Your relationship with money dictates your spending habits. If you’re a high-income earner or not, your spending habits will define how much you save, how much you invest, and whether or not you are financially secure in your future.
Your earnings, amount of debt, and living expenses can all affect your ability to spend freely. On top of that, where you live, for instance, in a state without income taxes vs. one with an income tax, can eat into your earnings.
So, with a low income, you have less to work with; with a high income, you may also have higher debt and, therefore, less to work with than you imagined. In effect, no matter what, your spending habits will dictate your financial present and future.
As someone who managed to pay off all my student loans within a year of starting my job and went on to buy a house a year after, here are some of the spending habits I’ve learned that have helped get me to where I am today.
1 – Avoid Accumulating Debt (& Focus on Paying Off What You Have)
Stop taking on more debt. Pay off your credit cards each month; put extra payments towards your student loans (if you can); don’t take loans to buy things you don’t need. A prime example of that is a new car. It’s the worst purchase you can make because it depreciates as soon as you drive it home.
Instead, make conscious choices to use what you have until you can no longer use it. When you decide to take on new debt, make it the least amount or at the best interest rate possible.
Also, remember the less debt you have overall, the better interest rates you get when taking on new debt.
A part of sticking to this is developing a mindset that helps you look for bargains and avoid lifestyle inflation. You may want all the lovely new things but don’t NEED them. You may be able to afford a new loan to help you upgrade or keep up with your image of the perfect life, but you don’t NEED those things to be happy. This isn’t to say that you can buy new or nice things for yourself; the idea is to make sure it’s something you can truly afford. If you can’t, save for it or wait for a discount.
2 – Don’t Forget to Pay Yourself First
Everyone says this, but what does it mean?
It means saving first, investing second, and spending later. This is the best spending habit you can develop for yourself.
Savings include essential items that must be covered, including
- Living expenses (rent/mortgage, utility internet, debt payments, etc.)
- Emergency funds (up to 6 months of living expenses saved in a separate account)
- Retirement savings (to pay yourself in the future, max these out if possible)
Investments include stocks, bonds, mutual funds, and ETFs. There are plenty of non-stock market investments you can also make should you desire to branch out and do something different. Investments are not required; however, if you have extra money, this should take precedence over spending for fun. Why? Because it allows your money to make money for you.
Now, spending for fun. Do whatever you like, so long it matches your priorities. Don’t buy things to keep up with the Jones’s, because you’ll never catch up. Prioritize what matters to you and your family and what makes you truly happy.
3 – Don’t Forget to Take Advantage Of Things You Already Have
There are ways to get money back, get free money, and earn discounts. Use them. Make it a point to look for them to support your frugal living goals. There’s no reason ever to pay full price for anything, and you will only know how much you can save if you make looking for deals the norm.
These examples listed are just the tip of the iceberg. Hopefully, it inspires you to check out different areas of your life and expenses and look for ways to save.
Try to put all of your purchases on a credit card. You can gain points from purchases or earn cash back depending on the card perks. You can use points for cash back, gift cards, or travel credit. Both options allow you to save.
Different cards have different advantages. Depending on your lifestyle, look for cards that will provide the maximum benefit. Travel a lot? Get a great travel credit card. Make frequent purchases? Consider cash back. Own a business? Look for business cards that help you save the most over time.
Example of how different cards compare: Types of Credit Cards
If you’re the type of person who can’t control themselves with a credit card, then using them is not recommended. In addition, while their benefits are great, it’s only worth it if you can pay off your bill each month in total – don’t carry a balance. Doing so will negate the perks and contribute to continued bad spending habits.
Discounts & Cashback options
Services like Rakuten (formerly Ebates), Honey App, Ibotta, and Fetch all work. They give you points or cash back on things you usually buy. It’s pretty much free money, and using their services is also free. So, why not take advantage?
Coupons are also a great way to save. You don’t have to be an extreme couponer, but it’s a great option to help decrease bills.
Shop During Certain Times of Year
In the spring, all fall and winter clothes are on sale; summer clothes go on sale in the fall. Now, if you’re like me and don’t need to have all the latest fashion trendy outfits, use these times of year to do the bulk of your shopping – especially shopping for fun.
Other examples of this:
- Buy electronics on Black Friday.
- Use Amazon Prime day to your advantage.
- Buy Christmas wrapping paper the day AFTER Christmas (it’s like one-tenth of the cost then).
Of course, if you need something, you need it; however, for all other instances, use seasonal shopping and the massive sales and discounts to help you spend wisely.
4 – No More Instant Gratification
Delayed gratification is the new kid on the block. Wait before you buy; research before you spend; think before you splurge.
Yes, it’s super easy to buy anything through your phone with one click but make it a point not to. The advantages of this are two-fold:
- You’ll make a better, more informed purchase
- You’ll take better care of it
When you have to wait for something, it retains its value. You’ll treat it better, appreciate it more, and take fewer things for granted.
Spending Habits: Final Thoughts
Bad spending habits stem from so many different areas of our lives. However, there’s no reason to let them get out of control. Avoiding bad spending habits can make a huge difference in preventing overspending and improving your savings.
Of course, your long-term financial goals and current financial situation will determine how much you save and where you spend. However, these spending habits easily apply to any person and lifestyle.
Images courtesy of iStock.