Personal finance advice often tells you what you can’t or shouldn’t do. For example – if you want to retire someday, you shouldn’t have daily lattes or lunches with your buddies.
However, the tight fisted don’t spend money approach is not always successful. Like a diet or an exercise plan, you may jump in, cut spending, burn out and return to your previously scheduled program of spendorama or consumerfest. Why? Because consumerism is ubiquitous and going cold turkey can be difficult.
Ramit Sethi of I Will Teach You to Be Rich fame (book and blog) has a different spin on personal finance. Ramit doesn’t suggest going cold turkey with your spending. Instead, he encourages you to spend money on the things you love, but cut costs mercilessly on the things you don’t.
Reduce your spending in two categories
Ramit suggests you pick the two categories where you spend the most money (for example, food or entertainment), and over the next six months cut your spending in these categories by 25%. The cut isn’t huge, it spans a long period of time, and because it’s an area where you spend a lot of money, you will save money.
Personal finance doesn’t have to be about will power, but it is about choices.
The Spend Less Than You Earn rule works for me, but I’m a saver. It’s in my jeans genes.
How about you? What personal finance strategies do you follow? Envelope system? Pay yourself first? Automatic deductions?