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How to Strike the Right Fiscal Balance

by luxirare
Fiscal Balance,money,spending,saving,start,income

When you first decide to take control of your personal financial life, you may find yourself between the two polarities of spending and saving. 

Since your financial woes, whatever they might be, perhaps too much debt or insufficient income to cover your expenses, are a result of your spending too much money on the wrong things, i.e. “splurging,” you now try to go to the other extreme, which is to start saving to the point that you become a “cheapskate,” depriving yourself and others of many of the pleasures of money.  

Is it better to spend or save, splurge or conserve? Of course, both can be taken to an extreme, which doesn’t solve your problems.  

Yes, you should splurge when you finally take that vacation to Mexico, going to all the places and doing all the things that you’ve been dreaming about for so long. Sure, you could go on vacation, complain how everything is too expensive, live in cheap accommodations and eat at the cheapest places, but if you’re going to be miserable, why go at all.

What about prescription coupons? Should you use them? Yes, of course, why pay full price for the same prescription medication when you have a choice?

A Dieting Analogy

In order to make this idea about striking the right balance with your personal finances, let’s step away from the world of money for a minute and draw an analogy from the from the world of dieting.

If you’re underweight, you desperately force yourself to eat until you finally get to a caloric surplus. If you are successful, you will then pack on the pounds. Unfortunately, you may now become rather chubby, even obese, tipping the scale with some alarming numbers.  

On the other side of the issue, if you’re overweight, then you focus on creating a caloric deficit, and if you’re successful, you then get leaner and leaner. Unfortunately, you now face the opposite problem, you’re now skinny, even weaker than you’ve ever been before. 

So neither solutions provide you with the ideal solution, which is to be at the right weight for your height and bone structure.

Similarly, those who overspend face the risk of becoming misery. Meanwhile, those who are miserly long to break free of feeling deprived all the time. When they do decide to change their ways, they then tend to get reckless with their spending. Again, the whole idea of imbalance strikes again.

How to Manage and Grow Your Money

So, how do you manage your money better? Although this is a simple enough question to ask, the answer is a little complex.

So far, we’ve come to the conclusion that you should not overspend or pinch pennies as both cause you some grief. When you overspend, you’re happy in the short-term but will have regrets later on when you need money for basic expenses. When you save a little too vigorously, you’re miserable in the short-term; however, you’re hoping to have the money when you need it in the future.

Is it better to have short- or long-term happiness? You don’t have to make that choice. You can be happy now and in the future, too.

Here’s how you do it:

Begin by thinking of money as consisting of 4 parts. First, income; second, spending; third, saving; and fourth, investments.

You need all four to be working in harmony to attain the right level of fiscal balance.

  1. Income: If you are not earning enough money, that’s a problem. Find out what you can do about it. Do you need to switch jobs? Do you need to make an effort to improve your position in your company by rising up the ranks? Do you need to go back to school? Do you need to start your own business? Find out how to start earning more than enough to cover all your living expenses.
  2. Spending: Create a budget so that you can control your spending. Spend more money on the things that add value to your life and less on the things that provide little value.
  3. Saving: Pay yourself first and keep 10% of all you earn.
  4. Investing: Use some of your savings to start investing. It’s now time for your money to earn you money. This way, you will always have money whether you are working or not.

In conclusion, you will achieve success with personal finance when you go beyond thinking about spending vs. saving. Instead think in terms of a more holistic model—earning, spending, saving, and investing.

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