People spend more than they should for 5 reasons as you’ll see. Before we get to that, let me ask you a few questions. Have you ever been shocked when you open up your credit card statement? “How could I possibly have spent so much money? There MUST be a mistake!”
Sadly, the mistake is usually that we spent way too much. Am I right?
This phenomenon is something most of us encounter – regardless of how successful or financial challenged we are. How can you remedy this?
1. Global Impact
We spend our money and time and often have nothing or little to show for it. That’s because we don’t evaluate how we use our resources within the context of our overall situation. And remember; when we say “yes” to one thing, we say “no” to something else.
Think about it. When you spend 2 hours on Facebook, you lose the opportunity to put those two hours into working overtime or on a side job. When you spend $500 on a great weekend in Vegas you say goodbye to what that $500 could have become had you invested it – forever.
I’m not saying that you shouldn’t connect with your friends on Facebook and I’m not saying you shouldn’t go on vacation. I am saying that you should always understand the tradeoffs and make informed decisions.
2. Track It
If you want to nip your out-of-control spending in the bud, start tracking it. There is something magical that happens to us when we hold ourselves accountable. And there is no better way to hold yourself accountable financially than to track your spending.
You can use any number of software packages (like You Need A Budget or Quicken) to accomplish this or you can use an excel spread sheet. It doesn’t matter how you do it. What does matter is that you do track your spending. Once you do that you can see what you spend and where you spend it. It will also be painfully obvious what you need to do in order to cut back.
3. Priorities
It’s tough to keep motivated to track your spending or to think about the tradeoffs you make when you make a spending decision if you aren’t clear about your financial priorities. Right now, spending $500 on a trip to Vegas might sound pretty good. But if you’ve identified your financial priorities, it becomes easier to see how that might not be the way to go.
Let’s say your priority is travel. Is the trip to Vegas really how you want to spend your travel budget? Maybe yes. But maybe your real priority is to travel to Europe. When you remind yourself of your priorities it’s so much easier to do the right thing. Can you see that?
Take a moment to write down a list of your 5 greatest financial priorities. Think about what’s important about money to you. Do you want to get out of debt? Save for retirement? Is the bright shiny object you want to buy getting you closer or further away from your ultimate goals?
4. Communication
Maybe the spending problem isn’t coming from you but from someone else in your family. How do you get your spouse to stick to a budget? Set aside time. Ask your spouse about his priorities. Acknowledge your own mistakes and ask him to suggest ideas on how you can both do a better job of getting your spending more in line with your values and goals. Talk to him about tracking and get him involved. Talk about the tradeoffs and jointly come up with an action list to get back on track.
5. Alternatives
I mentioned that it’s important to also be mindful about how we spend our time and it’s true. But not only because you might be able to work more hours. When you spend your time wisely (and cut out the waste) you have plenty of time to plan ahead. But when you don’t use your time well you’ll find yourself in situations where the alternatives are limited.
Example. You’ve rented an apartment for a year and that year is just about up. You delayed looking for a new place to live for too long. Now the choices are limited and expensive. To make matters worse, new landlords are checking your credit. When they do, they uncover some problems you never knew existed. But you have to be out of your place next week and you don’t have enough time to correct those errors. Procrastination is really expensive because it limits alternatives.
Had you planned ahead you would have spotted out other apartments months ago. And you would have taken steps to get your credit score and correct errors well beforehand knowing landlords were going to be looking at it.
This is just one example but there are countless. Give yourself time to get all the information. Keep as many doors open as possible. The more competition you can introduce for your business the more money you’ll save.
You and I spend more money than we should. We do it because we “fall asleep”. We allow our financial lives to happen rather than stay on top of it.
Everyone spends more money than they should at some point or another. When you make this error, it’s no reason to beat yourself up. If you see a pattern develop and you recognize that you’re spending is leading to a financial future you want no part of, take the steps I’ve outlined above to take back control over your spending.
Is your spending out of line with your life’s goals? Have you ever had to deal with a problem like this? How did you handle it? What worked best?
Lance @ Money Life and More says
I think Priorities is a huge point. I wouldn’t be surprised if a lot of people floating through life without identifying their top financial priorities for the future. If more people did this I think there would be many more people with much more money saved for retirement and their kids’ college funds.