The Correct Way to Spend Your Money
Social Influence Controls People’s Spending Habits
Have you ever found yourself wanting to purchase something but being unable to afford it? Have you ever thought that one day you’ll be able to afford those dream purchases? Have you ever felt as if you can’t live true to your goals and dreams because you can’t afford them? If so, you’re not alone. Most people find themselves in this exact circumstance.
The problem is that most people don’t take action to get themselves out of this situation. Most people let money take control of the choices they make, only using the last little bit of their paychecks to buy what they want, or at least what they think they want. The reality, however, is that many people really don’t know what they truly want, let alone need. Their neighbors, friends, and family end up influencing the decisions they’re making with their money because they feel as if they “have to keep up with the Joneses”. Now, as you’re reading this, you might be thinking to yourself “That’s not me. I am in control of my money”.
But are you really though? Be completely honest with yourself. A published New York Times Article (The Neighbors Marketing Powerhouse) talks about research suggesting that when one of a person's 10 closest neighbors purchase a new car, the likelihood of that person purchasing a new car, manufactured by the same car company, significantly increased. This phenomenon typically takes place because the opinions of friends, neighbors, and colleagues are critical influences.
Most individuals’ buying habits are influenced by their neighbors and friends to some degree. Let’s put it into perspective, can you think of the last time you asked a friend about their opinion on something before making a purchase? Social influence is real and it has a direct impact on your spending habits.
Unfortunately, more often than not, all of this social influence ends up resulting in buying products and services that you don’t exactly need. So before making impulse purchases, take a step back and try to ask yourself if it’s really the best use of your money or if you can allocate it to something better, like investing in your retirement.
Discover Your Values
One of the most important things you can do when it comes to the way you’re spending your money is to discover your values. When it’s super clear on what exactly it is you value, it becomes a lot easier to manage how you should be spending your hard-earned money.
But here’s the problem: Most people don’t know what they value.
When is the last time you put some thought into what your values are so you can get a better understanding of what is really important to you? Often times, we don’t spend the time needed to clearly define our values and instead let our friends, family, and neighbors define what we spend both our time and money.
Some easy ways to discover your values is to think of the 15 most important things in your life that you want to spend your time and money on. Then narrow that list down to 10, then 5, and then narrow it down to your top 3. Here are a few questions you should be asking yourself to help you discover your values:
What do I want people to remember me by at my funeral?
What do I want to accomplish before I retire?
What do I want to accomplish at the end of my life?
Now imagine you are financially secure and have enough money to take care of your needs, now and in the future. Ask yourself the following:
How would I want to live my life?
What would I do with the money?
Would I change anything and if so, what would it be?
Lastly, consider this. Your doctor tells you the unfortunate news that you have only one day left to live. Notice what feelings start to arise and ask yourself:
What dreams will be left unfulfilled?
What do I wish I had finished or had been?
What do I wish I had done or what did I miss out on?
Not every one of these will be the right solution for you to determine what your values are, but these are good starting points. Once you discover your values, what you truly cherish in life, it is important to take action and to focus on spending your time and money that align with your values. If it doesn’t align with any of your values, it’s probably best to move on.
Spend Extravagantly On Your Values And Cut Back On What You Don’t Value
Now that you have discovered what is really important to you, it’s time to take control of your life and to start spending both your time and money on the things you value most. With that being said, you need to be ready and willing to cut back dramatically on the things that are not important to you. For example, let’s assume you value traveling, but don’t value living in a fancy home. If this were true, you might consider downgrading your home and start putting money towards an annual, or even quarterly, personal travel fund.
Regardless of your values, you’ll want to arrange your budget and prioritize your spending around the things that are truly important to you. This is called paying yourself first, or being intentional about your money. This is known to increase your overall happiness and will lead you to live a more positive, loving, and joy-filled life.
One thing to consider is the difference between your short term values and your long term values. It is important to consider your long term values such as retirement, and what you want your retirement to look like. This is why it is important to follow industry standards when it comes to things like your retirement savings rate, life insurance needs, emergency fund amounts, and more.
Ideas to Help you Align Spending With Values
Focus
Focus on your values more by creating goals that are aligned with your values. Once you have these goals in place, make sure to focus on them regularly by reviewing them and envisioning them happening. This will help you to remember what you truly value in life and help you to spend your time and money accordingly. What you focus on, you achieve.
Automate
Create savings accounts with your goals based on your values. Once you have these savings accounts created, automate your savings. You can do this really easily by setting up what is called an automatic transfer. This is done primarily through online banking where you pre-determine an amount of money to automatically contribute towards your savings goal. This is an easy way to make sure that you are saving towards your goals automatically.
Use A Budgeting Software
Once you are crystal clear about your values and goals, you can create a budget based around them. Then you can track your spending to make sure you are indeed spending your money on what will make you happy. With budgeting software like Mint and YNAB you can easily get alerted when you overspend in any area. This will help you to stay focused on what is most important to you.
Money Is A Tool, Not A Master
People spend their lives in the pursuit of money. At the end of the day, money doesn’t make you happy, rather it is how you choose to spend your money that can make the difference. It is important to tell your money where to go through your spending and saving behaviors. This will allow you to be the master over money, instead of life telling you where you need to spend your money. This is done with a correct attitude about money—that it is a tool, not a master.
Live Your Life
Most importantly, you need to live your life on your own terms in order to maximize your happiness. This can only be done when you take charge of your life through your spending and savings habits. Make it easy on yourself by discovering what you truly value and by increasing the time and money you spend on them.
About the Author:
Sam Jones is an Accredited Financial Counselor® at Savology, which is an online free financial planning platform. He has several years of experience in one-on-one financial coaching with individuals. He recently graduated from Utah Valley University's Personal Financial Planning program. Sam is working towards getting his CERTIFIED FINANCIAL PLANNER™ certification. He is passionate about personal finances and helping individuals to reach their goals. Sam loves spending time with his family, boating, snowmobiling, and volunteering in the community.
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