Tools to help you control spending habits
How Can I Control Spending?
by Gary Foreman
10 Ways to Prevent Non-Essential Spending
How to Break Bad Financial Habits
The Subtle Psychology of Credit Cards
This probably sounds stupid, but I just don't know where my money goes. I make a reasonable salary and I don't think that I do a lot of shopping (ok, I do buy too many shoes!). So where does the money go? I've tried keeping track of all my expenses for a month, but nothing seems wrong with what I'm doing? Can you help?
Good question! Sometimes it's really hard to understand our finances. First we collect a bunch of information and then we find that we don't know what to do with it.
Often a struggle like yours is not caused by the data itself but by our lack of understanding on an emotional level.
Any attempt to understand our spending patterns requires a bit of introspection. Part of that is understanding why we do what we do. One way to do that is to consider what motivates us to make each purchase.
This will require you to go through the expenses you tracked. Consider each purchase. Use the list below to see if any of these seem to ring true.
Protecting Our Image - We care what others think of us, and we make purchases so that others can see that we own those things. Designer clothes, expensive watches, and McMansions are good examples.
Spending Up to Your Income Level - You may find that you spend money just because you can. A raise or unexpected income could be the trigger. It's not about what you buy, but the fact that you always spend money as soon as it's available.
The Emotional High of Spending - Many of us get an emotional kick out of spending. We buy because "it feels right" and then question the purchase when we come down from our high.
The Need to Feel Powerful - Being able to make decisions and back them up demonstrates power. That can feel good, especially when others react and acknowledge our power. If you're buying to demonstrate your power, you'll tend to buy "high end" products and services, looking to get something better than the typical consumer.
The Need for Immediate Gratification - We live in a "now" world with instant internet, instant food, and instant credit. When we see something that promises to satisfy one of our needs, we want it now. When all purchases were made with cash, scratching this itch was harder. Credit cards have made it much easier to purchase instant gratification.
The Desire to Protect Our Standard of Living - Unless you're intentionally trying to simplify your life, you'll assume that any expenses incurred protecting that lifestyle are necessary, but changes in income, age and family status may suggest a different, more modest standard of living. Purchases made just "because I've always done that" are a telltale sign.
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The Need to Overcome Past Problems - If you've been materially deprived earlier in your life, it's natural to want to avoid repeating those times. You might get a candy bar every work break to make up for the ones you didn't have as a child. Or you might only buy new cars because your parents could only afford old beaters.
To Convince Yourself of Self-Worth - Some people need to spend money on themselves in an effort to bolster their self-esteem. Often these are items that are self-centered like manicures, fancy jewelry, and personal convenience or care items. One way to identify these purchases is that they're often justified by an "I deserved it" claim.
Reviewing your past monthly purchases you'll notice any patterns. The purchases may only be the symptom with the underlying psychology being the cause. Unless you deal with the root cause, it's unlikely that you'll ever control your spending.
Don't be afraid to confront those causes. Often, once you know they exist, it's easy to overcome them. In any case, it's a battle that's worth fighting.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
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