Do you want to become one of the smart spenders? The truth is, there are natural spenders and there are natural savers. If you are a saver, that means you take great satisfaction when you are able to buy something for less than its value. Not only that, it gives you great pleasure to increase your savings.
When you are a natural spender your purchases make you happy. You feel successful when you are in a financial position wherein you can buy when it is needed.
Of the two, it is the latter that will put you in danger of financial problems. When something gives you pleasure, the natural reaction is to keep on doing it. If you were left to decide, you would probably keep on spending until you have exhausted your financial resources. Considering the current financial situation in the country, this might lead to a lot of problems.
According to the data provided by CNN.com, the average amount spent by a typical household in 2014 was $36,800. This is an increase of 14% compared to what was spent a decade before in 2004. Experts believe that any increase in spending signals a stronger economic condition – since the American economy is driven by consumer spending. However, this is only okay if the average income grows as well. The sad reality is, the income did not increase. In fact, the median income fell by 13% from 2004 to 2014. Since the income fell and the spending increased, you can guess why debt is shooting up – and is expected to do so in the coming months.
The truth is, there is nothing wrong about being a spender. However, you have to copy how smart spenders are doing it so you will not compromise your financial position because of your spending habits.
4 questions that can lead to smarter spending choices
The rules that will make you a smart spender are actually quite simple. However, the implementation can be hard to follow through. You need to change your mindset so you can develop the right habits that will help direct your financial decisions towards the right choices.
To make this happen you have to get into the habit of asking yourself some questions before you push through with any buying decision. Here are 4 questions that smart spenders should ask themselves.
Am I buying this because it makes me feel good to show it to others?
Spenders love to buy things. It makes them feel accomplished and financially strong. However, you need to be honest about yourself. Are you really happy because you were able to afford the purchase? Or are you more excited to show it off? It is okay to think that money can buy happiness – because to a certain extent, it does. But make sure you are careful about the specific reason why it makes you happy. If your happiness is rooted on the fact that you can boast about your purchases, that is already wrong. Do not let your pride rule over your spending decisions. If you just want to boast, then do not push through with the expense and think about the necessity even further.
What am I sacrificing to finance this expense?
The next question that you need to ask yourself involves the sacrifices that you need to make in order to finance this expense. If this is not part of the budget and you do not want to overspend, there must be something in your usual list of expenses that will not be paid. Is it 5 days worth of morning coffees? Or is it two weeks of eating out? In case you will use credit to finance this expense, think about how many hours you need to work in order to pay your credit card bill. Do you think the effort that you will exert is worth the purchase that you will make?
Did any of the “Joneses” in my life bought the same thing – or at least expressed their intent to buy this?
Sometimes, we justify the need to buy something because someone else we know wants or have made the same purchase. According to an article published on RT.com, there are several studies that prove how “Keeping up with the Joneses” is real. People have the tendency to judge what they have in relation to what they perceive their neighbors possess. This is a mindset that smart spenders should never have because it will lead you to make unnecessary purchases. It will make you want more than what you really need just because you see someone else having more than what you currently have. Before you buy something or try to satisfy the need to purchase, check your neighbors, family, and friends first. If one or more of them made the same purchase, reflect on why you want to make the same. Is it really necessary? Or did you get the urge to buy something just because you saw them with it?
Is there a better way to use this money?
Finally, you need to ask yourself if there is a better use for the money that you will spend. Maybe it is better off being invested or saved for emergencies? If you have some high-interest debts, you can use this money to make a lump sum payment so you can get out of debt faster. You can save on the interest that you will be paying. Or you can give your mortgage down payment a boost. There are so many things that you can spend on that will improve your finances. That is how smart spenders would do it.
By asking yourself these 4 questions, you can determine if your motive to buy is reasonable or not. While these will not really make you stop spending, it will make you think twice about the necessity and practicality of your spending choices.
How to make smart spending a habit?
Did you know that some people are natural savers while others are spenders?
According to an article published on MoneyCrashers.com, our brains are wired to either be a natural saver or a natural spender. Researchers found out that the insula in our brain is responsible for making us either a saver or a spender. If you have a lot of insular activity, that means you are more likely to become a natural saver. But if you lack this activity in your brain, then you are expected to be geared towards becoming a spender.
There is nothing wrong with being a natural spender – as long as you know how to make smart decisions about it. Of course, the habits of smart spenders are not acquired overnight. You have to be consistent with your actions and decisions. After all, it takes 21 days of consistent actions to turn it into a habit.
To help you, here are 4 things that you can do to develop the right spending habits.
- Keep a close eye on your budget. A budget is the key to limit your spending each month. In fact, if you want to become financially independent, this is what you need to implement in your life. Through a budget, you will know how much you are capable of spending on the various categories that you need in your household. This information will allow you to make the right decisions every time you spend.
- Always carry a list before you shop. Plan expenses so you can make sure that it is within your budget. List everything that you have to buy. If it is not on the list, do not buy it.
- Learn how to wait before you buy. This is a great way to determine if an expense is really necessary or not. Sometimes, when we no longer see the product, we get to think twice about spending it. The urge is oftentimes heightened because of a visual representation of the product.
- Know your financial goals. Finally, smart spenders usually have a firm grasp of what they want to achieve financially. If you do not have a financial goal, it is time to come up with one. Your goals will give your decisions some direction – so that it will lead you towards the achievement of the said goals.
Here is a video that illustrates how much you are really spending for the small unnecessary expenses you are making in your life.
Common questions about smart spenders
Question: How to become a smart spender?
Answer: A smart spender is someone who thinks before they spend. This is a person who will consider their financial position in general before making a decision about spending their money.
Question: How will you know if you are a big spender?
Answer: A big spender is someone who can easily spend on expensive purchases without considering their budget or the other expenses that will have to be sacrificed to finance the expense. This person does not necessarily have enough income to cover the expense.
Question: What is the best tool to make smarter spending decisions?
Answer: The most important tool in making smart spending decisions is a budget plan. This contains your income and expenses. It allows you to determine if you can afford to spend on an expense or not. In case there is a need to spend, you will know what expenses can be sacrificed to make way for the unexpected purchase.
Question: What is the difference between a spender and a saver?
Answer: A spender is someone who finds happiness in the amount they are spending while a saver is someone who enjoys the fact that they are able to get something for less than its value.
Question: Is it possible to become a saver if you are a natural spender?
Answer: Yes it is possible but it will require discipline and self-control. You need to change both your mindset and habits – both of which are tough to revise.