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Are You Spending Your Money Properly?

No matter how abundant or scarce your money is, spending it wisely shall be your top priority. It not only enables you to get the most out of your dollar but it also allows you to make life-changing decisions.

Determining the reasons behind your spending is the first step to knowing whether your money is allocated properly or not. Are you spending your money on the latest gadget by Samsung because you need it or because you want it?

There is usually a conflict in differentiating between needs and wants. Perhaps, the confusion is due to our subjective definitions of the two terms. Let us take Cheng Ling as an example.

Cheng Ling values the perceptions of others toward her and her daughter. Since her daughter is starting a new school year, she bought her two new pairs of shoes.

She argues that she does not want her daughter to feel embarrassed by wearing the same shoe she wore last school year. Although the last year’s pair is still in mint condition, she bought another pair of shoes to prevent repetitions.

Do you think Cheng Ling’s purchases are necessary in this scenario? Or, was it a matter of personal desire?

Examine your purchases in this manner along with these helpful queries:

“Will this purchase make my life easier and more efficient?”
“Will this purchase provide a lasting pleasure?”
“Will this purchase be meaningful to my life?”
“Is this something I will use regularly?”
“Is this something I can afford?”
“Is the potential gains from this item realistic?”

Carefully assess all these questions and the interplaying factors that can influence your decisions. If your response to all these questions is “YES” then, by all means, make the purchase!

Aside from distinguishing between your needs and wants, you must sort out your “essentials” first. When I say essentials, I pertain to the fixed expenses that you encounter every month. This includes your groceries, utility bills, and school fees. Plan your spending before you receive your paycheck.

Some people spend their hard-earned money like most lottery winners. They get a huge pile of cash now and spend it all in a snap! Remember that wealth is accumulated over time and not something that you can earn overnight.

Image Credits: pixabay.com

At the end the day, it all boils down to the decisions you make!

How Money Can Ultimately Buy Happiness

In the previous posts I wrote entitled “Important Things You Must Know About Money And Happiness” and “10 Wonderful Treasures That Money Cannot Buy“, I highlighted that happiness along with other important values does not come with price-tags. This is supported by the 2012 report by Gallup.

According to the report, Singapore is still the unhappiest nation despite the fact that Singapore enjoys one of the highest per capita GDP values in the world. Surprisingly, it ranked as less happier than the populations of Iraq, Haiti, and Afghanistan.

Money cannot purchase happiness in all circumstances. Unless…you spend your wealth in the “proper” way!

Recent studies showed that there are some efficient ways that money can result to happiness. Here are some of them:

1. WHEN MONEY IS SPENT ON EXPERIENCES

A study by Cornell University researchers found that spending money on experiences instead of material possessions, improved the well-being of the person. Your feelings toward your materialistic purchases are subjected to buyer’s remorse as well as comparisons to others. Almost anyone can buy a new bag but, not everyone can experience the thrill of scuba diving!

To stimulate happiness, focus more on experiences that are unique to you. Only if these expenses are within your allotted budget – of course!

2. WHEN MONEY IS SPENT BASED ON THE SELF

Upon analyzing over 76,000 transactions of 625 participants, a recent study showed that matching personality to spending habits was more crucial than one’s total income and total spending. The personality categories in the study were divided into 5, namely: Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism. This is based on the Big Five Personality Traits.

For example, Singaporeans who are high on “Openness” enjoy trying new things. These people can experience increased levels of happiness if they spent their money on a beauty or hair makeover.

Know your personality and spend money in accordance with your Psychological needs by completing a simple test here.

3. WHEN MONEY IS SPENT ON THE LITTLE THINGS

In the 2010 issue of Journal of Consumer Psychology, Jing Yang Zhong and Vincent-Wayne Mitchell surveyed the spending habits of 5,000 households. They found that the best way to increase one’s happiness was to make a series of smaller purchases. For instance, the people who spent their money on a series of concerts by lesser known artists were happier than those people who spent the same amount of money in one concert by an immensely famous band. Do you agree?

Well, it goes to show that the things that we think will make us happy often do not.

Image Credits: pixabay.com

Dr. Elizabeth Dunn even believes that “we may be better off devoting our finite financial resources to purchasing frequent doses of lovely things, rather than infrequent doses of lovelier things.” Simply, satisfying our simple pleasures frequently can elicit happiness in the long run.

The Do’s And Don’ts Of Spending Money In Your 20s

For most people, 20s was the decade that defined who they became for the rest of their lives. It is the era of endless exploration and distinctive decision-making. Not to mention, it is the time that you establish your spending habits.

If you are in your 20s right now…take the time to invest in yourself, to learn about personal finance, and to get on the right track. Start by observing the healthy financial habits and diminishing the unhealthy financial habits.

THE DO’S

1. DO THIS FIRST OF ALL

The first step you must take is to establish a realistic and beneficial budget. Instead of perceiving it as something that limits your spending, perceive it as a tool that encourages you to live within your means.

Begin by listing down your expenses (i.e., fixed and variable), your income, and debts. Your cash flow for the previous weeks will help you setup your budget. Do not panic if you still have to pay your student loan because your budget will help you plan your income allocation.

2. DO EDUCATE YOURSELF

Read and understand materials about self-empowerment, investment, and money management. Here are four books to get you started with:

“The War of Art” by Steven Pressfield
“Why Stocks Go Up and Down” by William Pike
“The Intelligent Investor” by Benjamin Graham
“Turning Pro” by Steven Pressfield

3. DO PRACTICE COOKING

With the pervasive technology, it is possible to learn just about anything! If you want to save money on eating out (especially if you are living on your own), it is best to learn how to cook. Convince your 20-something self that it is about time to practice cooking simple meals such as Omelet, Carbonara, and Chicken Rice. Remember that aside from rent, your food expenses make the largest impact on your budget.

