How to control spending
Getting your spending under control is difficult. Modern societies are designed around consumerism – on an individual scale, the effects of this often lead to spending problems and debt issues as ordering products and services online is easier than ever before, and the selection of convenient snacks and treats in grocery stores have never been so diverse and easy to buy. The habit of careless spending is supposed to promote choice, freedom and desire, and yet it makes many feel crushing regret and disappointment.
After deducting the essentials (or non-discretionary expenses) such as housing costs and groceries from your expenses, spending is about controlling your impulse purchases. Assessing your finances, being honest to yourself about your habits, and adjusting your actions based on monthly performance leads to improving your spending. This article reviews all parts systematically for an in-depth look on spending and how to control it.
Controlling your spending essentially means controlling your discretionary expenses. This article explores the phenomenon illustrated in the figure above.
Minimization of expenses
Minimize your expenses: what are the absolute necessities that you need to pay in order to live? Rent, utilities, car payments, buying new socks, add it all up for a rough estimation. Note that necessities does not mean discretionary expenses that are daily or weekly items or services like a Netflix subscription, eating at a restaurant or sugary foods.
Once you've reduced everything to just the essentials, you see a gap in your monthly finances: A considerable amount of money is going into the necessities, but there is a big gap illustrated above as ”The Mystery Zone” (meaning your discretionary expenses). This is the category that you need to investigate carefully.
You need to look at your bank account transactions and see where the money is really going. If your bank offers spending categories those are often very helpful as individual sums seem much less than how much they are in reality when added up. Be honest to yourself and look at the expenses – which of these impulse purchases do I need the least? Start small by removing one bad habit at a time.
From needing to wanting and the reverse
I struggled with saving money for a big part of my teenage years and early adulthood. A key principle stopped my tendency to continuously buy things I don’t need: If I want something non-essential, I differentiate want from need and wait until I'm sure about my decision.
I wait for two weeks from the first moment that I get the urge to buy something before I give myself the green light to get it. 90 % of the time it turns out that my interest was a temporary obsession rather than a legitimate need. A prime example of this was when I was looking to buy a specific expensive sweater – for the first few days I was arguing aspects like ”this is a really durable product” and ”it matches well with the rest of my clothes”. After waiting two weeks I realized that I already have plenty of warm clothing that serve the same purpose and that it was better to save the money or spend it on something more useful.
Wanting something is not bad itself – the problem is that most lack moderation to keep their expenses in check. Create and commit to a monthly plan to keep you in check: you can only buy one ”want” per month for example. I personally do not have this restriction as I no longer get interested in getting new things that often, but I offset this lack of a plan by buying my ”wants” seasonally (e.g. on the winter holidays) when they are heavily discounted. That way I also have more time to enjoy them in the first place as these seasonal sales match well with my vacation periods.
Create a budget
No one likes creating budgets, but budgeting is the most effective method to stay on top of your finances. The two most common and often efficient methods of budgeting are either using a ready-made Excel or Google Sheets template (involves more work due to manual inputting), or using a budgeting app/software.
The most popular apps related to budgeting are YNAB (”You need a budget”, monthly fee) and Mint (free). I’ve personally only had the chance to try YNAB but I’ve heard great feedback on Mint as well. If Mint is not available and a paid alternative is not an option, consider something like Spendee. I have only recently started using it but it seems suitable enough. The big upside to using an app is that you can conveniently track your changes wherever (as many purchases are made on the go). With an Excel / Google Sheets templates you have to log all financial events at the end of each day (unless you have your budget document on a mobile app of Excel or Google Sheets)
People prefer different things, but I suggest trying both methods before going with one. What matters is that you have a relatively consistent budget guiding you in the right direction and not the method that is used. You never know if the other alternative is much easier and suitable for you, so try both in case the first option does not appeal to you. There is no need to even start with budgeting everything! Try budgeting the spending category you most struggle with, say for example groceries or shopping.
Consider how much you spend on food
With the rise of food delivery apps, food costs are slowly becoming the dominant part of discretionary expenses in people’s monthly finances. Eating in restaurants, ordering takeout or just buying convenience food items like salads, snacks and small meals are all relatively small expenses ranging from $5–20, but their cumulative effect is impactful as food is a daily necessity and it is thus easy to splurge on. I decided to do a small experiment comparing homemade and convenience store food: The most expensive breakfast meal I can buy is a ready-made sandwich, a small smoothie and an energy bar, totaling about $10.00. On the opposite end, the cheapest homemade breakfast I can make is a 80 g serving of oatmeal porridge that costs me $0.06, so one ready-made breakfast meal could pay for 166 servings of homemade oatmeal porridge. Even though having oatmeal porridge for breakfast every day is not nutritionally viable, the experiment serves as a good example on just how much money can be saved monthly with making your meals yourself and budgeting your food costs.
As is quite obvious from the example above, making food yourself is often very affordable: Meal prepping is a fantastic habit to combine with food cost budgeting, so that you can actually spend your monthly income on things you want instead of living from craving to craving. Remember protein in your meals as it helps greatly with satiety: it helps you to not only avoid impulse purchases but also to keep your weight in check.
Gravely avoid debt
Getting in debt is one of the easiest ways to spiral your spending out of control: as the point of lending money is to get money instantly in exchange for paying the sum back with added interest, this interest will quickly increase your monthly expenses. At worst this can lead to a debt spiral, where you are forced to take out a new loan to pay for the due repayments. This can be insanely hard to pay off after the monthly payments have reached a certain amount.
If possible, it is generally recommended to stay out of any debt arrangements for financial security and stability. The only scenario where debt might be a valid choice are student loans and house / apartment mortgages as the end result is ultimately superior to the unfavorable debt structure.
Modern society is built on consumerism which has lead to spending problems for many.
Minimizing your expenses is a great way to see where your money needs to go and where it actually goes.
Differentiating want from need and waiting helps immensely in avoiding impulse purchases.
Budgeting is the most efficient way to kill spending problems.
Cutting back on food costs is an often easy way to reduce spending.
Avoid debt as much as you can as it is a major contributor to spending issues and can quickly spiral out of control.
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