Spend money wisely

Interesting article.

.........................................................................

4 steps to spend your money wisely
by Craig on October 21, 2009

http://www.christianpf.com/spend-money-wisely/

4 Steps To Help You Control Your Spending

Budgeting is essentially the process of asking: should I spend my money on this or that? A person’s income represents the fixed dollars with which they have to spend. When someone sets their budget they must decided (based on their preferences) what to spend on ‘this’ and what to spend on ‘that’. The problem is that sometimes people prioritize the wrong things. They buy ‘this’ when they should have bought ‘that’. Being able to control you difference is the differences between being frugal instead of cheap. If you find yourself in a situation where you often buy things you regret then these four steps will help you focus your spending.

Step #1: Take a visual inventory of the stuff already in your home.

Have you ever helped someone move? If you have you know that a question people often ask while moving is, “How did we get so much stuff (junk)?” Every item in your home has been purchased with money you labored for. As you walk around the house look at your items and ask:

- Does this item give me satisfaction?
- Did it end up being as useful as I wished?
- If I had to buy it again would I?
- Do I have more things than I know what to do with?

If you answered negatively more often than not, it is likely that you are having trouble directing your spending towards things you truly care about. Perhaps you are purchasing impulsively. Nevertheless, your spending is such that it brings more frustration than satisfaction.

“But store up for yourselves treasures in heaven, where moth and rust do not
destroy, and where thieves do not break in and steal.” (Matthew 6:20 NIV)

Step #2: Ask your spouse a simple question – “What are some of your favorite memories?”

Our Experiences with Stuff Dulls Over Time

In the book Your Money and Your Brain author Jason Zweig writes:

“We get used to almost anything we are frequently exposed to. That’s why
the money we spend on big purchases gives us such a perishable pleasure.” (bold
added. pg 236)

Zweig goes on to use the example of a new car. Remember that new car? It “glistens like a gigantic jewel”. However, the cycle of auto life requires that within months (or even days) there will be dings and scratches in your fine automobile. After just a few short months, we are disillusioned because the car is not bringing as much satisfaction as we intended. So before you know it you are on the market for another new car. Regarding this tendency Zweig writes:

“Unfortunately, the vision pales by comparison when it collides with reality. …
Instead of realizing that big spending will probably never make you happy, you
conclude that you simply spent your bundle on the wrong thing.” (pg.
236-237)

Our Experiences with Memories Sharpen Over Time

Spending that brings satisfaction is spending that creates memories. While some spending is pragmatic and functional (i.e. fridge and stove) we must ultimately remember their function. I think about great time saving appliances like the dishwasher and the microwave. That time void has not been filled with activities that create memories; instead it is filled with more activity. Things like vacations actually leave a sweeter taste (assuming you pay cash!) as the days go by.

“The vacation in your photo album is more pleasant than the one you actually
had, and that may skew your memory. … Your memories, then, are not just
recollections. They are also reconstructions” (Jason Zweig, 238).

Why not plan your spending in such a way that you spend a larger percentage of your money on things that are rewarding (like giving) and steer away from spending money on stuff that dulls over time?

Step #3: Have a ‘this’-and-‘that’ face off.

This really is a simple exercise. It has been observed that hindsight is 20/20 so go ahead and use that clear vision of the past to guide your future spending. Take a few items in your home and place them side by side and ask, “Right now which item am I happier that I purchased?” Your answer will help guide your future spending.

Sample A: Luggage

Exhibit A

Exhibit B

These two pictures of luggage have the same purpose – they help haul my useless junk around the world. So far both of these items have accomplished the task with equal effectiveness. Any time my junk does not arrive it is typically the fault of an airline, not the luggage itself. There is one significant difference – cost. The two bags in Exhibit A cost about $85 and the cost for Exhibit B was $5. Using my 20/20 perspective I now know what a complete and absolute waste of money to pay $85 for something I can find for $5 at any used clothing store in America. As a result, I have now decided that I’ll buy all my luggage second hand.



Sample B: The Vacation and the Fridge




You will notice that my fridge (which has only been used for less than three years) is rusting. I’m finding that the type of a fridge does little to contribute to my spending satisfaction. In the future I am going to think about functionality without any fancy bells and whistles.


I have a whole slew of vacation pictures I enjoy looking at. Those great memories grow year after year. Vacations always provide some special family times. As a result, I enjoy spending money on vacations because I feel like they contribute something to my life’s satisfaction.



Step #4: Adjust your spending accordingly.


Take what you have learned about yourself and create a future where you spend your money wisely according to your values. A budget is the best way to help direct your spending. Don’t keep making bad money choices! When setting amounts for your budget categories make sure they fit your personal preferences.



A final thought.


Try incorporating your gifts to people into the same evaluation. I suspect you will find that there is a growing pleasure that comes from giving.


Let me leave you with one final quote from Jason Zweig:

“While the money you spend on acquisitions tend to feel more and more like a
mistake as time passes, the money you spend on experiences is apt to grow in
value as your memories grow warmer.”

How do you focus your spending to be sure you’re spending money wisely and not wasting too much on perishable stuff?