If you want to practice smart spending, you need to understand what is wrong with your own spending habits first. It is not enough that you jump on ahead and restrict your finances. If you do it the wrong way, you could end up restricting yourself too much that you end up feeling burnt out. If that happens, you could easily slip back into your old ways. That may not be a good way for you to improve your financial situation.
The thing is, Americans are known to be a nation of spenders. We pride in our ability to spend – even if it means we are spending beyond our means already. Obviously, the recession was made worse because of our past spending mistakes. We thought our income was invincible. We thought that we will always have something to use to pay off our debts. That is why we kept on using credit for purchases. But when we lost our jobs, we had nowhere to get funds from. We were left with a growing debt that we had no idea how to pay for.
Obviously, the recession brought about a lot of realizations. We were faced with the reality of our bad spending habits and we tried to turn from our old ways. A lot of us succeeded. Which was good. But a recent data revealed that things are still not as good as it should be. It may be because some of us never really changed our ways or we are slipping back into the old habits.
Questions answered by a survey about American buying habits
CreditDonkey.com published an infographic on their website in May of 2014 that illustrated the spending habits of Americans today.
Well we took a look and we got three important realizations. Let us explore them by answering three questions.
Where do Americans spend their money?
We are a nation of consumers. In fact, our economy is mainly dependent on how consumers spend their money. If they spend a lot, that is good for businesses. But where exactly do Americans spend their income?
According to the infographic, here are the things that Americans spend on, from highest to lowest:
- 34% goes to housing expenses that averages at $1,379.75
- 16% goes to transportation expenses at $639.75, with $177.67 going to gas and motor oil
- 13% goes to food expenses at $510.75. $302 goes to food eaten at home while $208.75 goes to food eaten outside (restaurants, etc)
- 11% goes to personal insurance and pensions at $447.75
- 7% goes to health care expenses at $263.08
- 5% goes to entertainment expenses at $208.67
- 4% goes to apparel and services at $141.67
- 3% goes to cash contributions at $136.08
- 7% goes to all the other expenditures at $281.58
All in all, the average American spends $4,009.08. So what does this breakdown tell us about our spending habits?
The obvious expense that will lead the list if our housing expenses. Homes are quite expensive – especially those who are still paying their mortgages. But one expense that you might want to look into is the transportation cost. Spending more than $600 a month may be too much – considering there are alternatives that are not only cheaper but healthier. Biking or carpooling can lower your cost significantly.
Look at your own personal expenses and see where your spending can be made more smartly.
Are Americans overspending?
Another question that is answered by the infographic is whether we are overspending or not. Here are some important details about our spending habits.
- $736.75 – eating out, entertainment, apparel and personal services
- $67 – average daily credit card spending of Americans in 2011. This totals to $2,010 a month.
- $58 – average daily credit card spending of low to middle income families. These are the families that earn less than $90,000 a year. This totals to $1,740 in a month.
When it comes to credit cards, it is evident that we are overspending. We need to correct our credit card spending habits because the high-interest rate can be really destructive. You want to make sure that your finances can handle all of your expenses. If not, overspending can drive your finances under.
What is the preferred mode of payment?
Lastly, what is the preferred mode of payment for Americans? What will make them a smart spender, paying in cash or credit?
According to the infographic published by Credit Donkey, Americans make an average of 64.5 payments in a month. The payment methods are as follows:
- 19 payments are made using debit cards
- 18.4 payments are made using cash
- 11.2 payments are made using credit cards
- 8.2 payments are made using check
- 3.3 payments are made using online banking
- 3 payments are made using Bank Account
- 0.8 payments are made using gift cards or similar tools
- 0.5 payments are made using traveler’s check or money order
This is actually a good a statistic. People use debit cards because it is safer than carrying cash but at the same time, it will keep them from overspending.
Tips to avoid spending mishaps
All in all, it is obvious that American spending habits have a lot more room for improvement. It is important for you to make the necessary changes so you can be more in control of your finances.
Here are a some tips from us that will help you curb those bad spending habits.
- Spend based on your needs, not your income. When Americans get a raise, they quickly think of ways to upgrade their lifestyle. It is either a new home or a new car. This should not be your immediate reaction. Make a list of the necessary expenses that you need to survive and stick to that amount. Regardless if you earn more, you have to keep to that expense list because that is already comfortable for you. Stop aiming too high every time you earn more. Instead of spending it, just save the extra. It will benefit you more.
- Teach yourself to be patient. If you wait some time before making a purchase, it will tell you a lot about the necessity of it. If you still feel strongly about buying it after waiting for some time, then go ahead and see if you budget can afford it. If you feel less about buying it now that you are not holding it, then by all means, skip the purchase. Take an hour, a day or a week before finally deciding to make a purchase. The higher the price, the longer you have to think about the necessity of the purchase.
- Stop comparing your possessions with others. This is another mistake by most Americans. We focus too much on what our neighbors and peers have instead of focusing on what we really need. Stop caring about what society deems as materially successful. If you stop obsessing about it, you will feel really good and content about your current financial standing.
- Do not let your possessions dictate your views of success. In relation to the previous tip, it is important for you to stop letting your possessions be the measure of your success. In an article published on HuffingtonPost.com, Arianna Huffington, the editor, said that the way we define success should be changed. We think that more, bigger and better is successful. That ends up burning us out. This should not be how we strive to be successful. We have to concentrate on thriving instead – that is being successful without overdoing what your body can handle.
- Set yourself up so you work to spend for the future, not to pay for the past. In most cases, people borrow a lot of money in the past that they end up working to pay for past expenses. You want to pay off all your debts so you work for your future expenses. That is more liberating and less stressful.
Here is a video that featured tips from Spendster.org – about how you can break free from you bad spending habits.