no idea how to save money or where to start from, try out the above method. You don't have to be extreme to save every single bit of your money and eliminate all wants unless you're in serious debt now. Indulging in your wants in a controlled manner is permeable and in fact a healthy balance living.
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