Image Credits: crateandbarrel.com

THE DON’TS

1. DO NOT SPEND TOO MUCH ON CIGARETTES

As you know, Singapore is one of the cities that sell expensive cigarettes. And if you are caught smoking one in a restricted place, you are bound to pay a hefty price of S$200-1,000. Aside from its high cost, you are at risk of paying costly health care fees (e.g.,due to lung cancer). So think twice before you light one!

2. DO NOT BOOST YOUR CREDIT CARD DEBT

Aside from splurging your money, another unhealthy habit that you have to stop is not paying off your credit card. The bad credit decisions you made in your 20s can haunt you in the future. For example, it can affect whether or not you are able to get a loan to buy a car.

3. DO NOT SPLURGE FOR “EXPERIENCES” ALONE

Millennials have shifted their spending patterns to experiences rather than material goods. However, if you solely spend your hard-earned cash to pay for your travel without the consideration of your savings, everything can go down hill. Saving money is important not only because emergencies happen but also because retirement is inevitable.

Image Credits: pixabay.com (CC0 Public Domain)

Sources: 1 & 2

Practice One Virtue That Can Definitely Increase Your Savings

As the Japanese Proverb once scribed: “Money grows on the tree of patience.”

Yes! One virtue, practiced religiously, that can definitely increase your savings and even increase the odds of success is none other than: Patience. Why is that so?

1. PATIENCE BOOSTS YOUR DISCIPLINE

Applying patience to overcome instant gratification is important in financial success. If you are an impulsive over-spender, establish a waiting day rule of at least 30 days on any purchases. The new items you have been eyeing on will go on the waiting list. This will not only help you to develop patience but also to help you filter out which ones you need and which ones you don’t.

2. PATIENCE HELPS YOU RESIST THE TEMPTATION

If the temptation of spending is overwhelming, try discussing financial matters to your bank. You may ask them to make automated payments or to put restrictions into your savings account and credit card. Once the convenience of spending is out of sight, it will be out of mind.

3. PATIENCE ALLOWS YOU TO LOOK FOR OTHER OPTIONS

Sadly, in a world that hates delayed gratification, impatience costs people cold hard cash. If you are willing to wait instead of purchasing immediately, you are able to compare prices within other shops and to find cheaper options while you are it. Patience gives you the opportunity to wait for the greatest sales, huge markdowns, and bargain deals that will help you save a lot!

Image Credits: pixabay.com (License: CC0 Public Domain)

4. PATIENCE ALLOWS YOUR MONEY TO GROW

The longer you keep your money, the more you will make of it. Elevation in your wealth each year is possible because of compounding. Compounding is the addition of interest to the principal of a deposit. Read more about the compounding power, here.

5. PATIENCE SHARPENS YOUR CONSCIOUS SPENDING

Patience sharpens and shapes your conscious spending by letting you realize the worth of each item. Ask yourself in the present time: “At my age, what matters to me the most?“

If you are willing to wait for a purchase then, you consider that item as important. And if it is that important…surely…it is worth the wait.

Image Credits: pixabay.com (License: CC0 Public Domain)

Sources: 1 & 2

Psychology of Spenders And Savers

There are two types of people in the world: those who spend and those who save.

SPENDERS

Compulsive spenders do not want to delay gratification. If they want something, they will purchase it right away…as long as they are happy. It worked so well in the past, so they stick to the same habit. But, when expenses and debts extremely increase then, it is the time they realize that they need to kick that habit away.

Here are 3 ways to prevent your impulses and to help you save:

1. IDENTIFY YOUR FINANCIAL GOALS

How much do you need when you retire or how much do you need to pay for your child’s education? Ask yourself these questions to identify your financial goals. Then, be vocal about it to your friends and family.

2. NEED VS WANT

Before purchasing anything, evaluate and know whether you need or want the item. Then, purchase according to your budget.

3. STAY AWAY FROM THE PLASTIC CARDS

By using mainly cash and withdrawing it from your bank account, then you became more aware of your spending and your account balance.

SAVERS

For financially aware individuals, the act of spending can activate neural activity in the anterior insula and amygdala. These two parts are responsible for the mood and unpleasantness felt. This is why the more these two are activated; the less likely a financially aware individual will spend. On the other hand, the act of saving will bring immense pleasure to them.

While many people take pleasure in purchasing things, some savvy savers do not feel the same. Instead some of these people are uncomfortable when shopping, they constantly look for the price tag and calculate the total, and they feel emotionally painful when they are paying. If you are not experiencing enough pleasure in life, you deserve to loosen up and enjoy spending every once in a while.

So, what brings the pleasure back as a savvy saver that is spending?

1. STAY AWAY FROM THE PLASTIC CARDS

Give yourself the vacation or rest day you deserve by budgeting a portion of your money to a category called “personal incentives”. With that money, you would not need to use your credit or debit card since you have already set aside the cash to cover it. Now all you can do is relax and take your mind off the expenses.

2. PURCHASES=REWARDS

At the end of the month and once you meet your savings goal, reward yourself with the pampering you deserve for working hard and doing so well. To prevent frugal fatigue, reward yourself by using a responsible amount of 4% – 8% of your savings.

3. THINK OF THE FUTURE

Study has shown that people are happier when they spend their money on experiences (e.g., sky diving) than in goods (e.g., Gucci bag). So, do the same with your personal incentives. Do you really want to regret experiences you did not take because you don’t want to spend money on enjoyment?

Image Credits: Tax Credits via Flickr

Even though you belong in one category now…you can still change! Whether you are a saver or spender, you hold your financial present and future.

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