Maintaining an Account Changed my Outlook Towards Money

On my 18th birthday, I had two goals. One, take delivery of my two-wheeler and two open my bank account.  By the end of the day, I accomplished both tasks and celebrated my birthday. Unknowingly I had begun my journey into personal finance and tracking my expenses.

I started getting pocket money in the beginning of 11th grade. It was more like asking my parent for money when I ran out. There was very less accountability and no budget. I did not track my expenses at all.

I tried to maintain a budget and an account, but I never felt like putting in the effort. 

One day, the YouTube algorithm recommenced some video’s on finance. I had nothing better to do, so I started watching them. The more video I watched, the more curious I became. Keeping tracking of my expense and maintaining a budget went from being chores to being a fun game. If my expenses were under budget, then I would get a point, otherwise I would lose of point.The First Step towards winning the game was to make a budget.Each month about 40% of my allowance goes towards my savings and investments. The rest towards my expenses like fuel, food, entertainment, etc. The Second Step is to maintain an account.I have experimented with a lot of methods to keep an account. Since 80% to 90% of my transactions are on my debit card, downloading my statement and copying it to an excel sheet is the simplest method to keep my account. I will enter my cash transaction into the same sheet.

At the end of the month, I sum up all of my expenses using pivot tables in excel. I would organise my expenses to different categories (personal, entertainment, travel, etc) and subcategory (restaurants, movies, maintenance, etc). 

By just following step one and step two I have learned a lot. Some of those lesson are: 

1) The Importance of Saving –

35% to 45% of my allowance goes towards my savings. On average less than 10% is saved. However, by investing my savings and using the power of compound interest, my saving will grow. 

Over time, my saving will grow and I will be able to withdraw 4% each year as passive income.By starting early, I am trying to build the momentum needed to set aside money for savings first, rather than saving what’s left. 

“Do not save what is left after spending; instead spend what is left after saving.” – Warren Buffett 

2) How to leverage your Budget –

The importances of a budget cannot be understated. Early on I made the mistake of looking at my budget as a limitation on my expenses. Instead, my budget acts as a guide for all the expenses. I can go out for dinners, go for movies and do everything that a teen does. 

3) Importance of planning my purchases –

Ever since I got my debit card, making impulse purchases was as simple as swiping my card or entering an OTP. It took me a while to get over this habit.

As I started following my budget, impulse purchases became less fun. The more expensive the item, the more time I would want to spend on planning and research. By waiting not only did I find better deals but also I would find the right product for me. 

4) I Developed New Hobbies –

During 11th and 12th going out with friends to watch a movie, eating out or taking Uber’s was a weekly occurrence. After a while, I started looking for cheaper ways to get the same experience. Going out with friends to cafe’s turned into buying coffee beans and making coffee at home. Taking Uber’s turned into cycling and driving my two-wheeler. Coffee and riding have become hobbies. I invest the money that I have saved. 

5) I am Developing my Financial IQ-

In the past 18 months I have done more research, listening to audio books on various topics, watched videos on money and monitored the markets. I have been doing so to find work a financial theory that works for me. What has really helped me is to let logic guide me, rather than my emotions.

6) FIRE Movement –

Financial Independence and Retire Early is an aggressive saving strategy. Rather than saving 10% to 15%. FIRE recommends saving 50% to 70% of your annual income. By saving and investing, one can become financially independent within 8 to 10 years. 8 to 10 years is a lot of time, as a 19 year old, I could become financially independent by 30 or 32.

I am not sure what step three will be. What I know is that mastering step one and step two will help me build a firm foundation.