When you master your spending, you master life

When you master your spending, you master life. Bill Gates, Larry Page and Warren Buffett are very careful/stingy spenders and that is how they were able to build highly respectable organizations. So, better get started in understanding the way to master your spending.

Split your income in 4 parts*. Let’s assume your income is X.

1. One part goes into your expenses that meet basic needs (i.e. unavoidable cost). So your expenses are X/4.

2. One part goes in savings. So your savings is X/4.

3. One part goes to your parents or establishment costs e.g. you want to buy a car or pay off some loan, yearly trip, eating out, movies etc. So your family contribution is X/4.

4. One part goes in investment, risks, ventures. So your growth proposition is X/4.

How to spend your income = Basic needs + Savings + Contribution/Entertainment/Establishments + Investment

Explanation of 3rd category: Now start prioritizing the things according to your needs. What should come first for you? If you have $10 would you go to the restaurant or buy a book? Then you have a priority list and based on that you would have money allocated for each category.

If a new purchase [product cost plus all the periodical payments to keep it] would make you go over the limits, then you have to say that I cannot afford it. If you build the discipline to say “I cannot afford it” to something you like, you will have a high chance of running a happy life. If not, you will join the billions of people in the living hell.

TL;DR

You setup your budget and constantly compare the various things to that budget. You do it based on your priorities. We have infinite wants, but only finite resources.

*This principle has been lifted from Rigveda.