Changing your spending habits

“Annual income twenty pounds, annual expenditure nineteen six, result

happiness. Annual income twenty pounds, annual expenditure twenty pounds, nought
and six, result misery. – Charles Dickens

The concept of “Buy now, pay later” is becoming more popular nowadays.

It enables consumers to buy any goods that they wish on credit. With the

constant use of credit cards, you will eventually end up in debts. However,

falling into debts is sometimes unavoidable if, for example, you want to buy a

house or start a business. But still, such debts should be manageable debts.

To ensure that you never fall into the debt trap, you will have to learn to

manage you finances. There are certain guidelines which you need to bear in

mind so that you can be free from debts. Take note of the do’s and don’ts below:

THE DON’TS

1. Don’t ignore your debt problems as this can only make the situation worse.

2. Don’t live a B$50,000 lifestyle on a B$24,000 salary as you will find it hard to live

within your means.

3. There are always opportunities for special occasion spending. For example,

consumers tend to feel guilty if they do not give presents to their loved ones.

The more guilty they are, the higher the cost on the presents. To avoid this, it

is necessary for consumers not to do their shopping last minute, so they will

not end up making expensive decisions. In other words, you should plan

ahead so that you can set aside the money for the presents in your budget.

4. Don’t be influenced by advertisements. It is better for you not to get hooked by

the advertisements because they make you spend more by falling into the

trap “Buy now, pay later” concept.

5. Don’t use the credit card for borrowing. A person buying on credit increases the

cost of the purchases. The interest that accumulates each month adds to the
 cost of the purchase. As the interest continues to accumulate, the person will

eventually find it difficult to keep up with the payments.

6. Don’t buy on hire-purchase if you can afford to pay in cash. If not, you should save

until you are able to purchase it.

7. Don’t buy a house when you just can’t afford to scrape together the monthly

instalments.

8. Think carefully first before signing on as a guarantor for someone else’s loan as this a

risk which you may or may not ended up settling the debts.

9. Don’t postpone paying your bills as this would accumulate more debts.

THE DO’S

1. Do make a budget. Many people dislike making a budget as it takes up a lot of

time and the person has to be very committed and disciplined. The basic rule

of budgeting is that your income must exceed your expenditure. A person

must have a positive and challenging attitude in order to succeed in creating

as well as following the budget plan.

2. Do give yourself a treat every month. This means that you should put away

some money every month. You might find it difficult at the beginning but

you will soon be motivated once you see the accumulated money in your

saving account.

3. Do avoid costly necessities. For example, a person will definitely feel happier

by driving a B$50,000 car on the road rather than a second-hand B$20,000 car

but the happiness could be of a short term one if you fall back on your

monthly instalments and your car is repossessed.

4. Do memorize the golden rule of borrowing. “Borrow as little as possible and at

the lowest rates that you can find for the shortest possible period”.

“His Majesty hoped the additional income would be used prudently and

the workers concerned would be able to save through financial planning”.

 (from BruneiDirect.Com)

His Majesty the Sultan of Brunei had mentioned this statement during his

60th Birthday, which is used to convey to the people of Brunei to spend their

income wisely through proper financial planning.

Many of the consumers in Brunei do not plan ahead before spending, and

eventhough if they do, they will not follow it most of the times due to certain

circumstances. Hence, they will end up with no or little saving each month,

which is not sufficient for their future retirement, children education as well as

future emergency fund, a sum of money readily available, just in case you need

cash in a hurry. To achieve future secure, it is necessary for the people to budget

their income by creating their own monthly spending plan.

Budgeting is not an easy or fun thing to carry out but it is very useful as it

forces a person to take a good look at his/her spending habit. Most people

realized that their main problem lies in their living a B$50,000 lifestyle on a

B$24,000 annual income. Hence, it is very crucial for a person to know what

he/she wants. For example, do you want in a year’s time to be out of debt, to

have no financial worries or in five years’ time, make a down payment for a

house?

List out your goals and estimate how much you will have to save each

year to achieve them. However, you are only to set the goals which you think

you are able to accomplish. This is because if you set your aims too high, you

will end up very disappointed and may give up altogether. To reach your goals,

you will have to spend less. But that doesn’t mean that you will have to give up

certain things. It means shopping around for the best bargain to trim your

expenses.

It is wise for you to start now to draw up a budget plan. Here are some

general guidelines to follow:

1. The first step is you will have to know where you stand financially. To do

that you have to know for a start how much money you take home each

month. For most people, they are able to estimate it quite accurately with

their fixed monthly income. However, for those who have unstable income,

they will have to make estimates based on the past and adjust accordingly as

they go along.

2. The second step is to list out all the expenditure that you have spent per

month. It is easier if you group them into day-to-day spending, regular lump

sums and occasional lump sums. Day-to-day spending includes all essential

items like food, drinks, and frequently bought items like household supplies,

newspapers, petrol etc. Regular lump sums should cover monthly payments,

for example, house rent, electricity bills and loan repayments, car and

personal insurance etc. Occasional lump sums will include car repairs and

household maintenance.

If you are unsure about your spending habits, you are required to note down

all your spending for the next two or three months. This way, you won’t go

broke but may end up with more money than you thought you had. For each

month, it is important for you to go through the list of expenditure for a

number of times to make sure that you have included everything. After that,

you are required to total up your income and expenditure to see whether you

have overspent your income for that particular month or not.

3. The final step is to review your budget regularly. This is particularly very

important as some of the estimated figures may change due to some

circumstances. For example, if you lose your job, you will need to draw up a

new budget, or to modify the old ones. But if there are no changes, then you

will need to keep your budget up to date.

Table 1 shows a sample of a Mr. Lee’s spending plan. Mr. Lee is a supervisor,
who has to support his wife and son.
 Jan Feb Mar

Income
Balance from previous month
1,800 1,470 443
Salary
3,000 3,000 3,000
TOTAL INCOME 4,800 4,470 3,443
Day-to-day spending
Food – daily marketing, meals at work,
occasional meals out 600 700 600
Newspaper 31 28 31
Car petrol 120 120 120
Pocket money (for child) 10 10 10
Personal allowance 400 400 400
Personal allowance (for wife) 200 200 200
Regular lump sums (monthly & annual)
Housing loan 600 600 600
Electricity & water (estimated) 180 180 180
Telephone phones
- House phone (estimated) 70 70 70
- Mobile phone (estimated) 90 90 90
Savings 200 200 200
Car insurance - - 440
Car loan 400 400 400
Life insurance 139 139 139
School & tuition fees for children 190 190 190
Miscellaneous (medical/dental care, 100 100 100
haircuts, occasional treats, car repairs, etc)
Occasional lump sums (estimates)
Clothes - 300 -
Chinese New Year expenses - 300 -
Birthdays, anniversaries - - -
TOTAL SPENDING 3,330 4,027 3,770
BALANCE 1,470 443 327

With a budget as shown in Table 1, you will know where your money goes

and you will be able to reduce your expenses on non-essential items and increase

your savings for the future.