We can’t always control every aspect of our finances. We can’t get a pay raise whenever we want, we can’t control the interest rates, and we certainly can’t win the lottery on demand. However, there are plenty of aspects of personal finance that each individual is in control of, including smart spending.
Smart spending refers to the allocation of financial resources to maximize value and achieve your financial goals. It involves making informed and thoughtful decisions about where, when, and how money is spent. Smart spending involves a conscious effort to prioritize needs over wants, seek value for money, and maintain a balanced and sustainable approach to personal or household finances. It isn’t just a case of cutting spending in all scenarios, as a lot of people falsely assume.
In this guide, we’re giving you some tips on how to be smart with your money, specifically in reference to how you are spending your money. This applies to some essential expenses, but mainly the day-to-day purchases we all make and may not even think about.
Understand the Essentials of Managing Money
The first step for many is to understand the difference between essential needs and discretionary wants. Prioritize spending on necessities such as housing, utilities, and groceries before allocating funds to non-essential items. This helps maintain financial stability and prevents unnecessary expenses when you get to the end of the month, which can even put you into debt.
Essentials include things like rent or a mortgage payment, loan repayments, your bills, and food.
Non-essential spending is on things like entertainment, meals out, and certain hobbies. Even if they are very important to you, they may not be essentials.
Some expenses blur the lines between what is essential and what is a discretionary expense that you’re choosing to part with. For instance, food can be classed as an essential, but expensive takeouts and luxury dining can’t be considered essential for anyone. Similarly, clothes are definitely an essential, but you don’t necessarily need designer clothes or a wardrobe that is ready to burst.
If you want a simple way to break things down, some people use the 50/30/20 rule, breaking down your household income into percentages based on things you need, things you want, and savings/debt repayments.
Can I Save Money on Essentials?
Your bills, rent, and insurances may well be classed as essentials, but it isn’t always essential that they cost you lots of money. For example, it is possible that you might find you are spending a lot on electricity each month. Smart spenders will be able to ake some changes to try and bring their expenditure down:
- Upgrade to energy-efficient appliances and light bulbs to reduce electricity consumption.
- Seal drafts and insulate your home to minimize heating and cooling costs.
- Turn off lights, electronics, and appliances when not in use.
- Consider a programmable thermostat to regulate heating and cooling efficiently.
This is just one example of making smart financial decisions when it comes to spending on essentials. You can’t avoid spending on electricity, but you can track your spending habits and try to bring the expenditure down.
Financially Smart Tips For Spending
Let’s get right into some of the tips on how to be smart with money on the road to financial freedom in the future, and what to do with money if you want to make the most of it.
Prioritize Debt
Unpaid debts are only going to get worse, and build up a lot more interest that you’ll have to pay back. Rather than spending money on non-essential items, be sure to prioritize the debt repayments. If you can, refinance high-interest loans to lower interest rates, or negotiate with creditors for lower interest rates or more favorable repayment terms.
One of the top debt management strategies and tips is to pay off the highest interest debts first, ensuring that you can make the most impact on your finances and avoid having to keep paying more and more interest or even late fees if you don’t pay on time.
One of the popular questions people ask is “what will make the biggest impact on your financial future?” and the answer is usually to pay off debts first and foremost, avoiding interest from spiralling.
If you need some help on how to manage debt, the tips below can help:
- Use a Debt Management Planner: Create an “inventory” of your debt using a debt management planner. Begin by listing all your debts, including credit cards, loans, and any outstanding balances. Include details such as interest rates, minimum payments, and total amounts owed. From here, you can work out how much you should be repaying monthly.
- Establish achievable repayment goals for each debt: Break down larger amounts into manageable monthly payments. Having specific, measurable goals provides a roadmap for debt reduction and keeps you motivated.
- Prioritize high-interest debts: Start paying off high-interest debts first! We’ve already covered this briefly, but it bares repeating!
Buy Cheap, Buy Twice (Usually)
My grandmother always used to say this, and I used to think it was a way to justify pricier expenses. However, there's a reason why “buy cheap, buy twice” is a saying.
The saying basically means that opting for low-quality or inexpensive products initially may lead to additional expenses in the long run. The idea is that cheaper items often lack durability or quality, requiring frequent replacements or repairs. While the initial cost might seem appealing, the need to buy the same item again due to wear and tear can end up costing more than investing in a higher-quality, albeit more expensive, product from the start.
Let’s say you need a new winter coat. You could go for a sale item from a cheap clothing manufacturer, but the chances are that this is not going to be financially smart in the long run. It is just going to break and need to be replaced. Spending less isn’t always the goal, and it isn’t always the best way to be smart with your money.
Track Your Spending Habits
Want to know how to get ahead financially? The key is in understanding. This is one of the top budgeting tips out there. What’s more, with modern budgeting apps, it has become easier than ever.
When you actually create a monthly expenses list or work out how much you are spending, you may be shocked. Weekly or daily expenses can certainly add up. An example we’ve already used in other guides (such as our guide on budget management) is coffee.
If you spend $5 on a coffee every day, it may not seem like much, but we’re talking $150 per month, and into the thousands each year. All for something you can make yourself at home. Sure, a lot of people love coffee. The question is whether it is a smart thing to do with your money, especially if things are tight.
Make Use of Discounts and Promotions
Not all of the tips on how to be good with money boil down to spending less. If you have decided you’re going to spend money on something, it is a good idea to shop around, not just for the best price but also for opportunities to save money through discounts, promotions, and loyalty programs. Whether it's using coupons, taking advantage of cashback rewards, or participating in loyalty programs, these strategies can add up to significant savings over time.
Don’t Totally Deprive Yourself
Not every book about spending habits and financial goals will say this, but it makes sense. In the same way that dieting can cause issues if you suddenly stop having any treats, you need to ensure you still spend money on some things you enjoy.
Many of us could save a lot of money and put more aside if we got rid of all the fun activities in our lives, but that does not provide the right balance we need. Good spending habits should complement your lifestyle choices, not deprive you of things you love.
Consider enrolling in a personal finance class to expand your knowledge and skills in managing your finances effectively. These financial classes near me will cover a wide range of topics, including budgeting, saving, investing, and retirement planning, providing you with valuable insights and practical tools to achieve your financial goals and secure your financial future.
Have a Long-Term Plan
Smart spending is aligned with long-term financial planning. It involves setting financial goals, such as saving for emergencies, retirement, a vacation, or major purchases, and making spending decisions that support these objectives over time. Often over a long time.
Long-term planning can also help you to keep your good spending habits, as you’ll have something you know you are working towards. It is easier to stay motivated to be good with money if you have a specific reason for doing so, not just because you have a notion of wanting more money in the bank. Work out your true financial priorities. Financial planning workbooks can potentially help you to make those plans more easily:
Work on Your Smart Spending Skills with Superprof
We all know people on different ends of the money-saving spectrum. Most of us have friends who are very frugal and sensible, and you may also have friends who spend their wages with reckless abandon and sometimes get in tight spots.
We all have to spend to get through life, but the way in which we spend can vary, and learning how to be smart with it can help you to afford a better future with more financial security. Smart spending is a skill to be learned and practiced.
If you are wanting to learn how to manage your finances better, Superprof tutors can help! Our expert tutors can assist you in building your financial skills, including having a more balanced outlook on spending and understanding the various ways to manage your expenses, financial online classes with a private tutor can be a great way to build a strategy for your financial life and enjoy financial success.
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