Learn How to Spend Smarter Now

Written by: April Lunar
07/17/2019

smart-spending

Budgeting and smart saving is not meant to be restrictive but rather a strategy for efficient spending so you get your money’s worth. Spending is often divided into ‘necessary’ spending (insurance, utilities, rent, etc.), ‘unpredictable spending’ (spontaneous emergencies) and ‘elective spending’ (anything beyond what is required including fun stuff and savings). 
Acknowledging the strengths and weaknesses in your spending habits can help you develop better financial intelligence and happiness in both the short and long-term.

Realizing what your financial goals are aid in creating budget plans you can stick to. Try to be realistic about what you are wanting given your financial situation. For example, if you are consolidating a debt of multiple credit cards, focusing on paying off the entire bill in a couple paychecks might be overwhelming. Setting smaller goals of paying a designated amount each month in hopes to have half of it paid off in a year is more practical. Same goals with a more reasonable means. Are you simply trying to not live paycheck to paycheck? Are you wanting to save up for your child’s college fund? Build up a credit score? Your decisions should reflect these expectations.

A financial review is typically the initial step in budgeting because it can pinpoint which areas can be modified for fiscal improvement. It does not have to be complex, simply tracking where your money is going. Many money tracking applications make the process paper-free and simple. Some categorical descriptors are food, entertainment, bills, etc. After you have an idea of how much you spend in each, you can then decide which spots you can make manageable changes. Studies indicate you are the most happy when your basic needs are met (rent/mortgage, utilities, gas, television or music streaming subscriptions). This includes unpredictable saving for emergencies and retirement savings. This is because it gives you a peace of mind about your future and is the largest sign of financial security. Subtracting the total of these expenses from your take-home pay after taxes gives you an idea of how much “extra” money you have. Dedicating a portion of your income towards these bills also ensures you pay your bills on-time and can avoid late fees.

Smart spending is basically spending on things that give you more happiness in the long-run or have better financial outcomes. Trying to reduce your fixed costs is the first step. Many people choose to live in more expensive homes or drive more costly cars because they find this is a symbolism of wealth. In reality, it leaves you having higher bills and unable to spend that money on other perks you might find more enjoyable. A nice car or home might lose its appeal when you are having to make decade long payments and cut out other perks. When deciding to take out loans, think about its ultimate goal. Credit card loans help you buy ‘nice things’ but usually rack up hordes of interest. A student loan can finance your education to ultimately earn more money and your dream job. These are not appealing at first-glance but can provide much more financial security in the long-run. Take this into consideration before making purchases on leisure activities and objects. Evaluate the importance it has for you and its length of happiness. Spending money on an expensive meal can be viewed as a short-lived joy because after you eat it, it’s gone. On the upside, it can also be seen as a social, bonding experience to connect with friends. Though seemingly easy, it can be a complicated process. Overspending is the root of most financial instability. Unfortunately, it often has emotional connections making it even harder to curb as a habit. Expecting immediate improvement is not a pragmatic approach. You do not want to simply get out of student loan debt or save up for a car, but develop habits that can last well into the future to maintain financial security. Improvement can be made through practice and commitment. Self-control will be your biggest asset: focus on how you will feel after the purchase than just satisfying your desire in the moment. Weighing the pros and cons can potentially provide an easy, quantitative comparison. Would you rather have the extra side of guacamole or spend the same money on a getaway? There is no right or wrong decision because ultimately it all comes down to priorities. In terms of self-control, there are many tech apps that will automatically withdraw a portion of your paycheck into specific accounts i.e. bills, savings, retirement, etc. If you set up automatic billing, it will take the money on time without you having to worry about transferring or paying debts while also keeping you accountable.

While it seems like it is free money, you should be thinking about the long-term. Paying off remaining debt may be a short-term pain, but is smart spending because it can save you piles in interest fees in the long-term. Additionally, having no debt keeps your financial record clean which is used more often than you would think, like a job’s security clearance or a renter application. If you have student or car loans, credit card debt, or a mortgage, you should prioritize these. It is highly recommended you put 20-30% of your take-home income (from the ‘free-money’) into savings. Not only do emergencies pop up spontaneously, but a savings keeps you focused on larger expense goals (a new car, electronics, etc). 

Learning how to spend smarter allows you to lead a happier, more fulfilling life. 
Budgeting does not always mean spending less, but spending smarter. However, it takes patience, discipline, and perseverance to master the skills of financial intelligence. Understanding what you are investing in helps your internal motivation to save more. The key with smart spending is not that you will gain more money necessarily, but that you have more liberation and choice in how you spend your money. People are often ashamed to budget but in reality it is necessary for financial security. 


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