“He who buys what he does not need steals from himself.” – Swedish Proverb
We all seek financial freedom, but our brains are wired to spend. We feel the “call of the mall” and enjoy the sweet rush of endorphins as we plunk down hard earned cash to take possession of our retail temptations.
Unfortunately, once the “shopper’s high” wears off we’re left with the unnerving feeling that comes with mounting bills, bloated credit card balances, and blown budgets. But it doesn’t have to be this way. Here are some of the ways you can force yourself to make better spending decisions.
1. When contemplating a purchase, ask yourself, “Is this the best use of the resources that God has given me?”
God expects us to be wise in the use of our money. Would God approve of the way you handle your finances? Would he approve of you spending money on expensive “toys” when your rent hasn’t been paid, when you still have credit card debt or when you haven’t put a single dime into your retirement account?
2. Remind yourself of your long term goals
Our short term splurges frequently sabotage our long term financial objectives. Create a system that constantly reminds you of your larger financial picture. Take a picture of a major financial goal – a picture of the new home you’re dreaming of, for instance – and turn it into the home screen on your cell phone. In this way, you’ll be constantly reminded of your long term goal and less likely to become a victim of retail seduction.
3. Distinguish between your “wants” and your “needs”
As adults, we often convince ourselves that our “wants” are really “needs”. We need that new car to project a professional image at work. We need that vacation as a reward for all the hard work we’ve put in. No one should live like a miser, but make sure your “needs” and financial security are taken care of first before indulging your “wants”.
4. Shop your closet
The mall is a great place to find that special outfit, but most of us already have more than we need right at home. You’d be surprised at the number of new looks you can create simply by shopping your closet.
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5. Return a purchase if necessary
Yes, we’ve all made that one purchase we’ve regretted as soon as we’ve brought it home. But remember, you’re not stuck with it. Keep the price tags on everything you buy, at least for a few days. If buyer’s remorse sets in you can always return your purchase. Your pocketbook and budget will love you for it.
6. Check out the REAL price of your desired purchase
Think about it. You have to earn more than $50 in order to spend $50. That’s because taxes and payroll deductions take a significant bite out of your income. Between income taxes and payroll taxes the average US worker faces an effective 22.4 percent tax loss. This means that the $50 sweater is really going to cost you nearly $61 in wages. A good rule of thumb is to multiply the price tag of an item you’re considering by 1.22 to find out how much you really have to spend in wages to purchase the item. This may just put your intended purchase into a new perspective.
7. Determine how much of your life your purchase will require
The next time you find yourself salivating over a potential purchase, think about how many hours on the job you’ll have to work to pay for it. Look at your last income tax return. Divide your after tax income by the estimated number of hours you work per year. This should tell you roughly how much you earn per hour. Use this figure to determine how many hours of work anything you purchase requires. You might take pause, for instance, when you realize that new handbag will cost you 45 hours of work.
8. Establish a splurge fund
Sometimes it simply makes sense to calculate a splurge fund into your budget. Set aside a specific amount of money in an envelope as fun money. This will allow you to enjoy guilt free spending. When the splurge fund is dry, the spending stops, but your budget remains intact.
BMWK, what do you do to make better spending decisions?