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The difference between those who live comfortably from a money perspective and those struggling to make ends meet comes down to more than how much money they make. It’s mostly about understanding what you earn, what you spend, and why you spend. In this article, I will share the top 10 pieces of advice to help you learn how to wisely spend money.
Unless you live on a fully owned land, don’t use any modern amenities, produce all of your food, and make your own medicine, clothing, and every necessity, you need money to function.
Although it is true that the more money you make, the more you can acquire, everyone needs to be thoughtful and deliberate in their choices. I won’t go into the details of how to create a budget in this article, however, this should be the very first step in your journey to financial freedom.
10 best tips – how to wisely spend money
1) Refrain from impulse buying
Every one of us has at least once, purchased something we later regretted. It’s important to consider why you want or need something before buying it. This is even more crucial for expensive items.
However, it’s only if you practice this regularly, for even the smallest kind of purchase that you will gain true control over this habit. Remind yourself that you can get the item eventually even if you don’t buy it today.
A good rule of thumb is to take at least 24 hours to reflect and assess your choice before making a final decision.
2) Focus on growing your savings accounts
This is quite possibly the most important tip in this entire article.
When you create your budget, you will learn how there is a hierarchy of expenses:
- Most important are your living essentials: lodging, food, basic clothing items, health insurance, and house amenities such as electricity and water.
- Next is your savings accounts: retirement, emergency fund, and additional saving (vacation or large purchases like a home or car).
- Finally, your leftover money can go to extra spending: eating out, extra clothing, or any wants that are not essentials.
It is crucial to establish a strong financial foundation to protect your future. If you choose to purchase the newest electronic gadget each year but have yet to start an emergency fund, you should reflect on the risks associated with your choices.
Pro tip: Not all saving accounts are equal. Shop around to get the best interest rate. Also, consider investing money rather than keeping it in a savings account if you have enough easily available money.
3) Adopt more frugal habits
It is tempting to fall for habits that tend to make your life easier. After all, if I drive by a coffee shop in the morning, I might be more inclined to buy a coffee each morning.
However, this habit at the end of the year can add up to a substantial amount of money.
Here is a list of habits to consider changing:
- Eating out vs eating in
- Limiting your subscriptions (Netflix, Max, Hulu, Disney+, etc.)
- Name brand vs store brand
- Thrifting (for clothing, home decor, and furniture) vs new
- Walking vs driving or using public transportation if possible
- Working out at home vs gym membership
- Meal plan and create a grocery list vs randomly buying food items
4) Compare prices
This is something that I learned to practice from my husband. Obviously, the larger the expense, the more important this is.
I try to follow this advice even for everyday necessities. The grocery store has a wide range of prices for many common food items.
The prices of clothes can drastically vary. If I purchase new clothing, I always try to buy it during sales. Stores and brands have sales multiple times of the year. It is often tied to a holiday.
Pro tip: Create a wish list/need list from your favorite stores and sign up for their emails or text notification. The next time they have a sale, you can purchase the item you need at a reduced price. This brings us back to tip 1, delayed gratification.
5) Organize your bills
With all of the technologies available to us, there is no reason to have missed or late payments.
If you are using online banking, the easiest method is to schedule your bills. This is very easy to do, especially for bills where the payment doesn’t vary from month to month such as your car or housing payment.
As an alternative option, you can set up reminders on your calendar as a habit to never miss another bill. Paying interest on a bill that is late is such a waste of money, literally.
6) Use credit, with caution
Credit can be a risky trap for a few groups of people. Those who cannot control their impulse and those who cannot manage their budget.
The average interest rate at the time this article is written is 20%. If you don’t pay your $100 bill on time, that hundred dollars expense suddenly was $120!
Do not fall into this dangerous pattern.
On the flip side, there are benefits to using credit if you can manage your credit card usage in a responsible way. Most credit cards offer cash back or points to be used for other expenses. This is a great way to make a passive income.
7) Set up an automatic transfer to savings
The best way to stick to your savings goal is to make it more difficult not to.
If you set up a $20 automatic transfer on your payday from your checking account to your saving account, you are much more likely to save.
This is also true for retirement or college accounts. Make these transfers automatic and create your spending budget without this money.
8) Stop trying to keep up with others
You need to learn to say no and make decisions that are supportive of your life goals.
Maybe it’s okay for your friends to spend $200 on dinner every Friday but it may not work for you.
This doesn’t mean you can no longer have fun with your friends. Just try to create different habits that are better for you. For example, every other week you can invite them to have pizza at your home instead of meeting them out to eat.
9) Don’t raise your lifestyle at the same rate as your earnings
It is quite possible that your income will raise over the years. Resist the urge to simply spend the additional income.
When we first start our adult lives, very little goes into our servings even if we manage our expenses well. We often have debts to take care of along with the living necessities.
It is tempting to elevate our lifestyle as we start to earn more money. This is a mistake. You should first increase your saving and investments before raising your discretionary spending budget.
It might be difficult to create this discipline for yourself, but if you do, it will make a huge difference in your financial situation.
Pro tip: Set up automatic annual rules. My retirement accounts allow for increasing my investment automatically on an annual basis. This is great. I don’t even notice that every year, I put 1% more in my retirement account. You can do that with college savings or emergency funds as well.
10) Save it before you spend it
Always save the money before you spend it on larger non-essential expenses.
For example, please don’t go on a vacation and try to figure out how to pay for it after the fact. Don’t buy expensive shoes before you have the money in your account. And stop upgrading your phone to the newest technology while barely being able to afford your grocery bill.
This isn’t easy to do, for all of us. We live in an instant gratification world, Technology has made everything so much easier. We download our favorite song or movie at the click of a button in seconds.
However, spending the money before you have it is one of the fastest ways for your finances to get out of control.
In conclusion
The key to spending money in a responsible manner is to be aware of your spending habits and ensure they are aligned with your budget and life goals. With smart money management, you will be able to enjoy life while creating a stable and safe future for you and your family.
I really hope you will consider these tips about how to wisely save money. They truly are game-changing and can support you in your journey to financial freedom.
Thanks for reading.
Cat xx