While doing research for my project on credit I really wanted to figure out why so many 20-somethings were clueless when it came to building credit, paying off debt, and real estate.
I’m not exactly the typical finance person. I enjoy my drinks and I enjoy talking about the most random topics. I never preach to my friends and I rarely bring up the idea of money management. One thing that I do is I observe. I observed that many of my friends were stuck in credit card debt and unable to get ahead of the game because their spending was just completely unrealistic.
Some personal finance bloggers promote budgets heavily. Other bloggers scoff at the idea of a budget and say it doesn’t work. Instead of debating about budgets and trying to figure out arbitrary numbers I wanted to share my simple spending strategy. I wanted to share how I decide on how I’ll spend my money.
What’s this simple spending strategy? You need to be realistic with how you spend your money. What’s being realistic with your spending all about? I wanted to share what my take on realistic spending is…
Treat Yourself If You Can Afford It
If you can afford to buy something nice for yourself, then go for it. The key is to only do so if you can afford it. This is actually where the breakdown occurs. From an emotional perspective we don’t want to feel like we can’t have something because we work so hard for our money. From a logical point of view, we need to understand that we can always have everything that we want at the same time. This is why I love to treat myself when I know that I can afford for it.
For example, while traveling through Europe I spoiled myself a few times. The reason I did so was because the currency conversion in some places allowed me to do so. I got more bang for my buck than I ever could at home.
Don’t Hang Out With Big Spenders
Whether we want to admit it or not, our friends really determine our behavior. If you hang with big spenders you might become a big spender. I often don’t recommend hanging out with big spenders or those with different financial values because it can cause some discomfort. This doesn’t mean that you need to avoid your friends. It just means that you should try to hang out with friends that have similar financial values. You don’t want any awkward moments when trying to decide on where to go for dinner or on how to split the bill.
Save A Solid Percentage Of Your Income
I try to save a decent amount of my income. This percentage varies on what’s going on with life and the time of the year. I don’t like to throw out percentages, so I’ll just say that I want to save enough money so that I’m comfortable in case anything were to happen (emergency fund).
Once I set aside a set amount of cash that I’m happy with I don’t have to stress about spending money money when a random evening out pops up or if I want to buy something new.
Spend Frivolously Once In A While
Once in a while I take a set amount of money (usually minor) and I spend it foolishly. I get my frivolous spending out of my system for the next few weeks or months. It’s just not realistic for us to always be smart with our money. Sometimes we need to let loose and buy something stupid. Don’t act like you don’t being careless once in a while.
Think Of Value
I always try to think of the value that I’ll get out of every purchase. As I’m typing this I’m sitting in a cafe sipping on a coffee while I work on various blogging tasks. For some the idea of drinking a coffee in a cafe is waste of money. For me the value is that I can focus on my work while I consume a beverage that I enjoy. That’s the value for me. For others there might not be any value in this.
This is why I think of value. Cheap people often don’t understand value and it frustrates me. You won’t always get the best price when it comes to value. You will get the outcome that you’re looking for though.
At the end of the day I do what I can to be as realistic with my spending as possible. Sometimes I’m too cautious. At other times I’m a bit too careless. If you don’t watch your spending it’s going to be tough for you when you start a side business or if you ever want to quit your current job.
Are you realistic with your spending? What’s your strategy for smart spending?
This was an article from Martin of Studenomics. Martin has just released a super-helpful guide that shows you how to completely conquer credit before you hit 30. You can’t have much fun in your 20s if you’re always in debt. Martin spent all summer researching credit so that YOU can save yourself a ton of money, time and stress.
Last Edited: 24th October 2011