Increase your savings with these three tips.
Ever been on a diet? A really strict diet? Chances are, you went crazy about all the things you couldn’t have, felt way too restricted, and had a blowout with a tray of donuts and a one-litre tub of salted caramel gelato. (No? Oh… OK, just me then.)
Your finances are a bit like a diet, only in reverse: if you succeed, your bank account is the thing that gets fat. But just like being on a diet, if you’re too restrictive in your approach to budgeting, you’ll go looney tunes and blow the bank.
That’s where the Three Naughty Things rule comes in. Here’s how it works.
- Figure out your basic budget – living expenses, recurring expenses, and don’t forget to siphon some off for your emergency fund.
- Take a slice of that out for KiwiSaver, saving for a holiday, or for your retirement (remember to always pay yourself first!)
- What’s left over is your splurge fund – your fun fund. That’s what you can spend – guilt-free – on frivolities. Nobody can make you feel bad about spending your fun money!
Personal financial advice often makes a big deal out of trimming frivolous expenses. Absolutely; mindless spending can really set you back for minimal enjoyment.
But your frivolity fund is there for just that. It’s a little bit like having a couple of squares of top-quality chocolate at the end of the day, or a glass of wine after work on a Friday – it won’t ruin your health and waistline, but it means you’re living a good life now.
Your frivolity fund shouldn’t go on just anything, though. That’s where the Three Naughty Things rule comes in. Identify the three things that make life really enjoyable for you – those are the things you’ll prioritise in your frivolity spending.
It might be that you love music but aren’t so fussed about alcohol. Or conversely, you love a good bottle of wine, but don’t care about coffee. Or you just can’t imagine life without going to the movies at least once a week.
For me, my top things of enjoyment at the moment are coffee, skiing and books. But I largely don’t care about music, movies, or going out to pubs and bars.
“But skiing is super expensive!” I hear you say. Skiing is admittedly a spendy hobby. However, I’ve long had ski gear so there’s no expense there, so my ski spending is on petrol to and from Ruapehu, and ski club accommodation at $20 a pop. I’ve prioritised that further by limiting proper coffees to once a week on a Monday morning, and instead of buying books I’m mining the shanoozy out of my library card. At the end of ski season, I’ll switch it all up again.
Within your frivolity fund, try to put limits and guidelines around how, and how often, you spend – just like the once-a-week coffee. Sometimes you enjoy something more if you have it as a treat rather than as a routine or a habit.
So that’s it: the Three Naughty Things rule. What are your naughties? And how are you managing them?
Francis is Credit Simple's resident content writer and social media guru. He's passionate about saving money, so we pay him 5 cents to go out and fetch the team coffees every morning. Thanks Frankie.All stories by: Francis Church