How to Change Your Spending Habits
After a difficult year of financial hardships, saving money is on many of our minds. Perhaps you need to replenish depleted savings, pay off accumulated debt, or maybe you simply want to have money to travel, eat out more, or enjoy the often-costly activities like concerts, the theater, and music festivals that 2020 deprived us of.
This begs the question: how, exactly, do you accomplish this? Do you need to find a higher paying job, pick up a side hustle, or downsize your home or car? Sure, you can put more money in your pocket by increasing your income and decreasing your expenses but making a few changes to your spending habits can stretch your money.
Making frugal lifestyle changes is one of the quickest ways to make the money you have go further. Without bad spending habits draining your finances, you will save more money, spend your money wisely, and eventually have the money you need to check off any financial goals you have. Sure, it sounds simple enough but how do you know what your spending habits are, which of those habits are good, and which spending habits are holding you back from the financial freedom you crave?
To help you reduce your financial anxiety, assess your spending habits, and make the necessary changes to eliminate bad habits, here are three easy ways to bank extra cash.
1. Get a handle on your spending habits
Your spending habits developed over time, with influence from the way your family spent money, what your friends chose to spend their money on, and even from the media and social trends. This means changing your spending habits will be a process, not an instant transformation. Spend some time identifying what your spending habits are and think about which habits are improving your financial situation and which habits are costing you.
How, exactly, do you know what your spending habits are? Start by reviewing your financial records for the last two or three months to see what you spent your money on, and when and where you spent it. If you use cash but do not document those transactions, it can be difficult to assess your cash purchases. However, even without a ledger of the cash you spent, you can still get a snapshot of your spending habits by reviewing your credit card records and bank transaction history.
In reviewing your financial records, take your evaluation one step further by looking not just at what you are spending your money on, but why you are spending it. Do you spend a lot of money right after you get paid? Do you create a shopping list or meal plan before heading to the grocery store? Do you eat out for lunch every day you travel to the office? Identify the good spending habits that keep money in your pocket and bring value with a high return on the investment, and take note of the bad spending habits that result in financial waste and could carry a higher value if managed differently.
2. Eliminate bad habits
Once you have an idea of what your spending habits are, identify which habits are draining your finances rather than improving your overall financial wellness. Frivolous spending or impulse buys are common spending habits that can add up. To limit unnecessary purchases, try shopping from a list. Anytime you need anything from groceries to clothing, add it to your shopping list and be specific. Store your list in a note on your phone so you can reference it anytime you are in a store. Let this list guide your purchases. If it is not on the shopping list, then you do not buy it.
Another great way to tackle frivolous spending or stop impulse buys is to use the curbside pickup option now available at stores all over the country. By shopping online and using curbside pickup or delivery, your purchase will consist of the items you needed without the additional expense of that shirt you saw on the mannequin inside or a handful of items you do not need that were strategically placed around the checkout counter. The temptation to buy the extra stuff will be eliminated.
Maybe your spending habits are not so clear. Less obvious bad spending habits include spending money to eat out or having dinner delivered when you have food you can eat at home, purchasing bottled water when you have a refrigerator with filtered water in the door, paying for streaming services that you never actually use, buying duplicates of things you forgot you already own and paying for subscription services that send you product quicker than you can use it.
The list of bad spending habits is unending. If you have a recurring expense or purchase habit that is not adding value to your life, it is probably a bad spending habit that should be eliminated so you can use that money for something more fulfilling. The most important thing to remember in identifying and eliminating bad spending habits is to make sure that every purchase is intentional and adds value to your life.
3. Stick with good habits
This is the fun part: cultivating good spending habits means that you have a green light to spend your money however you want. When you have a track record of smart spending habits, you have the knowledge and self-control to know what you need and what you can afford. As a foundation for maintaining good spending habits, create a budget and stick to it. This is a simple way to ensure you practice good spending habits and avoid the bad.
Good spending habits include looking for savings opportunities like coupons or sales before paying full price for something and avoiding mindless browsing through online shopping sites opting instead to shop for specific items that you need or have been saving for. Purchase what you need, save for what you want, and do not purchase excess. Practicing those good spending habits will put more money in your pocket, without any increase in your income.