Increasing your retained earnings does not have to be achieved by increasing your earnings, it can also be achieved by managing your expenses properly. Here are our top 10 tips on how to manage your expenses correctly.
1. Identify monthly expenditure
Identifying your expenses is the first step towards saving your earnings. Track your expenses and try to identify the expenses that use most of the income available. Shortlist them in the order of decreasing importance. You might have expenses that are periodic (say the expenses that are incurred during the summer holidays and during the Christmas period), or frequent expenses.
2. Develop a budget / monthly expenditure plan
Now you have the basic idea what your expenses are and how much you are spending. The next step needs more attention since it the most important steps in managing your expenses. Forecast your expenses for the next week, month, year or even next 2-3 years. Detailing the future expenses will ensure that you have a proper understanding of exactly what your expenses are. When forecasting, you need to generate trends in expenses. If the cost of living is increasing day by day (as you feel it according to the economic condition of the country), increase the costs slightly accordingly. Simple as that. This is called inflating the expenses. (This is what the central banks and governments do). Say, if you are going to get a new job in the next year, you will be spending more on purchasing clothes etc. and there will be more documentation costs. These should also be considered.
3. Plan savings
Plan your savings so that you know what is left to be spent for the coming year. If you know your monthly income minus your savings, you can try to match your budget with the amount remaining. If there is a difference, try to cut down on costs.
4. Pay bills on time, thus avoiding penalties/extra charges
Paying bills on time will obviously reduce the expenditure significantly. The savings thereby can be diverted to a special expenditure. Try doing this, and experience the change.
5. Use cash-in-hand rather than money that is banked or invested
Cash in hand is the best way to spend money. Do not withdraw money from the banks, fixed deposits or any investment you have made unless absolutely necessary. The reason for emphasizing this fact is that the interest that you are earning from the bank will not get affected if you use cash in hand.
6. Review expenses with the budget
Once you set up the budget and spend according to the budget, make sure that you review your budget and expenditure. If your expenses deviate from what was planned, take steps promptly so that you won’t lose more money.
7. Review your credit report
Review your credit report so that you know how much credit you have and how much interest you spend on credit. Incorporate the possible savings to your budget and keep the budget rolling.
8. Reduce debt
This step is self-explanatory, if you reduce the debt, you will not incur a cost on interests, which then becomes a saving.
9. Avoid unnecessary expenses
You might be spending unnecessarily on certain things. It is better if you can curtail these costs. However, make sure your life is not made boring by focusing too much on curtailing expenses!
10. Be flexible with spending
Last, but not least, be flexible in making your decision on when to spend and the amount you are going to spend. There are no hard and fast rules, it’s just common sense.