One of the most effective methods of keeping your finances in good shape is also one of the most basic. The simple act of establishing a framework on how you approach purchasing decisions is completely under your control. This is opposed to letting your spending run on autopilot, which can become second nature in the midst of a busy day trying to balance work, families, friendships, and various other commitments. But if improving your financial situation is something that is a priority in your life, taking a moment to make a point of spending more wisely can result in a mindset that can save you thousands of dollars over the course of the year.
Differentiate Between Maintenance Expenses & Cravings
The particular mindset that has worked for me is separating spending decisions into two separate buckets, which I’ll label Maintenance and Cravings for our purposes. It is important to note that the purpose of establishing this mindset is not to spend less but rather to spend smarter. In fact, when compared with common personal finance advice such as cutting back on your daily pleasures, I find this particular mindset much more enjoyable. However, a great side effect has simply been that I find myself saving money on a regular basis as a bonus.
When considering making a purchase, before doing anything else ask yourself how important the decision is; basically where it falls on the Maintenance-vs-Cravings scale. Food is a perfect example, since deciding what to eat is a decision most of us make multiple times a day. Rather than trying to save every penny, go ahead and spend (maybe even splurge) when you are truly craving something but then aim to skimp when you’re not really in the mood for anything particular but just need to satisfy your hunger. So it would be perfectly fine to go out and have a steak when a less expensive sandwich would do, especially if you’ve been thinking about that steak while trying to work all day.
Try and think about every meal you’ve had over the last two weeks. Chances are the only ones that will come to mind are the meals that have really stood out. Something that tasted exceptionally good or that you were really in the mood for. The other times (which are probably the vast majority) you ate something you can’t even remember. However, chances are you spent more than you needed to on at least some of those meals. Looking back, if you’d rather have pocketed the extra cash and simply ate something boring and cheap then this mindset might help you in the future. The savings will be greater for those people who end up eating fast food or something outside of their home a few times per week whether due to a hectic schedule or a failure to arrange meals ahead of time.
Apply This Mindset to All Spending Decisions
This same mindset can be used for clothes and other retail purchasing decisions as well. Food is simply a good example because of the frequency with which we are faced with those particular decisions. Another good example that comes up more times than we realize is when we are invited to a party, wedding or other non-recurring event. If you are the type who will take a quick look through your closet and decide you don’t have the right shirt/outfit/accessory and then go online or to a mall to find something suitable, then you likely spend a non-negligible amount on such decisions. The next time you find yourself in such a situation, ask yourself how many times you think you’ll actually wear the item in question. If it will be only for this one event, then you might want to spend as little as possible while still buying something that meets your standards. The other sensible option is to decide you will need this item on a somewhat regular basis, and then you might choose to buy a high quality item that might cost more but will get a fair amount of usage. The worst decision would be to spend an amount somewhere in the middle for this one use, in which case every dollar spent above your minimum acceptable standard is a waste that would be better off in your pocket.
If you question whether this mindset will result in enough savings for you, make it a point to monitor just how many spending decisions you make in the course of a week. Between food, clothes, household items, entertainment, and other categories, chances are a few dollars here and there can really add up over the course of a year. Going forward, if you don’t care, spend as little as possible. If you really care, spend as much as you’re comfortable with while satisfying your craving. Chances are, unless you seem to crave something new every day, you’ll end up saving money while not having to give up the things that give you the most pleasure.
I am not suggesting that this is the mindset that everyone should adopt or that it is the only one that will result in improving your finances. However, I have noticed a big difference since consciously implementing it in my life, and believe it can work for others as well. The truth is that most people don’t take the time out from their busy lives to establish a financial mindset at all, but you will likely find that creating one that fits your own personal goals will end up being a lot more rewarding than continuing to spend mindlessly.