We’ve tackled giving generously, getting rich slowly through saving and actively investing. The fourth point in my personal financial philosophy is spending sincerely. While having money and making it work for us through giving, saving and investing are all good, the second biggest way in which people get in trouble financially is spending, the first being debt. In this post we will explore how to wisely spend your money.
Budgeting Methods that Work to Wisely Spend Your Money
Every financial coach has some method for having a place for every dollar and putting every dollar in its place. There’s the money envelope system, personal financial management apps or the old fashioned way of freezing your credit card. I absolutely believe in budgeting and believe that you should seek to find a system that works for you. But, like any behavioral change activity, the determinant factor of success is you. You have to be willing to adapt and adhere to a budget.
With our human nature and our inherent desire to resit change, there are few budgeting methods that work. My wife and I have learned that for us, an app that shows us our spending against our budget with red, yellow and green indicators is most effective. That said, the budgeting method that seems to work best for us is knowing the traps of not spending sincerely.
Spending Sincerely and the Consequence of Undisciplined Expenditures
It’s time for an activity. Answer these questions:
- When was the last time you bought coffee out? How much did that coffee cost?
- How often do you pack your lunch?
- When you go out to dinner, what beverage do you typically order?
- Do you typically order an appetizer when you go out to eat?
- When was the last time you used all of your data on your cell phone plan or truly needed an upgraded phone?
- How often do you watch every channel on your cable TV plan?
Maybe you have picked up on a theme. There are little expenses that start to add up over time. Just as portfolios creep up overtime with increasing investments, your expenditures can also. While budgeting is important, spending sincerely is critical. The consequences of undisciplined expenditures could be astronomical in the pursuit of financial independence.
Consequence of Undisciplined Expenses in Your Daily Life
Let’s go back to our trivia questions above. What do you think those things are actually costing you? Well, let’s take a look:
- True Cost of Coffee: The average cost of a cup of a medium black coffee in the USA is $2.70. The average person will buy 3 cups out a week.
- True Cost of Lunch: Maybe you’re not a coffee drinker, but surely you eat lunch. The average American eats lunch out 4 times a week at a price point (after tax and tip) of $8.75.
- True Cost of Dinner Drinks: Maybe you don’t drink coffee and pack a lunch. What’s your dinner costing? Not just the food for a night out, the drinks. The average soft drink cost at a restaurant is $1.72 and the average American goes out about 6 times a weeks.
- $536 every year
- Now calculating in adult beverage average of $5
- Additional $1,560 every year
- True Cost of Appetizers: Let’s say half the time you go out each week, you get an appetizer with an average of $8.50.
- Extra Costs of Cell Phone: Renting your cell phone to always have an upgrade plus not using your data fully costs the average person an additional $46 a month.
- Total Cost of Cable TV: While you may get a “discount” on cable for having phone and internet, Cable TV may be costing you more. The average American spend $64.41 on cable TV every month. Switch to Hulu, Netflix and a free antenna for local channels (and sports).
- Savings of up to $772.92 each year. Don’t get me started on that extra landline you never use.
Practical Application to Wisely Spend Your Money
While budgeting is importantly, understanding how to spend sincerely is arguably more important. Assuming you are the average American you would tally the above numbers up and realize that there are almost $7,000 that are going down the toilet each year because of missed opportunities to wisely spend your money. What are you spending money on in your life where you could save?
In summation, take the next 30 days to focus on just one area where you could be spending more sincerely. If you love coffee, try making coffee at home. When you are tempted to eat out, go to the grocery store and pick up sandwich supplies. Call you cable and cell phone companies and make sure you’re on the best plan (you can always negotiate).
Spending sincerely and knowing where every dollar goes is one of the biggest budgeting tactics one can use. While the envelope system and apps are great, understanding the long-term impact of your spending habits will be the quickest way to change your behavior to spend more sincerely.