Sounds like a no-brainer right? If you think about, and keep track of the money you’re spending, it’s more likely to result in saving money. So why do so few people actually take an active role in managing their finances?
Research has shown, the more you think about doing something, the more rational the action will be. That also includes buying. Begin to think about your purchases more before you buy. This doesn’t mean think about how much you want the item for that much longer, or what life will be like without the item, as this generally leads no-where. Let’s take a more strategic spending approach to this and talk about mapping out spending, evaluating true cost, and how to put effective thought into your spending habits.
Strategic Spending by Creating a Spending Plan
A spending plan does a couple of different things for you. First, it does what the name implies, and forces you to map out the items that you want to buy, the bills you have to pay, the daily items that you spend money on such as food and gas, and what the planned cost is for these items. Now you can think critically on what your expected expenditures will be, compare this to how much you have in your budget, and determine if you have the means to pay for these items, or if you would need to put a savings plan in place to accomplish the purchase.
Now here’s the fun part. This is where the real thoughtful, strategic spending really comes into play. Look at each item on your spending plan and go through this list of questions. This is a guide to help you determine the true cost of the purchase that you planning for and weight the cost and value to make your purchase a thoughtful one.
1) How Long Will I Have To Work To Earn The Dollars To Pay For it? You see, you trade your time (and talent) for money, and you trade money to buy things. So, in effect, you're really trading your time for the things you buy. Is it worth the time at the office, factory, or wherever you work, to make this purchase?
The Liquid app calculates true cost right next to every amount of money you input in it. It takes into consideration your income, and then lets you know how many hours it will take to earn whatever amount of money you need. A video is coming soon to show this off. Until then, download Liquid, and give it a try!
2) Will I Use This? Think: the treadmill that turned into a storage closet. I mean think about will I really use this often? If you're spending $100 for the item, will you get $100 of use out of it?
3) Do I Really Need It Now? Electronics is a great example. You want the latest and greatest, and no sooner do you buy it than an improvement comes out. One woman in a workshop I was conducting in California says she sleeps on the purchase. What about waiting two weeks? Perhaps a month? You'll really have time to think about it. If you truly still want it after a month, then maybe it's a good thing for you to have.
4) Why Am I Buying This? If it fills a need, that's one thing. If you just want it, or you want to be like someone else, you don't need it. Evaluate your reasoning for your purchases and you may start to realize quite a bit about yourself in general.
5) Could I Buy Something Else With The Money? Or...could you pay off more debt with the money? Of course you could, unless you have no debt. But paying off debt increases your net worth. Economists call this an opportunity cost: the cost of what is given up. Is there something you need more?
6) Can I Buy It Elsewhere For Less? Okay, so you've already decided you need it. Shop around. However, don't be driving all over town just to save a few bucks; the cost of gas will eat up your savings unless, of course, it is of better quality, at a lower price. Make sure you're getting the best deal possible.