Improving Your Spending Habits
How Do You Stack Up?
No two people spend their money exactly the same way, and the way you spend yours should be a reflection of your own personality. However, you probably share some characteristics with other people who are in a similar boat to your own. For a lot of people, their expenses boil down to food, housing, transportation, and fun money. A fifth section, savings, is a wise idea but one that far too few people practice. Don't spend too much time comparing yourself to other people, but a few general averages are good to keep up with.
For one thing, your housing expenses should not exceed 30% of your gross or 40% of your net income. If they do, you will end up spending most of your monthly pay just staying in the place you're in. While a lot of people live at the razor's edge of their means, you would be very wise to break this trend.
This might mean that you have to live in an area that is less preferable than your current location, but ultimately the benefits of living below your housing means can pay off in a big way. You might even find that you like living in a slightly smaller place surrounded by people of more humble means.
Your food and transportation costs are closely linked because of how much transportation is usually used in the acquisition of food. While your food budget is entirely up to you as is whether you prefer eating at home or in restaurants, your transporation costs ought to never exceed 20% of your gross or 10% of your net income. If they do, you'll tend to buy cars that develop upside down loans and stack them up until you wind up owing $50,000 on a $30,000 car. Sometimes public transportation, a bicycle, or a "beater" car is just less pressure. You might even consider simply downgrading to a more basic new car and having something that's both reliable and less expensive to fuel and insure.
Savings is a major issue that most people overlook. In the U.S., many people actually have a negative savings rate, meaning that they spend more money than they make. However, if you are saving 10-20% of your gross earnings, you will do very well not to let that go to your head. Saving 40% of what you earn is the gold standard of solid savings.
Improving Your Spending Habits
You can spend on anything you like, and you will have a happier life if you decide what your priorities are and focus on them. Some people are very happy to spend on their educations and will happily forgo trips, fancy cars and houses, and other luxuries for the sheer love of learning. Other people love vacations, and you will see them driving a 12-year-old car that they bought used and living in a very modest house. But if you're a good friend, they'll send you a postcard from the south of France during their annual "anywhere" vacation.
You have only so much money, and sometimes you may find it impractical to earn more. Sometimes you've negotiated the best salary you can get, and freelancing isn't for everyone. So you can cut costs on the things that you don't especially care about, and then you can free up your income to spend on what you really love.
While it's always nice to have a larger amount of money in your accounts, remember that you have money so you can use it for experiences that will make great memories. Keep your priorities in mind and remember to always save and you'll do well.
One of the first steps to saving money is to figure out where you are spending money in the first place. To do that, you need to start keeping basic tabs on where your money actually goes. While no one really likes to look at where they are actually spending, it can be helpful to know what you're doing before you get too idealistic. While budgeting doesn't really work and generally makes people miserable, you can still begin by keeping a register of what you make and what you spend.
You are going to notice some things about your spending. For one thing, you may tend to notice a large number of small incidental expenses such as eating meals at restaurants or buying coffee, but you may also notice that these expenses generally pale in comparison to expenses such as your rent/mortgage, utilities, and payments on loans. While it's tempting to nitpick small details that could stack up such as your daily lunch out, you might do better to wonder how much you're paying toward credit cards, bank fees, and other large expenses. You can even start by simply writing down every time you spend any money for a month. If you don't cheat and then group everything into general sections, you might be surprised at what you're actually spending and where it's actually going.
How to Improve Your Spending Habits
To measure your spending, go to your bank's website and log in. If you haven't logged in before, you might want to call the bank's customer support line to help get set up and start using your online account. Once you are logged in successfully, you can typically see all of your transactions going back several months. You can also request to have paper statements sent to yourself so you can look over them the old-fashioned way. Sometimes it is easier to think in ink.
From there, you can do a lot of things based on how deeply you want to get into your spending. You can build a spreadsheet and begin manually typing in (or copying-pasting with Ctrl-C and Ctrl-V) everything you spend money on, breaking it up into sections such as housing, food, transportation, saving/investing, and other criteria that you can decide on for yourself. You can also estimate based on a few months of overview and group these estimates into how much you spend. If you are like most people, you will be surprised when you see how you really spend money.
You will probably be able to change some of your spending. When you group your expenses together, the most important thing is actually not how much you are spending on a regular basis. What is most useful to consider is what you really find to be important among your expenses. You can trim away and cut down on entire sections that you don't care about so that you can save money for your future and spend on the things that really matter to you.
You will need to think about what's really important to you, not what other people or society think is important. This is tough to think about. A lot of people go through life trying to buy a lifestyle. For them, there are several status symbols that one "should" have, such as a particular kind of home and a particular "level" of car. Everything goes upward from the most basic to the most grandiose, and you can usually tell how much money someone makes because their car and other status symbols will reflect this. The bad news is that most of society will continue to spend out the ears for a lifestyle, but the good news is that you don't have to.