5 Steps To Smarter Spending

Spending money. Let’s face it. We love to spend money, but we don’t love to talk about our spending decisions. Have you ever been in a store when a child asks, “Can we buy that toy?” and then hear a long, detailed response on all the reasons to buy or not buy the toy? Probably not. Instead, we hear a quick response like “maybe” or “nope.”

That conversation is actually a great opportunity to educate children about money. Ask them the questions: What do you need to do to get that toy? Would you rather spend money on a toy instead of eating dinner that week? What else could you buy with your money? Make them aware of the decisions they face when spending money. They will come to appreciate what they have and not spring for every shiny new thing just because they have money.

What might help is to talk through these 5 Steps to Smarter Spending. If shopping on your own, go through the steps as a thinking exercise.

  1. Set a limit. How did you come up with that number? Spending money is fine, but only if it’s within your means.
  2. Trace your money. What did you have to do to earn that money? Understand the value of what you are spending.
  3. Weigh your options. Where else can you spend that money? Don’t forget to factor in basics like food or shelter.
  4. Compare prices. Read my post “What Is The Right Price?” to learn more.
  5. Let go. Every financial coach seems to say, “Don’t spend money!” But I’m here to tell you that spending money is ok. Let me repeat. SPENDING MONEY IS OK! We make money so we can use it. Just be smart about it!

Homework: Practice the 5 steps to smarter spending using a food menu. Bon appetit!

Tune in next week as we tackle budgeting. What is a budget? How do I begin? Or subscribe below to automatically receive weekly lessons in your inbox!

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A Life Of Sharing

You make a living by what you get;

You make a life by what you give.

– Winston Churchill*

I spent the past two lessons on saving money, but now let’s talk about sharing money. In my opinion, of the 3 S’s – Share, Save, Spend – sharing comes first. Why? Because your saving and spending habits depend on how you view sharing.

You’re probably thinking, sharing has nothing in common with the other two. Saving and spending are self-serving, whereas sharing is about others. But let’s examine that for a moment. The money you save eventually gets spent, and who do you give that money to when you spend it? To others. In fact, you could argue that the end goal of all money is to be shared with others.

Can you think of all the ways that your money gets shared? Let’s look at a few.

Charity

Charity donations and/or church tithes are a great way to develop a habit of sharing. Not only do you make a difference for others by giving, but you also feel good about it. Practice sharing first by automatically setting aside a portion to give away each time you receive money.

Taxes

Even though it’s called “paying” taxes, you are actually “sharing” taxes with everyone, including yourself. Tax dollars fuel essential parts of our society. Police, firefighters, roads, and schools name a few. Taxes get a negative reputation because they lower our earnings, money that we feel belonged to us already, when in fact, we should take the same approach with taxes as we do with charity. Set aside what you are “sharing” in taxes first, and then treat the remainder as your own earnings.

Parents can teach young children about taxes by taking back 25-cents of every $1 dollar of allowance or gift money for “household tax.”

Tips

Tips probably belong in the Spend, rather than Share, category, but the act of tipping is sharing money. I have witnessed millionaires who did not tip when the situation warranted it, which led me to wonder: If you have $50 million, what is an extra $5 dollars? Was sparing $5 dollars worth letting down the worker who depended on that tip for income? Avoid becoming a scrooge by factoring in the cost of tip before receiving services.

The Ripple Effect

The beauty of sharing money is that it creates a ripple effect. When you donate to a cause, your friends and family will likely follow your lead. When you tip someone, he or she will likely be more generous when tipping others. Sharing not only enhances your own perspective of money, it impacts everyone else’s mindset too. All the more reason to share!

Tune in next week to learn how to have a conversation about spending. Or subscribe below to automatically receive weekly lessons in your inbox!

Homework: Whenever you receive money, automatically devote a portion for sharing before counting your money. If you don’t already have one, find a cause that you are passionate about and donate!

If you like this lesson and want to see more, please consider a donation on GoFundMe.

*The origin of this quote may be different, according to the International Churchill Society.

How Much Money Should I Save?

The million dollar question (pun!): How much should I save?

Well, there’s a complex answer and a simple answer. In most cases, you’ll get the complex answer.

It depends.

Everyone’s number is different because we each have different savings goals. Saving for a car is different than saving for a house. Saving for a house is different than saving for college. Saving for college is different than saving for retirement.

Some factors that aid in calculating your savings number:

  • How much do you need for your goal?
  • What have you already saved?
  • How long before your goal takes place?
  • Where will you invest your savings, and at what growth rate?
  • How much can you afford to save?

As adults, your savings number will likely be limited to the last question: How much can you afford to save? I challenge you to reverse your thinking: How much can you afford to spend? Recite the following motto, specifically in this order: SHARE, SAVE, SPEND.

