As the cost of living continues to rise, responsible spending has become a necessary money skill to survive and thrive in this economy.
Key takeaways
- The key to maintaining financial freedom is to have responsible spending habits.
- Review your budget, track your spending, and cut back on whatever isn’t necessary. Also, invest and save all the extra money.
- You cannot maintain a financial high if you don’t save and invest.
- Avoid impulse purchases and live below your means.
Sadly, study show
- 75% of Americans live from paycheck to paycheck
- About 25% of people are born with a particular gene that causes their brain to have a better grasp on using self-control when deciding whether to spend or not
- Most kids with lousy spending habits got their poor habits from parents with bad financial history
- Nearly 73% of Americans die in debt
Responsible spending involves being rational and sensible about making payments and purchases. It’s about learning to make wise spending decisions.
Without this skill, you may never become financially independent. On the other hand, mastering this skill will help you attain financial freedom regardless of the economic situation in the country.
The Good Times
You’re facing some good times financially, and it doesn’t hurt to blow through cash every time.
You may have a trust fund covering your living expenses. Or you earn a salary that covers all your needs.
In times like this, the economy is strong. Money is cheap, you have job security, your investments are going up, and you can comfortably afford the things you want. It’s okay to let lose a little bit.
However, to ensure that you’re not being wasteful, the first thing you should do is to make a list of the things that you need. Then make a separate list of the things that you want.
One easy way to know what isn’t a need or a necessity is by finding out if you already own something like that or something similar to the item. That way, if you’re about to buy something already in your house, you know that that’s not necessary.
Another tip to help you spend responsibly is to pay for purchases with cash. Because of mobile payments and online shopping, it’s straightforward to spend money. The use of cash will help you spend smartly.
Sometimes, intentionally leave your credit cards at home. Take enough cash for necessities like food and transportation. This helps you limit your spending to only the amount you have. You can make a budget and only have enough cash to last a month.
Another advantage of using cash is that the more you hand over the physical money, the easier it is to think about what you’re spending it on.
Leaving the house to buy something will make you consider if you need that item.
Of course, you will have to reduce the instances you buy from online marketplaces. You may have to disable virtual marketing apps on your phone.
You may also increase the time gap between wanting something and getting it. Wait it out. Stop and think about it.
You could add items to your wish list instead of purchasing them immediately. Then walk away and return after a month. If you still feel the need to get it, do so.
But if you don’t remember why you wanted that item in the first place, you can be glad that you have saved yourself from making a needless purchase.
Allocate a portion of your income to cover your living expenses. Then save and invest the rest.
You cannot maintain a financial high if you don’t save and invest.
The Bad Times
Tighten the ship when the economy is weak.
If you live paycheck to paycheck, you need a responsible spending habit.
Review your budget, track your spending, and cut back on whatever isn’t necessary.
When you’re going through a low in your finances, how you spend and manage your cash flow is more important than your investments.
Generic investments won’t matter if you have to take on a large amount of debt or get to fall behind on your bills during tough times.
You’re robbing Peter to pay Paul; investing while other areas of your financial life suffer.
The first thing you should do is create a realistic budget based on your income.
Make both a short-term and long-term budget.
Your short-term budget should include necessities like food, tuition, housing, and utilities.
Also, make allowance for extras like an occasional latte and entertainment. However, remember that these are non-necessaries.
Stop trying to impress people. You can’t keep up with the Joneses.
Avoid impulse purchases. Before you buy something, think about whether you need it, if that purchase will put you in debt, etc.
Also, when you’re making purchases, go for the products with the best prices. Make comparisons, and look for discounts and coupons. If you can find cheaper alternatives, go for those.
Avoid unnecessary debts.
The amount that goes into paying interests is cash that could have covered something else. If it is not necessary, don’t borrow to make a purchase. Except you’re buying something that will bring returns.
Use credit cards minimally. Credit cards can be your worst enemies in bad times.
Avoid high-interest rates and credits.
Track every dollar you spend monthly, which will help you know if you need everything you bought.
Write your financial goals and constantly remind yourself of them. This should help you avoid purchases that will risk your financial future.
Ensure that you save for the rainy day. Life doesn’t travel in a straight line; as such, you need to build an emergency reserve to help you get through rough patches.
Have a percent of your income that goes into savings. This will help you to manage your cash flow and keep you on the road to achieving economic security.
The Bottomline
Yes, it’s possible to have a financial high and spend responsibly. The key is to be mindful of your spending, save regularly, and invest for the long term. With these tips, you can enjoy good times without risking your future.
Are you confused about how to get started?
Feel free to email me or set up a call.
I respond to every email and call.
I’ll even give you a complimentary 30-minute phone consultation to discuss your specific situation and how you can progress.
Email: info@redwoodfinancialplanning.com
Phone: 1-908-663-2125.
