When I first asked myself about “how to stop overspending”, I did not knew that its answer will not be easy.
We had to code a whole new financial planning calculator to find a deeper answer.
The main purpose of this article is to provide you this financial planning calculator which may eventually help you to prevent your overspending’s.
We all have overspent on our days of enthusiasm, right?
But this is particularly worrying for people who are more impulsive in purchases.
Everyone has their own typical behaviour when it comes to overspending.
Generally speaking, people tend to spend more on the following items:
- Home Purchase.
- Vacation Etc.
The reason because you are reading this article says that, you have realised that you may be overspending.
So now, you want to know how to stop overspending?
Though there can be a thesis written on causes and remedies of overspending, but I will not bore you with that.
What we will discuss here is more of a “practical approach” which is also most effective.
Why I say it is most effective?
Because it works on the theory of self-realization.
But before we divulge more details, lets get an essential basic right at the outset.
#1. Why to stop overspending
See, overspending is a very subjective thing.
What might be an overspending for me, will not be the same for other.
I am not talking about our so called “passion or likings” here. I am intentionally avoiding its discussion. This is because it will not help us to stop overspending.
Instead, we take it as a plea to overspend more.
“I am passionate about video games, so I bought the latest gaming console.”
“I am passionate about gadgets, so I bought the latest smart watch”.
The focus of discussion in this article is not on “what makes us to overspend”.
The focus is on “how to stop overspending”.
First step to prevent oneself from overspending is to know, “why one must stop overspending”.
The reason is plain and simple.
When Overspending stops, there are more savings.
More savings mean, more extra cash in hand.
This extra cash can be used to take care of “essential priorities” of life.
What are these essential priorities?
Typical, unavoidable priorities of common men are as below:
- Retirement Planning.
- Child’s Future Planning.
- Home for self occupation.
I personally feel that, if a common man who leads a normal life, can manage the above 3 priorities, his life will be sorted.
We must stop overspending to ensure that the necessary corpus is getting built.
Overspending diverts us from our objective of managing these 3 most important priorities of life.
#2. Look at priorities in a perspective
Lets take an example.
Suppose a person is going to retire tomorrow.
Out of his retirement corpus, he will be able to generate Rs.25,000 income per month.
For a retired couple, Rs.25,000 per month is a reasonable income.
But here comes the surprise…
The retired couple has no house of their own. They need to live in a rented apartment.
In a tier2/3 city in India, a decent 2 BHK apartment will cost around Rs.10,000 on rent.
What does it mean?
After deducting Rs.10,000 rent, the balance money that is left is only Rs.15,000.
Is this money enough to take care of daily needs of the aged couple?
The fund is short. There is no doubt about it.
This is what happens when we try to gauge our priorities in a perspective.
It helps us to realise how important it is to manage our “uncompromisable priorities” of life.
But there is something else which makes examples so effective. Do you know what?
We often talk in “hard numbers” when we give examples.
In our example, the hard numbers were the following:
- Retirement income : Rs.25,000/month
- Rental Expense : Rs.10,000/month
- Balance Savings: Rs.15,000/month
It is the quantification that made this example effective.
The same is true in our lives as well.
We must learn to quantify our priorities.
It will help us to realize their necessity in advance, even before they become due.
This realisation will work like an inner voice asking us to stop overspending.
And generally, people do not ignore their inner voice when it is speaking in “hard quantified numbers”.
#3. Quantify your priorities…
What I have told here about the following 3 priorities is nothing new. We all are very aware about it:
- Retirement Planning.
- Child’s Future Planning.
- Home for self occupation
In a young age, it is difficult for some to realise the brutality of not managing these priorities.
We all know that these priorities are unavoidable, still we miss to manage them. Why?
Because they are not quantified.
If we can quantify our priorities, it will become much simpler for us to prevent overspending’s.
Allow me to give another example:
Suppose Raj’s (Age: 30 years) take home salary is Rs.200,000/month, and expense is Rs.175,000/month.
His monthly saving is Rs.25,000/month.
With this saving in hand, he want’s to replace his old car.
He wants to buy a Hyundai Tuscon whose on road price is Rs.25 Lakhs.
He will finance Rs.10 lakhs from his pocket. The balance Rs.15 lakhs he will fund using a car loan.
His car loan EMI will be close to Rs.27,000.
Raj is in dilemma. His monthly saving, plus some minor adjustments in life is ensuring him his new car.
The temptation is irresistible, isn’t it?
Raj went ahead and bought his elegant Hyundai Tuscon.
What do you think we would have done in place of Raj?
I think, the outcome would not have been very different.
