My Story

It was less than a year before I switched to my new corporate job, before I was in an MNC where I was receiving a very minimal salary (the bare minimum one can get in IT). During these times, I was able to invest anywhere between 5K and 10K every month in equity as I was working from home (and still am), so there was no unnecessary spending.

After switching jobs, the pay is decent here, and I thought I would be able to invest more in equity here on. Three months passed, but still, I was investing the same amount, somewhere between 5K and 10K per month.

Then I went on and checked my money manager app for the last three months (I’ve got a habit of tracking all my spending since college).

Over the last three months, I moved to a new house with rent higher than the previous one, bought a new laptop, a new mobile phone, and many other things from Amazon/Flipkart, which won’t come under “needs.”

So, I decided to cut down on all my unwanted expenses from my pocket.

Here, in this post, I’m going to share the things that functioned well to reduce my overspending habit.

Let’s dive deep into it.

Look out for the signs of overspending.

• You don’t know what your monthly budget is.
• Zero rupees in an emergency fund
• Using multiple credit cards or BNPL apps.
• You save 5% of your salary or have no savings for the future.
• Buying things on Amazon/Flipkart and never using them
  
  

If you find any of the signs above, then you’re doing something wrong. One of the big reasons would be “overspending” on things you don’t need and you need to reduce it.

Forthcomings are the strategies I followed to reduce my spending habit.

Money manager

I pat myself on the back for one good habit that I’ve been following for the last 4 years: using the “Money Manager” app.

It gives me a birds-eye view of my spending in a month. At the end of each month, in a matter of 30 seconds, I can find where I’ve spent a lot and I correct my mistakes with that.

You can use any app that works for you, but I recommend you install one right away and track all your expenses from today.

I stick to Money Manager because it is flexible, I can add a category for spending and sub-categories within that, I can export to PC, and there is also an option for adding our incomes too.

A money manager makes you aware when you overspend and keeps you in control for the next month.

Another clever use: you don’t have to remember trivial things in life.

For example, if I want to know when I last serviced my bike, I just go to monthly expenses > transportation > bike > swipe left to find the date.

Paco’s Law

We all know the 50:30:20 budget rule—one must separate his salary into 50% for needs, 30% for wants, and 20% for the future (savings/investment).

I recently read a blog about Paco de Leon and her book “Finance for the People: Getting a Grip on Your Finances”. And I got to know about Paco’s law.

Paco’s law says, “your spending will equal what you have available to spend.” Like me, you have never heard of it before. That is why we’re overspending.

By integrating both the 50:30:20 rule and Paco’s method to reduce overspending, I made a quirky habit for my comfort and usage to reduce overspending.

• Before the start of the month, I separated my budget as per the 50:30:20 rule. You should not shuffle one with the other. That’s important.
• First, I’ll invest 20% of the money in equity by the first week of each month (in my case, it’s more than 20% now, but let’s stick to 20%).
• I have two bank accounts, and most of us have, Paco says to use one for life expenses like bills and needs and the other account for fun and leisure.
  • Now here, instead of 50% for needs and 30% for wants. I have to set my own needs and wants percentages and fund each account accordingly.
  • When I set my own limit for fun and leisure, Paco says you’ll impose a cut-off amount for the fun account. It’s true, my mind won’t allow me to go more than 30% for fun, and I’ve set less than 30%.
  • Remember not to keep your hands on the life account if the fun account is drained, and vice versa. Keep this in mind and plan.

• That’s all we must do. You should have two bank accounts and fund them for needs and wants.
• You just need to look at your fun and life account balance every week.
  
  

Paco’s law applies here; “your spending will equal what you have available to spend.” Now we have set a limit for our spending, and we’ll stop spending within that limit and won’t go beyond it.

Thinks to follow to reduce overspending

• Delayed gratification: don’t buy a product immediately after seeing it on Amazon or Flipkart, give yourself enough time to decide. Many times, you’ll end up not buying it. Still, if you think it is needed, then go for it.
• Don’t increase your lifestyle when your pay increases: I increased my lifestyle when my salary increased, you don’t make the same mistake. Try to live below your means without feeling deprived.
• Follow 50:30:20 + Paco’s law: Create a monthly budget that accounts for investments, needs, and enjoyment. Don’t mix things up; separate the money for each and have two bank accounts for needs and wants.
• Money Management: Track all your spending either on an app or the more traditional method of pen and paper. It will show where your monthly spending was the highest.
• Credit cards and BNPL: If you know how to cycle credit cards, then use them. If not, don’t go for it.
  And with the recent buzz of Buy Now and Pay Later (BNPL) subscriptions, please stay away from it.
  
  

By using the money manager app and Paco’s Law, I was able to reduce my habit of unnecessary spending. It’s been working for me for the last few months. Give it a shot.

Until next time,
Peranesh xx