When asked about personal finances, few have set improving their spending habits as a priority. For most, a hefty paycheck might seem to be the solution for most financial struggles.
The truth is that knowing how to spend your money wisely can take you further into the journey to financial freedom than you imagine
Reality shows that personal finances are not that simple. The solution to your financial struggles might take a bit more than just getting a raise. Take, for instance, lottery winners, most of them are back to square one after a couple of years from winning the big prize.
The first step is to reach a basic level of income that can accommodate a reasonable living standard. Once this is done, more can be achieved by spending your money wisely than getting a pay raise.
In this article, I will list the key actions you can take to start spending your money wisely. Reaching your financial goals is not only about cutting costs but also about understanding your needs.
At the end of the day, no matter how much cash you have, to spend your money wisely is always a good idea. Most importantly, frugal living does not mean a life without fun. With a little planning and discipline, you will find ways of trimming your expenses without impacting much of your lifestyle.
In the long run, you will find that having long term goals brings peace of mind. It is much easier to cut expenses and save money when you have a clear picture of what you are aiming for. Paying your debt, going on a luxurious vacation, building an emergency fund, a college education for your kids. Your goals will change with time, but they must always be there to keep you moving.
The actions I will present here will be a mix of ways to be savvy with money with ways to focus your capital to where it will have the most significant impact in your life.
1 – Create a family budget.
Save more by understanding your income, expenses, investments, and debt balances. Reach financial freedom by setting personal budget goals for you and your family.
Your family budget is a list of your income and expenses, together with your savings and debt balances. That means taking note and understanding at every end of the month what was your:
- Income, or how much you earn,
- Debt, or how much you own,
- Expenses, or how much you spend,
- Saving, or how much you save.
Creating a budget is a common tool for debt management to practice discretionary spending. Organizing your bank statements by using budgeting tools or a budget worksheet can make it much easier to set your financial goals.
Bonus tip: Check this article on how to do your family budget: 6 easy steps to reach financial freedom
2 – Plan your spendings. Only purchase what you have planned for.
Buying on impulse can spiral your expenses out of control.
Make a plan of what you need to buy while you are calm at home. Review your purchase list multiple times and let it mature for some time.
Make a survey trip before your real shopping trip. Take note of the prices of several brands and alternative products for what you are looking for, do not stick to only one store.
Return home without buying anything. Give the results of your survey trip some time to sink in before you go out on your shopping trip.
Be careful with exclusive sales and free samples. They are aimed to convince you to make an impulse decision instead of being thoughtful about how you spend your money.
Having the discipline to treat each purchase as a crucial decision will make you spend less money. Over time, the more focused you are, the wiser your spending habits will get.
3 – Do not shop for fun.
Your money is to spend money wisely, not to have fun spending money.
If you are only buying something for the thrill of spending money, you will end up buying a lot of stuff you do not actually need.
Only spend on what has been included in your spending plan. Always do price research before buying it.
Avoid factors that can impair your judgment while shopping. Alcohol, sleep deprivation, loud music, and hunger can all make you act on impulse and spend money where you do not need to.
4 – Focus on the Long-Term Benefits of Purchases.
Before buying something, reflect on how it will affect you in the future. Try to determine if what you are buying is really worth by asking yourself:
- How long is it going to last?
- Is it going to put you in debt?
- Is the value you will get out of it over its lifetime worth the cost?
These questions will help you to determine if something is really worth buying.
5 – Shop alone.
Sticking to your spending plan and being conscious about your spending can be hard if you are being bombarded by external opinions and advice.
Consider your family and friends’ opinions when making your purchases plan, but once you go out shopping, go alone.
While at the store, be careful when taking advice from the store employees, their main target is to make you spend more, and that is precisely what you are trying to avoid.
6 – Pay in full and in cash.
As shown in several surveys and studies, credit cards and debit cards increase spending. Because no real money is changing hands, your brain does not register it as a “real” purchase.
Furthermore, credit gives you the false impression that you can spend more than you usually would.
Those are the same reasons why many businesses propose delayed payment schemes such as bar tabs and alike.
The trick to avoiding such pitfalls is simple. Don’t bring more cash with you than you need. If you don’t have the extra money, you can’t spend it.
At the same time, withdraw your weekly budget once a week instead of filling up your wallet whenever you run out.
Have your credit card and debit cards as emergency measures for extraordinary expenditures mapped on your spending plan.
7 – Don’t spend your money based on ads and marketing speech.
Outside influences are a considerable factor affecting what we spend our money on.
Don’t buy something based on an advertisement. Be vigilant and aware of all the reasons you’re drawn to a product.
Whether on television, insider stores, or on the product’s packaging, treat ads with skepticism. Advertisements are designed to encourage you to spend more money. They will not provide an accurate portrayal of your needs and options.
Don’t buy something just because of a sale or a reduced price. Coupons and deals are great for products you were already planning to buy. Purchasing something you don’t need just because it’s 25% off does not save money!
Be aware of pricing tricks. Translate that “$9.99” price into “$10”. Judge the cost of an item on its own merits, not because it’s a “better deal” than another option by the same company.
A common trick by marketers is to make a “worse deal” with an atrocious value. As a result, you buy the “better deal”, which is in itself costly or not fit for your needs. Take buying popcorn at the theater, for instance. You end up almost always buying the large pack because its a better deal than the smaller ones, although a medium pack most times is enough.
At the same time, don’t automatically buy the mid-priced product within a product category. Marketers can influence your decision by adding an outrageously expensive product to make the high-priced product looks reasonable in comparison.
Want to read other great articles on investment and personal finances? Do you want to know how to get in control of your spending, and get rid of debt? Check these tools and resources to continue building up your financial literacy:
- How to choose a mutual fund benchmark index
- How to choose the right student loan repayment plan for you
- Risk management in personal financial planning. How to be reasonable and take moderate risks with money
- A colossal quantity of authentic financial knowledge
- Free financial survey questionnaire to booster your monetary self-awareness
About the author:
Hi, I am Leblon Blue. Mid-thirties senior manager on a large corporation. Happily married for seven years and waiting for my first kid. I have dedicated my past 15 years to build an engineering background and a stable career. After working in Europe, Scandinavia, and Latina America, I am now based in the Persian Gulf, where I manage the performance of a large corporation that operates in the region.