Sadly, financial insecurity is a growing problem in America. While it can stem from being unable to earn a living wage, it’s more common for people to earn a good income yet not know how to spend money wisely!
In America, it’s easy to live beyond your means and rack up debt, too. Case in point, US consumers borrowed $15.6 trillion in 2021 – a new record! In addition to that, over a third of workers who earn $250k or more per year still live paycheck to paycheck!
As spending levels and inflation soar, people’s burn rates grow larger, too. Now it takes a larger percentage of their income to pay bills and stay afloat. Because of this, they don’t just need their jobs, they’re handcuffed to them. If they wanted to break free, they couldn’t since they don’t have savings and would likely sink!
People who struggle with debt and live paycheck to paycheck also experience a great deal of stress. They live in a constant state of worry about how they’re going to pay bills on time and make ends meet. Not only is this detrimental to their health, but it significantly impacts their ability to enjoy life, too!
Luckily, most people can avoid this situation altogether by learning how to spend money wisely. In doing so, you’ll spend less which in turn allows you to save more. As your savings mount, building a solid financial foundation will help keep your worries at bay which allows you to experience more joy!
What Does Spending Money Wisely Mean?
Too often, people lack financial awareness. They’re used to spending money habitually, without thinking their purchases through. Soon after, they may experience buyer’s remorse which makes them feel like they’re wasting money!
Spending money wisely means that you are aware of your purchases. You realize that some types of expenses are more meaningful to you than others. Once you begin focusing on the ones that matter, you can reduce and eliminate the ones that don’t!
Learning how to spend money wisely, also allows you to become more fiscally responsible. Rather than spending at will, it’s with purpose and within reason. Because of this, you’re not just able to save, you can build an emergency fund, pay off debt, and eventually become financially free!
Why You Should Spend Money Wisely
- Makes you happier
- Improves your savings ratio
- Builds financial discipline
- Helps you control spending
- Supports your financial goals
For many people, learning how to spend money wisely is life-changing. Rather than spending aimlessly, it helps them target the things that matter. When this shift occurs it doesn’t just boost their financial well-being, but it improves their quality of life, too!
Here are 5 easy ways you can spend money wisely and experience more joy!
#1: Build a Budget
One of the most common reasons that people end up in debt is that they don’t realize the amount of money they earn. Therefore, they have no idea how much they have available to spend!
However, building a budget helps you to understand the limitations of your income. It shows the sources and types of income that you receive which allows you to plan how it gets spent.
To spend money wisely, you should prioritize the expenses that matter to you. One way to figure this out is to write down all your budget categories. Next, go through the list and rank each one in order of importance. Then, sort your list from the most to least important.
The expenses at the top of the list provide you with the most value and likely add joy to your life. If you were to reduce spending on them, you’d begin to feel deprived. Not only that, but it would be harder for you to stay on budget, too!
The items at the bottom of the list provide you with the least value. By cutting or eliminating them, you won’t feel as deprived. Instead, you may not feel like anything is missing at all. As a result, your monthly expenses fall and it becomes so much easier to save!
#2: Track Your Spending
Despite your best efforts to follow a budget and spend money wisely, you still may struggle. From time to time, you may go over budget in one category which forces you to steal from another!
However, tracking and reviewing your spending can help you keep your expenses in check. In doing so, you’re able to see how much has been spent throughout the month. This way, as you look your expenses over, you can reduce your spending while there’s still time!
Most often, budgeting is done by the month. But for many people, doing it by the week is more helpful. It allows them to plan for where they need and want to spend money as well as spread it out more evenly. Not only does this prevent them from running out of money, but it’s easier to save it, too!
One simple way to track your spending is by signing up for Personal Capital. In minutes, you can connect your account and review your spending history. Using this data, you can determine where you need to be more frugal with money as well as the places where you have room left to splurge!
#3: Don’t Get Fooled
Have you ever gone to the grocery store for a single item and walked out with a bag full, instead? While shopping on an empty stomach can play a role, more than likely you’re getting fooled!
When you shop, both internal and external factors impact the way you spend money. If you’re feeling down, you may partake in retail therapy just to make yourself feel better. But most often when you buy emotionally, you don’t spend money wisely. You’re more likely to make financial mistakes, instead!
Besides your emotions, external factors like retailers marketing gimmicks also impact your spending. For example, they use giant displays to grab your attention and place consumer staples at the back of their store. This forces you to walk through the entire facility while they hope that you’re tempted by their impulse goods along the way!
To stop falling for retailers’ tricks, start shopping with a list. It will provide you with a rundown of the items you need which can prevent you from buying the ones you want on a whim!
#4: Consider ALL the Costs
Despite people’s best intentions to spend money wisely, they usually go overboard on big ticket items, like a car or home. Most often, they only consider the monthly payments. Yet, fail to account for maintenance, repairs, and other recurring costs that are sure to come. As these hidden costs surface, they’re in for a rude awakening, if not a personal financial crisis!
When it comes to buying a home, it’s important to realize that you’ll pay for more than just your mortgage payment. You’ll incur maintenance and repair costs, too. For example, someday your AC will go out, the refrigerator will stop cooling, and the roof will start leaking. These aren’t probable expenses either. At some point, they are going to happen!
Oftentimes, large bills cause a lot of stress. They can cause you to make rash decisions without thinking them through, too!
Rather than worrying about these inevitable events in the heat of the moment, start preparing for them now. Add reserve funds to your budget so that you can get ready for these expenses ahead of time. Otherwise, you’ll likely struggle to come up with a large amount of money all at once!
Also, it’s important to realize that failing to consider all the costs means that you’ll go over budget. Not only that, but you’ll have less money to spend on the categories that bring you joy, too!
When it comes to making a large purchase, move slowly and take your time. This allows you to do research, weigh your options, and account for the total cost. This way, you’ll see how it fits into your budget upfront, rather than being in for a gigantic surprise!
#5: Treat Yourself on Occasion
At the beginning of the wealth-building journey, some money personalities will create a budget that’s too tight. In their excitement to be free, they set unrealistic goals which force them to cut their expenses too low. Over time, their plan backfires as they go on a spending spree from not budgeting enough fun money!
Even though it may seem counterintuitive, it’s easier to achieve your goals when you treat yourself on occasion. For instance, you could give yourself a small treat when you achieve a short-term goal or key milestone. Not only does this give you something to look forward to, but it can provide motivation, too!
For example, imagine that you struggle to reach your savings goal each month. Despite having a plan, you might not have sufficient motivation. But, if you had a small treat, like a nice dinner or night out with friends, then you might have the inspiration to carry your plan through!
Too often, people treat themselves every time they want something. Rather than delaying gratification, they want it instantly. At first, this may not seem like a big deal, but delaying gratification can give you an extra incentive to keep pushing forward when times are tough. Not to mention, it almost always feels better to receive something you’ve earned, rather than given yourself for no reason at all!
Final Thoughts on How to Spend Money Wisely
Unfortunately, many people have yet to discover the best use of their money. Rather than spending money wisely, they waste it. Not only does this prevent them from getting ahead, but it also keeps them from experiencing greater joy.
However, when you learn how to spend money wisely, you’ll trim the areas that are of little importance. As a result, you’ll have a larger amount of money for the things that matter and that’s what will bring you more joy!
How do you spend money wisely? Comment below.
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