There’s a famous quote attributed to the late footballer George Best, and I paraphrase: “I spent a lot of money on alcohol, women, and fast cars. The rest I squandered.” The Irish football legend, whose birth anniversary is on May 22, was an inspiration to Maradona. He was considered among the best since Pele. But he went off the rails thanks to the many temptations life offered him. He died a broke alcoholic, becoming a cautionary tale to sportspersons on how not to handle fame and fortune.

Why we overspend

There are many reasons people spend beyond their means. Emotional factors such as trying to find a way to cope with boredom or stress, social pressures like trying to keep up with the Joneses, impulsivity, or lack of financial literacy are common reasons. You may also buy into clever marketing or have a financial disaster such as a health crisis which needs you to spend beyond your means. There could be reasons within and without your control. But what’s the way out?

Save & invest first

It’s not rocket science. If you’ve already shifted your money into savings and investments at the start of the month, you’re going to have fewer chances to squander your money.

A recurring deposit or a systematic investment plan in a mutual fund can help you. The beauty of saving is that if you really need that money for some emergency spending, you could just liquidate it. But once you’ve invested it, there’s also a good chance you’ll resist liquidation due to liquidation penalties or taxes.

Spend strategically

Ultimately, your money’s meant for your enjoyment. So enjoy it, but safely. Set guardrails for yourself. The 50:30:20 rule is useful. It says 50 per cent of your disposable income should go to needs (such as rent or groceries), 30 per cent to wants (like eating out or vacationing), and 20 per cent to savings. One could argue 30 per cent towards wants is excessive. But one must find the ratio optimal for their situation. Limiting the money allocated to enjoyment would help you commit to compulsory savings as well.

Delay gratification

Overspending often stems from impulsive choices. You’re out in the market. Something catches your eye. You cannot resist buying it immediately. You rack up a big balance on your credit card. A few days later, regret sets in. To counter impulsive spending, there’s a rule you could adhere to. It’s called the One Week Rule. Before you give in to impulse, wait for seven days. Think through your purchase. If after one week you still want to buy the same thing, go ahead. But it’s likely you’re already over it. Other versions of this rule are called One Day or One Month Rule.

Have a sounding board

We all need someone to advice us before an important financial decision. Financial literacy is low in India. There’s a dearth of good financial advisers. But there’s always someone who’s judgement we can trust.

Before you make any potentially damaging financial decisions such as spending all your savings on a vacation or a shopping binge, reach out to this person.

Get a reality check. It takes years to save a pittance and a moment to spend it all. And perhaps, the reality check will prevent such costly mistakes.

The company we keep

We mimic the habits of those around us. For example, if there are shopaholics or gamblers in our social circle, we’re more likely to be accepting of such lifestyles. Conversely, if our intent is to be better at saving money, it would be helpful to be around people who are good at it and who can encourage us to foster those habits ourselves.

Managing debts

Bad spending habits can also breed bad borrowing habits. “We buy things we don’t need with money we don’t have to impress people we don’t like,” goes that line from the movie Fight Club.

For the right borrower, a loan’s always a few clicks away. But without a framework for wants and needs, you may confuse needs for wants and borrow to buy things you don’t need. Overborrowing causes your debt to stack up. Your interest payments become unsustainable.You get pulled deeper into debt. The less you finance your lifestyle on borrowed funds the better for you. And if you do use financing options such as credit cards and BNPL, always repay your dues in full and on time.

Importance of frugality

Study the habits of those who’ve been sustainably rich through their lives. One thing will inevitably stand out: their frugality. It may seem ironical that billionaires preach frugality but it’s what helps them remain wealthy.

Lastly, there are situations beyond your control – death, disease, disability, or disaster which may visit unannounced at any moment. In those situations, insurance can keep you or your family from spending beyond your means.

The writer is CEO, BankBazaar.com

Change in MF bank mandate

I have three mutual funds from 2007 when I was in service at Jharkhand with my bank account numbers there. On superannuation, I left that state, keeping no record of old bank accounts during shifting. Now, while trying to change bank mandate in these mutual funds, these companies are insisting on submission of any record of old bank accounts, for e.g., cheque leaf or passbook resulting in a deadlock. Is there any way to redeem these mutual funds or do I have to suffer loss of money?

Hira Lal De, Bhadreswar

Based on a mutual fund’s internal risk management policies, the investor can be asked to submit cancelled original cheque leaf of old bank account or a copy of the bank passbook/ statement containing account number, name and address duly certified by the bank.

The rationale for asking for supporting bank documents in respect of the old account is to ascertain the authenticity of the request with a view to safeguard the interest of original/ bona-fide unitholders and prevent fraudulent transactions. You may have to take the trouble of recovering your old bank account information if you want to change your bank account details for redemption.

Old vs new regime

I am a pensioner with a gross pension of Rs 6,34,132 and other income from interest of Rs 2,00,672. My PPF investment in FY 2022-23 was Rs 1,50,000. What will be my tax liability under the old and new regime?

AK Mondal, Calcutta

For assessment year 2023-24, it may be beneficial for you to remain in the old tax regime as your tax liability under the old tax regime (based on your disclosed information) is Rs 38,439, while the same under the new tax regime is Rs 52,230. However, if your income and investment remains same for assessment year 2024-25 (FY 2023-24), you may consider moving to the new tax regime as your tax liability works out as Rs 34,819 resulting in tax savings of Rs 3620 under the new regime. This is primarily because of the change in tax slabs and availability of standard deduction under the new regime for AY 24-25.

If you have any queries about investing or taxes or a high-cost purchase you are planning, mail to: btgraph@abp.in or write to: Business Telegraph, 6 Prafulla Sarkar Street, Calcutta 700001