Starting salaries of today’s youth have resulted in higher disposable incomes as compared to their counterparts in earlier generations. This has lead to a significant change in lifestyles.

Objects that were considered luxury goods about a decade ago have become necessities for the present generation. In fact, the young population has been a major contributor to the India growth story. It is widely believed that spending habits of the youth will play a major role in vitalizing the economic cycle going forward.

However one must take cognizance of the fact that spending in an unrestrained and unplanned manner could spell disaster for one’s finances. Spending should be done with a degree of discipline and planning.

Given below are some tips to master the art of spending :

Formulate a budget and stick to it

Creating a budget is easy but to actually stick to it may get tricky! Here’s what you should do; compare your income to how much you spend. It might be a good idea to do this bi-weekly, like every payday. Make sure to have 2 separate bank accounts - "spending" and "savings". For each paycheck you get, move a huge portion of it from your spending to your savings account. As much as possible, you set this to occur automatically (you can set up an "auto-transfer" of accounts with your bank). This way, you would only see your "spending" money - your budget. And in the long run, imagine how good it would make you feel once you see your accumulated savings account.

Having a clearly laid-out budget will help you prioritize your spending. For example, the highest priority must be accorded to investments that have to be made in line with investment plans and commitments like life insurance premiums. Only when the high priority needs have been taken care of, should the balance funds be used for other expenses.

Difference between "need" and "want"

Retail therapy has hit the Indian consumer like a ton of bricks in recent times, which has resulted in a perennial hole in the pocket. While browsing at the mall or grocery stores, we tend to see something that we didn’t plan to buy but would like to buy. Before you go on a spending-spree, ask yourself: "Do you need it or just simply want it?" Why buy something you don't really need? You’ll end up regretting your purchase as you probably won’t be using it anyways.

Resist impulse spending

It is now considered trendy to hangout at malls, coffee shops and lounges. Window displays and latest blockbusters are known to test the resolve of even the strongest. A young individual with access to disposable funds can be rather vulnerable in such a situation. Resist the temptations and don't succumb to impulse spending. This is especially pertinent if the spending will come at the cost of your monthly investment towards your retirement/ home building corpus. Always try to spend in line with your budget.

For example, while it's good to take your friends to the movies or for a dinner once in a while, it is recommended that it not be overdone. Movies/ dinners can be very expensive propositions these days, which means that you stand to gain significantly if you cut down these outings even by around 15% - 20%. For example, even if Rs 1,000 were to be saved on these outings and invested in a diversified equity fund over 20 years as a one-time investment, it would mature into Rs 16,366 (assuming 15% compounded growth).

Shop Around

When shopping for an item, any item, make sure you check out other stores and compare prices. Not every store sells the same item at the same price. Of course, each store would have their respective 'offers', promotion, or something that gives them a competitive advantage.

Track expenses

Again, tracking where you have spent your money may not qualify as an interesting way to spend time but it is important nonetheless. It will provide you an unambiguous picture of your cash flows; this will put you in better control of your finances. More importantly, it will provide an insight into your spending habits. This in turn can help you understand the areas that account for a significant portion of your expenses and give you the opportunity to do a reality check on their utility.

The credit card menace

Credit cards have emerged as the biggest 'vice' in recent times. Credit cards gives you access to high spending limits, it also liberates you of the worry about carrying cash. What was supposed to be a convenient instrument has become a tool of 'living on future earnings'. Credit cards have serious downsides. For example, making the "minimum payment due" could get you entangled in a debt trap and force you to make interest payments at obscenely high rates.

Dos and Don'ts of using a credit card (believe it or not!)

Most of us have little or no knowledge on how to use credit cards. Still, it's important to learn the rules of the credit card game - preferably before you start playing. These do's and don'ts of credit card usage encourage healthy spending habits for new and experienced credit card users alike.

Dos

Dont's