Looking at spending last will be a good way to focus on your savings goals and forces you to examine how much you must earn to afford your lifestyle.

A good rule of thumb is to save one-third (1/3).

Earlier I mentioned that there is a simple answer to the question of savings. If you are young and don’t have any major goals yet or are just starting out, a good rule of thumb is to save one-third (1/3). Any time you receive money, share a third, save a third, and spend the rest!

So ask yourself the question: How much should I save? Don’t get discouraged if your number seems high. Remember that you can adjust some factors to reach your savings goal, like decreasing or delaying your goal. Even if you save a small amount now, you are still building the blocks to your financial future. As you continue, increase your savings little by little. Soon enough, you will be savvy at saving without giving it any thought!

Tune in next week to learn why “sharing” is first on my list. Or subscribe below to automatically receive weekly lessons in your inbox!

Homework: The next time you get allowance or money, make sure you know how much is going into each of the 3 S’s: Share, Save, and Spend. Can you save one-third or more? What would a small increase in savings do for your goal?

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A Good Four-Letter S— Word: Save

If having savings is a good thing, why does the act of saving money get such a bad reputation? Do we dread saving money because we live in a world of instant gratification and don’t have the patience to spend our money later? Maybe. Is it tough to accumulate savings when we have other bills to pay? Of course. Do we sometimes get overly enthusiastic when we first start saving, only to jump ship halfway? It happens. How do we overcome these obstacles?

Delayed Gratification

If you were given a choice between winning a new electric scooter or a trip to Disney World, which would you choose? You’d probably choose Disney World because it’s more expensive. What if you can get the scooter now, but the trip requires waiting three years? You’d switch to the scooter, wouldn’t you?

Wait a second! Just a moment ago, you wanted Disney World, remember? Don’t let short-term impulses get in the way of your long-term dreams. If you want something bad enough, it’s worth waiting for. That’s the power of delayed gratification.

(In case you are not a Disney fan, feel free to substitute your own dream purchase in this scenario.)

Automated Savings

Balancing savings and expenses can be a challenge. One solution is to budget, so that your savings take a dedicated amount like any other bill.

Another way to prioritize saving money is through automated savings. Whenever money comes in, whether it be allowance or working income or gift money, automatically save a portion. Direct deposit makes this easy by routing a percentage or dollar amount to an account, which you can assign for a specific purpose.

Celebrate Small Victories

The hardest part about saving may be the journey to reach your goal. It’s easy to lose sight or get distracted if you don’t celebrate small victories. Consider giving yourself a little boost or reward for reaching milestones along the way to your goal. Buy yourself a keychain or take a test drive at the arcade after saving $200 towards your first car. Reward yourself with pizza every time you reach a big step towards your dream trip to Italy. You get the idea.

Parents can help by throwing in a savings match. For instance, offer a nickel for every $1 dollar that your child saves or alternatively, pitch in $5 after your child reaches $100, $10 after reaching $200, and so on. Little incentives go a long way with motivation!

Yes You Can!

Savings takes work. But that work can be fun once it’s automatic and if you put the savings toward an achievable goal that excites you. Figure out what it is that you really want, and then start saving!

Tune in next week to learn how much you should be saving. Or subscribe below to automatically receive weekly lessons in your inbox!

Homework: The next time you are faced with an impulse purchase, ask yourself if you would rather save the money towards a bigger goal. Think of a goal you really want, something that shows saving money is good!

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What Is The Right Price?

As a child, I grew up watching TV game show “The Price Is Right.” But often, I knew the price was NOT right because their prices reflected full retail value, and every one of those goods could be purchased for less.

This begs the question: What is the right price?

Granted there are some items that you cannot pay anything but full price. Taxes are an example. But you’ll find that the vast majority of material goods can be found at a lower price than MSRP, or manufacturer’s suggested retail price. Even services, like a haircut or hotel stay, have deals or discounts if you take the time to look.

target price

That is why you should find what I consider the target price. How much could the price be after a discount? What is the item worth, in other words, what is its value? Most importantly, what is the item worth to you? Practice giving yourself an ultimatum: “If I cannot buy this $35 item for under $20, then it goes back on the shelf.”

Some ways to reach the target price:

  • Get it on Sale
  • Apply a Deal or Coupon
  • Wait until inventory clearance or a new model enters the market
  • Consider getting it Second-hand
  • Negotiate if the situation allows for it

You may find that you miss out on an opportunity because your target price estimate was too low. That’s ok. You will adapt. And hey, it saved you from spending money this time. So the next time you go shopping, play the target price game and see if you win!

Homework: Visit your favorite store and without looking at the price tag, determine a target price for the item you want. As a bonus challenge, resist any urge to buy immediately, and wait at least 30 days to see if you are still interested in making that purchase.