How to Make Good Spending Decisions
• Did you know that each one of us has a financial personality?
• Do you know what your financial personality is?
Our financial personalities are influenced by factors within our subconscious minds other than the price of items or how much money we have to spend. These factors drive our attitude towards spending money.
• What is your behaviour when it comes to money management?
I used to believe that I was great at making spending decisions, but I realised I still had a lot to learn. Identifying and learning these money rules have helped me greatly in my financial journey and I wish to share them so that they can help you too.
We spend money every day from the time we get out of bed in the morning to the time we go back to sleep at night, be it a sandwich at lunch, buying shoes for ourselves and our family members or shopping for groceries online. We do enjoy the shopping experience, but what impact does it have on us after that instant gratification?
When we buy products – particularly when we’re buying something expensive – several different sources of pressure may apply to the decisions we make.
Economic Pressures
• Do we have enough money to buy the item we want?
• What is the item’s worth?
• Do we need to borrow money or
• can we pay for the whole item upfront?
Social Pressures
We also have the social pressures and these social pressures seem to influence us more. Most people’s social status is based on the level of authority or prestige that they hold in the eyes of other people. So, status for them is based on:
• their job or
• their come level, but for the most part,
• It is based on their consumption habits (the goods and services they buy). It is spending money to impress others or to deal with insecurities by spending money on things to make them feel good about ourselves especially in situations where the product is used publicly such as a car, clothes/ shoes or a mobile phone.
Marketing Pressures
Finally, we are influenced by the sweet marketing messages of retailers for certain products which make us believe we need them but in fact, we really don’t.
How To Make Good Spending Decisions
Since we have now identified the different pressures that can consciously or subconsciously influence our spending decisions, we could now be more deliberate in spending by making good spending decisions for ourselves, so that we can protect our hard-earned cash in the process.
The spending decisions we make at any point in time should depend on how much money we have available. A lot of people tend to believe that when you have more money you can spend without much thought. The world has changed so much in the past few months, so that it calls for even more thought on our spending.
Here are the tips to help you think about your spending decisions more carefully before you part with your hard-earned cash
These fall in two categories:
1) You are tight on money and don’t have much money to spend
If you fall in this category, then there are 3 questions you should always ask yourself before you buy anything:
a) Do I need it – Why do I need it?
If you cannot identify why you need it, then you should not be buying it. Note that there is a huge difference here between needing something and wanting something.
b) Can I afford it?
Now, you may need something, but still cannot afford it. If you need it but cannot afford it, you still should think carefully about whether you should buy it.
c) Have I checked whether I can buy it cheaper elsewhere?
You should always check whether this item is available elsewhere at a cheaper price before you buy it.
The general rule of thumb is that, if any of the answers to these questions is No, then do not buy the item.
2) You are not tight on money and have leverage for spending
If you fall in this category, you have a set of 3 questions to ask yourself before you buy anything:
a) Will I use it, why will I use it?
You might not need something, you may just want it, but will you actually use it? There are people who buy stuff they think they want, but then, they never use it. They store them up and have this pile of stuff they have never used, year in and year out. Note that shops are very good at contributing to that purchasing moment. They play on our minds and make us believe we want something. I want it, I will use it. I could use this to do a thousand things, until it ends up sitting there in your house for years untouched. I can definitely tell you, hands up, I am guilty of that.
b) Is it worth it?
This is a really important point and one we never think about. We all studied opportunity cost in school but no body explained its practical everyday use to us. When I got this point clearly, I screamed out and could clearly understand why it is such an important aspect of our money spending decisions. For example, you are in a shop and you see a pair of boots, price £250 and the first thing you think of is how great you are going to look in those boots, at least, that is how I thought before and that’s how I made my spending decisions at that point. How could I ever think of opportunity costs, huh, interesting concept but very important in our money spending decision making. Here is the deal. How many times are you going to wear those boots? 2 times, 3 times? For the 2 times you are going to wear them, you have to think about it as £150 per wear. Is that worth it? That is the real choice you are making.
c) Have I checked whether it’s available at a cheaper price elsewhere?
If you are making an important purchase, do some research from the onset, to ensure that what you are buying is the right thing for you and that it actually meets your needs. Most of us buy products, we have no clue what the details are, we don’t know what we are buying. Do they really meet our needs? We recently bought a printer for £240. This may sound expensive for a home printer. But here is our analysis and how we made that decision. Due to the pandemic and home schooling, we were going to be doing a lot of printing. In the past, without much thought, we would have bought a £30 printer, without giving much thought to the running costs, only to find out later that the cost of buying ink will cost a fortune within a few months (£50 to £70 each time). But with some careful research, we bought a £240 printer, coloured ink costs £10 which will last for over 2 years even with much printing. Which is better?
We use instincts, brand names, costs, appearances etc to drive our buying decisions and we leave the crucial – real need aside.
• Do your reading,
• get it right and
• then search around for the best price.
Learning some techniques and tools that are available to bring prices down is one skill I learned in my quest to improve my financial decision making. Here are some of them:
• Online shopping – put an item in an online shopping basket for 5 days or more without purchasing it, and the retailer may send you a voucher afterwards to reduce the price to encourage you to buy.
• Checking many different shops that sell the same product using an online shopping comparison website, for example, buying insurance.
• Finding out if there are any discount codes or vouchers available for that product.
Let’s make 2021 a good year to improve our financial decision making so that more of our earned cash stays in our pockets.
Here’s to a better spending year and this will be a good time to share our 30 Empowering Money Quotes That Will Inspire and Motivate You
If you haven’t already done so, grab our free financial success pack below and take control of your financial future.
