Tag Archives: spending
Advertising is all around us. We are constantly inundated with it, over and over again. The impulse and image monsters derive its power mainly from the power of advertising. If you hear or see something over and over again, you begin to believe it. It starts to influence your decisions at the subconscious level. If you have not fully bought into your financial goals, you can fell prey easily.
If we stop to consider how we really earn money, we will take greater care of what we do with it the moment money gets into our hands. Our entire lifetime can be expressed in hours literally. Let’s say you live to be 95, you would have lived 24 x 365 x 95 = 832,200 hours. Each day that passes, you have 24 hours less. Each week that passed, 168 hours is gone, never to return. If you have a job, you are trading your time for your money. You are expected to put in at least 40 hours per week in your job, 160 hours per week.
If you are like most people, you face challenges saving. Your salary does not seem to be enough in the first place, talk less of saving. How can you save when you are trying to make do with what you have? It seems like being asked to make bricks without straw. It does not sound realistic to you.
I still wonder why common sense is so named. I feel native sense or something similar is more like it. In my experience, common sense is not common especially when it comes to money. The challenge lies in the way we make financial decisions, especially when it comes to spending. We spend with our emotions and justify with our minds. We decide we want something, and that find reasons to justify why we do.
Spending less than you earn is common sense. An average employee or income earner knows this deep down. Spending less than one earns is one of the usual suspects in many a failed New Year Resolution. We routinely give in to aimless spending in the holiday season, pay the price in the New Year as parents struggle with school fees and other mandatory expenses and become sober for a season, even start saving . Sadly, a few months down the road, the money is un-saved. It is dragged kicking and screaming from our savings account as we slip back to old comfy habits.
If you are still where you were financially last year, chances are, you are cruising on a financial treadmill. Money comes into your hands every month, and you spend it on the usual suspects. By the time the dust settles, you are still where you were before the money came into your hands. You are not making any progress financially. As far as you are concerned, your salary is nowhere near enough. If you get an increase tomorrow, you will spend all and ask for more. For you, enough is a goal post on wheels. As you draw closer, it moves further away from you.
What is your common reflex action when it comes to money?
When you enter a car – you reach for the seat belt. When you touch a hot object – you snatch away your hands. If a flying object comes towards you – you duck. When money comes towards you – YOU SPEND.
We tend to handle money like hot coals – spend before it burns a hole in our palms or pockets.
When it comes to money, we often do not stop to think through before we act. The answer to why holds the key to why we do the things we do, and consequently get the results we get. If we are not getting the results we desire, it means we may be doing something wrong. If you are perpetually broke, it means you have violated some important financial laws. When it comes to attaining financial freedom, the most often violated law is spending below your income and paying yourself first. Deciding to do something different often is not enough. You may decide to do the right thing, but find yourself doing the wrong thing over and over again. We need to find out why
Sticking to your budget is a no win battle for many. There are tons of advice online and offline about how to make a budget and stick to it. There is nothing wrong with the advice, things you need to do or formulas you need to follow. Making a New Year Resolution is not the problem. How to keep it, that’s the issue.
I am not a guru coming to rubbish decades of personal financial advice. I plan to share are principle that drives home what has been said before in such a way that it makes it easier for you to make the emotional commitment required to make it happen.
A stand alone budget is almost doomed to fail, especially where there is a pool of available cash, unless you have an iron clad will, which some people do. Your budget should be an integral part of your annual financial goals and plan. If you have a financial goal, which boils down to saving (say 30%) of your salary monthly, coupled with an account or investment vehicle where the money goes automatically where you have no access and a commitment not to borrow (credit cards) , then you have set the stage for a budget that works.
Spending is largely an emotional decision, and while formulas or steps to reduce spending can work in the short term, we usually fall back to old patterns and habits of spending. Adverse economic conditions can cause slow down in spending, but the moment we feel more secure (consumer confidence), the party goes on from where it stopped.
The core of the issue is that we associate spending with pleasure and savings with pain (denial). Spending makes us happy. It creates excitement. It buys us new things which tend to have the effect of changing our mood (retail therapy). A new toy (both adult and children) , edibles especially chocolate, candy for children, music, film, electronics etc lifts our spirits and gives us a temporary high. It brings a new feeling as we get to enjoy the new addition to our collection. Shopping is fun. You need to observe the look on the faces of shoppers as they leave the mall. They can’t wait to get home to enjoy their new acquisition. As children, anytime someone gave us money, the first impulse is to think of what to buy with it. We would pester the living daylight out of our parents, until sometimes they gave in for peace to return to the planet. Anytime we visited the stores with our parents, we were forever pointing out what to buy.
Reminds me of a joke I came across years back. A mother and her 5 year old daughter went to the mall. The daughter gleefully grabbed the biggest shopping trolley she could find and the show began. She started throwing stuff into the basket. As she was dumping in stuff, the mother was busy returning them to the shelves. After a while, the mother had to restrain the daughter.
“Stop throwing things into the trolley sweetie. Let Mummy do it. We can’t pay for all these things. Money does not grow on trees”
At which the daughter replied “If money does not grow on trees, then why does banks have branches?”