Once we start earning as professionals, the challenge will be minimizing our spending and maximizing our savings. But this is something that’s easier said than done, and the urge to buy things we don’t need is oftentimes hard to resist. This is why is it important to instill discipline in our spending. According to Edric Mendoza, Registered Financial Planner and business anchor, it is important to have a fundamental shift in the area of discipline when handling our finances.
But instilling discipline is not easy to do, which is why he recommends that it needs to be both doable and fun. To instill discipline in a doable way, Mendoza recommends four nudges or simple things that you can do to build this habit and improve the handling of your finances:
1. Use Envelopes – For those who use cash, one way to instill discipline is to put your money at home in separate envelopes based on what you have to spend on. For instance, money should be placed in envelopes should be labeled for water, electricity, or groceries, and similar expenses so that every peso you earn will be placed in an envelope. This will help prevent you from spending money that you don’t really want to spend.
2. Use Big Bills – Another way to instill discipline in your finances is to use big bills, which are harder to spend. Since people are more likely to regret spending big bills, they are more inclined to just save the money instead of using it. On the contrary, having smaller bills in your wallet will make them easier to spend.
3. Use Debit Cards – While a lot of people have both credit cards and debit cards, Mendoza recommends focusing on your debit cards. When it comes to credit cards, people usually think about their credit limits, and they don’t feel their spendings right away because the bill only follows after a time. But with debit cards, the money is immediately taken away, which is why using them is another way to instill discipline in your spending.
4. Choose Automation – Automation means choosing modes of payment that immediately deduct the expenses from our accounts. Choosing this will help us avoid the temptation of spending the money that we have in our accounts.
But according to Mendoza, another benefit of choosing automation is that it will make us consider investing our money. We can talk to banks of our choice to ask for investment funds and then ask them to automatically debit a certain amount from our accounts. For instance, if this investment fund is connected to our payroll account, the money is automatically subtracted from our savings, which not only helps instill discipline but also allows us to have investments for the future.
To make instilling discipline in our finances more fun, Mendoza recommends two principles: the seed of a seed principle and monetizing our passions. The first one means that before spending the money that we make, we should first use that money to earn, and then use those earnings to buy what we want. This not only allows us to avoid spending the money we initially made but also still allows us to buy what we want. And finally, monetizing our passions can involve buying things that we want at a low price, selling them at a higher price, and enjoying them in the meantime, whether it’s watches, cars, musical instruments, and other things.
Mendoza ends by citing the Bible verse Proverbs 6:6, which talks about the lives of ants and what we can learn from them. Even when they don’t like what they do, they still do it, which is what it means to be disciplined, which is something that we can also apply when handling our finances.