An incredible number of people in our country are struggling to get by. Did you know 80% of the American working force lives paycheck to paycheck? But how did we get here?
Ultimately, it comes down to not knowing how to spend money wisely. We borrow more money than we should, make minimum payments on loans and credit cards, and bury ourselves in interest and debt. However, those are hardly our only financial issues.
If you want to avoid being in debt all your life, we can help. Keep reading for our top tips on how to spend wisely and take control of your finances.
1. Know Your Finances
One of the biggest reasons people find themselves scraping to get by each month is because they don’t pay attention to their spending habits. Most people would be absolutely shocked to discover how much money they spend unnecessarily each month on things like dining out, shopping, interest, and more.
Don’t be ignorant of your own finances. Dig into your bank and credit card statements and create a spreadsheet to document how you’re spending your money. Identify how much money you spend on the essentials versus how much you spend on frivolity.
2. Be Smart With Credit Cards
Next, learn how to responsibly use your credit cards to your advantage. This is one of the most important tips on how to spend wisely.
Unfortunately, many people get approved for a credit card and immediately or eventually max it out. Not only is a maxed-out credit card bad for your credit score, but it’s also costing you a ton of money in interest.
The average credit card interest rate is nearly 15%. Each month you don’t pay your card down to zero, you’re paying the credit card company 15% of the amount on the card. In this case, when you’re making minimum payments, you’re essentially just paying off your monthly accrued interest, not the actual charged amount.
Use your credit card to build up your credit score, but make sure you pay it down to zero every single month to avoid interest charges. If you have a rewards card, this is an excellent way to get money back for your purchases.
3. Limit Impulse Shopping
Learning how to spend money wisely means implementing self-control when it comes to shopping.
Yes, we all like nice new things. We like buying new clothes, new shoes, new decor, fancy new bedding, and more. However, these spending habits have a way of creeping up on us.
Impulse buys seem insignificant. However, when you make several of them a week, the costs really add up. A five-dollar coffee here, a 10-dollar lunch there, and an Amazon purchase of $20 in a single week add up to $35 out of your budget. If you did that every week, that’s $140 a month.
And keep in mind, these are conservative figures compared to the average person’s shopping habits.
4. Do Your Homework and Shop Around
To spend wisely, you must be an informed consumer.
For example, if you’re shopping for a car, don’t just buy the first one that catches your eye. Look into the benefits of buying an older used vehicle, rather than buying a new car. You can literally save thousands in depreciation, interest, insurance, registration, and more.
However, this also applies to smaller, everyday items. When shopping, buy generic brands rather than name-brand products. Depending on the item, it could save you anywhere from 50 cents to several dollars. After a year of shopping, these small savings can add up to hundreds, if not thousands of dollars.
Finally, if you have the time, use coupons to help you save money when you shop. Adjust your grocery list and meal plan each week to take advantage of huge savings using coupons and other store discounts.
5. Give Yourself Financial Goals
Learning how to spend your money wisely means creating financial goals and sticking to them. This demands implementing self-control and making sacrifices. However, living without financial goals is what leads to surviving paycheck to paycheck and accruing enormous debt.
Come up with practical, milestone goals to help you stay on track and give yourself small victories to stay motivated. Start by instituting a debt payoff strategy. We recommend the debt snowball method.
In this method, you pay off your smallest debt first. Use any extra money in your budget for the month and put it toward that debt. Once that debt is paid off, take the extra money in your budget (which will now include the first debt’s monthly payment), and put it toward your next debt.
Over time, the debt snowball (the amount of money going towards debt each month) grows and you can pay off debt more efficiently until you’re debt-free.
6. Put Yourself on a Budget
Part of your financial goals should include designing a sustainable budget for yourself. Using the information you discover from digging into your bank and credit card statements, figure out a practical budget you can stay on to spend wisely and maximize your savings.
Slashing your expenses comes down to your level of commitment. The more money you slash, the faster you’ll be out of debt and the faster you’ll reach your financial goals. Here are some suggestions:
- Prepare all meals at home (including work lunches)
- Brew your own coffee, don’t buy expensive coffee shop coffees
- Cut cable TV and limit yourself to only one TV/movie streaming service
- Cancel unused or unnecessary memberships and subscriptions
- Take a break from expensive luxuries (massages, salon appointments, manicures, pedicures, etc.)
- Never go to the grocery store without a grocery list
- Cut out expensive habits (drinking, smoking, etc.)
As you can see, there are tons of ways to stop spending money on things you don’t need. You just have to find what works best for your budget and your lifestyle preferences. Additionally, make sure you’re avoiding sketchy schemes like pyramid marketing ploys, Bitcoin scams, and more.
7. Live Well Below Your Means
In the paragraph above, we spoke of ways to cut back on costs to spend wisely. However, let’s dig deeper into how to live below your means to make a huge impact on your wallet.
First, consider downgrading your car. The average new car payment is $554. Consider trading in your new car for something older with a smaller payment.
If you’re really committed to lowering your expenses, you may also want to consider downsizing your home. You can significantly reduce your mortgage by moving to a home that’s older, smaller, or in a different part of town. Additionally, if you have positive equity in the home you sell, you can put it towards paying off debt.
Want More Tips on How to Spend Wisely?
Learning how to spend wisely isn’t difficult. The path to financial freedom is clear. However, having the discipline to walk that path is what most people struggle with.
If you want more advice or help with your finances, be sure to check out some of our other articles before you go. Our blog was designed to help people from all walks of life to improve their financial situation and build their wealth.