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Cutting back on unnecessary expenses.

Last time, I talked about the miracle power of compounding, and the principle of putting one tenth of your income straight into your savings and investing account. To make this easier, simply start to cut back on unnecessary expenditure.

Lets get practical now. It is time to assess just how much you can save each day or week. (If you are running a business, apply the same thinking to your business).

What are you spending your money on, and what is necessary and what isnt? Your bank and credit card statements will tell you a great deal about where your money goes. So, check them first.

Also, you will find you are spending cash, and other incidental amounts on your credit or debit card daily.

For the next month, get yourself a handy notebook, and start recording what you spend each day as you spend it, and as you do, categorise your spending into three simple and easy categories.

1. I have to pay this.

These are the things like your rental or mortgage, council tax, your food, electric, gas, credit card bills, loans and so on. For each of these, look at how much you can save. There may be better deals around. If you have any loans, deal with the high interest and critical ones first. The web site moneysavingexpert.com has details of how to get the best mortgage deal, the best utility prices, the best credit cards, loans and so on. Check it out and take action.

With any savings you make, you have a choice – Spend it or Save it… so, a good choice is to put the savings into your savings account straight away, before you get used to spending it – immediately at the beginning of each month or on the date of the saving. (I will suggest how you can manage your savings account in more detail later.)

2. These are my personal necessities and I want it.

You will know what these are for you, but be clear with yourself how much you value it and how necessary it is.

You know, life is a bit lopsided, and in the early 1900’s, Vilfredo Pareto, an Italian economist, established how lopsided it can be when he discovered that 80% of the land in Italy was owned by 20% of the population. This was the start of the insight to what became known as Pareto’s Law, or more simply the 80/20 rule.

This concept can be applied to many things, from how you spend your time, to the quality of relationships and so on; through to your own personal spending and assets. It says that roughly speaking there is an 80/20 ratio with many things.

For example, and do think about this, you probably get 80% of your enjoyment from 20% of the activities you do, you may get 80% of your appreciation of who you are from 20% of the people you know, and you get 80% of your pleasure from 20% of the things you spend money on (80/20).

And, it follows, conversely, you get 20% of your enjoyment from 80% of the activities you do, you get 20% of your appreciation of who you are from 80% of the people you know, and that you get 20% of your pleasure from 80% of the things you spend your money on (20/80).

So, for everything you spend, ask yourself the simple question…

Is this an 80/20 purchase or a 20/80 purchase? Be honest.

If it is a 20/80 purchase, place it in the third category…

3. I thought this was a necessity, and it could be an investment.

Anything in this category is a 20/80 purchase and is up for grabs, you could take all the money spent here and add it into you savings and investment account… (or pay off debts). This one step could make a huge difference in you life.

If you catch yourself before you spend things in this category, give yourself a huge pat on the back, and put it straight away into a separate purse or wallet or bag and then into your savings account… DO IT NOW! dont delay.

Try it for a while, and enjoy seeing how wealthy you can become.

warm regards and good wealth to you,

John Cato, ACMC, MPNLP, MBCS, FRSA
The Wealth Coach

Executive and Personal Coaching
+44 (0) 845 338 4370

“You are wealthy when all aspects of Wealth are in harmony and aligned…
my skill is to help you truly be this in your own unique way and to champion you to achieve your potential; to become more successful in business, work and personally, and be more wholly wealthy.

If you know someone in business who may be interested in becoming more successful, and making their team more succesful, please tell them about me and put us in touch.

I believe a referral should result in a win, win, win, and to show my appreciation I have a referral reward scheme to benefit you both that I hope you will take up.

“There is one fundamental question… Are you moving towards what you want or away from it?
Notice and choose.”

** Any information on this site is provided solely to enable you to have greater awareness of your possible choices, and to make your own decisions; it does not constitute a personal or personalised recommendation.

This entry was posted on Thursday, September 28th, 2006 at 12:57 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.