But there can be an other side to this story. Do you know how?
If Raj only knew, and had quantified his priorities, his decision could have been different.
Suppose Raj had the following details on his table:
- Retirement Corpus – Investment required Rs.3,000/month.
- Child Plan – Investment required Rs.13,000/month.
- Home – Investment required Rs.15,000/month.
- Total – Investment requirement 31,000/month.
- Present Savings : 25,000/month.
Here, Raj knows that his monthly savings is not enough to meet his investment requirements.
In order to keep his investments reach its desired goal, he must cut his present expenses.
In this frame of mind, do you think Raj will buy his new Hyundai Tuscon?
There is less chance of Raj falling under the trap of his temptations.
Why we fall prey to our temptations? Because we have not quantified our priorities.
In this article, I will provide you an “free financial planning calculator” which will help you to quantify your priorities.
Effective used of this calculator will surely help people to quantify their priorities and in turn, “stop overspending“.
#4. Online Financial Planning Calculator
We developed this online financial planning calculator for my self-use.
But I thought to make it available for my readers as well.
This online financial planning calculator is free for everyones use.
#4.1 Who must use this financial planning calculator?
People like Raj, can use this calculator.
This online financial planning calculator will give you answers to the following:
- Saving – Current saving per month.
- Retirement – Investment per month (SIP) necessary to retire safely.
- Child Plan – Investment per month (SIP) necessary to support the child.
- Home – Investment per month (SIP) necessary to buy a home for self.
This calculator will help its user to realise that “how underfunded” are his “uncompromisable priorities” of life.
So my friend, if you are planning to make a big purchase in your life, make sure to use this online financial planning calculator first.
It will give you an idea, whether you must stop overspending on this item or, you can go ahead.
#4.2 How to use this financial planning calculator?
Use of this financial calculator is easy.
Just type in some values in the “data entry” field, and it will generate the results on click of a button.
What value to be entered into the calculator?
The calculator would like to know the following about you:
- Your age.
- Retirement age.
- Your monthly income & expense.
- Current Retirement Savings.
- Child’s age.
- Priority for the child.
- Value of home you possess.
- Value of home you wish to buy next.
#4.3 Objective of this financial planning calculator.
Use this financial planning calculator as your personal “simple” tool.
This tool will help you to judge if you are investing enough or not.
Why I giving a stress on the word “simple”?
When it comes to financial planning, we generally falter. Why?
Because it looks cumbersome and difficult to understand.
The financial planning tool that we are providing in this blog is not a hi-fi one.
It is simple, and meets the objective.
What is the objective of this financial planning tool?
How much is needed to “save and invest” to meet the primary financial goals of life.
If this calculator can help its user realise this, its purpose is fulfilled.
Isn’t it simple?
#4.4. What are primary financial goals?
Why I am referring to the goals as “primary”?
What common family men needs to achive primarily in their life?
- Retirement corpus.
- Own Home.
- Support to children.
Generally speaking, if common men can achive this, their life is sorted.
Consider a typical example of Mr. Kumar who is 60 years of age.
Mr. Kumar has retired just now, with a retirement corpus of Rs.2.0 Crore.
He also has a 3BHK home, which he owns in a posh locality.
His child has just completed her MBA, and has no education loan to take care of. Mr. Kumar paid it all for her.
Mr.Kumar’s is now planning to get his daughter married, and he has a decent savings to manage all formalities of an Indian Marriage.
What do you think, Mr. Kumar has managed his finances well or not?
I think, Mr Kumar has done well.
For a normal middle class Indian family, what else is more important?
I personally feel that, if a person can manage these 3 primary responsibilites to its fullest, otherthings will fall in place automatically.
Mr. Kumar did it for himself, how me and you can do it for ourselves?
We can do it by formulating a financial plan for self…
#4.4. Use this calculator to build a financial plan.
This is where the requirement of a good and simple financial planning tool comes into play.
Again, the buzzword is simplicity.
The simplier is the outcome of the financial plan, it is more likely to meet its desired end result.
What is the desired end result?
To build a sufficiently big corpus for the following goals:
- Child’s Higher Education.
- Child’s Marriage.
A simple financial plan should tell people, “how much they should invest each month” to build the above corpuses.
How to stop overspending of money?
One can do this by using this financial planning calculator.
In this article you will get a free financial planning calculator.
Use it to quantify your priorities of life.
This will help you to stop overspending.
Disclaimer: All blog posts of getmoneyrich.com are for information only. No blog posts should be considered as an investment advice or as a recommendation. The user must self-analyse all securities before investing in one.