Part of good financial management is making decisions based on your priorities, and understanding how a purchase or a spending decision will benefit your life.
Before you spend money on a product, service, or experience, it’s a good idea to consider what you will gain by making the spending decision. Spending money can be a positive experience when done with a focus on what you can gain as a result of your spending decision. Here are a few things to consider:
Is It Something Your Family Values?
First of all, you need to decide if it is something your family values. Do you enjoy making memories on vacation? Do you spend time playing video games together? What do you enjoy doing together? If the purchase will help you spend more time doing what you like to do together, it is probably worth the expenditure. Make sure that the purchase is in line with your personal and family values for the best results.
Will You Gain More Time?
Another consideration is whether or not it will truly free up time for you to spend doing things you actually enjoy. In some cases, hiring someone to clean, or take care of your yard, or even prepare a few frozen meals for you can be worth the money spent. If you are able to spend more time with your family, or if you will have more time for the things you really enjoy, it can be worth it to pay someone else to take care of the task.
Can It Improve Your Health?
Sometimes, spending money now can help improve your health in the long run. Spending a little more on fresh produce can help your long-term health for example. You can also see a difference over time by investing in a good pair of running shoes, or other equipment that can help you exercise more. Just don’t let this be an excuse for you to buy something you really won’t be using. Many people, for instance, talk themselves into buying an exercise machine, only to have it collect dust after a few weeks. Spending more to stay healthy can be valuable — as long as it truly increases your health.
Will It Improve Your Quality of Life?
Decide whether or not your purchase will make you happy, and improve your quality of life. If you spend a lot of time grilling outdoors, it might be worth it to buy a better grill, and build a new patio. Some people enjoy the comforts of a nice home, while others want to travel the world. Think about what’s important to you, and what you think will truly make your life better.
Better Living
The key is to think about whether or not an expenditure will actually help you with better living. Can you see how spending the money will truly improve your life? Will you be able to spend more time with family, or advance your goals and priorities? Be honest in your assessment. If you really won’t be gaining much by spending the money (and especially if you really end up losing), you should consider holding off.
Will Using the Money Take Away from Something Important?
Don’t forget that the money needs to come from somewhere either. Each dollar you use is going to impact other areas of your financial life. If you are spending the money on one thing, there is a good chance you won’t be able to spend it on something else. Consider your financial priorities, and ask yourself whether or not you are giving up something of long-term importance so that you can have something superficial right now.
Do you have to reduce your planned retirement account contribution in order to buy that new game system? Are you skipping your extra debt payment this month so that you can go out to an expensive dinner? The real test is if you have the cash after you’ve already paid for all of your obligations and more important expenses. If you have to give up something that is truly important in order to “afford” something that is less important, you can’t really afford it.
Last But Not Least
You’ve done all the mental calculations, and decided that you want to buy something “fun.” There’s nothing wrong with this. But, before you pull the trigger, be honest about where the money is coming from. A few years ago, I was convinced that I was living within my means because we weren’t adding very much new debt, and I paid more than the minimum on my credit card balances.
I saw a pattern when I became honest with myself, though. I occasionally moved money from another account to “shore up” the primary checking account. Sometimes, I bought two or three things with the credit card. Even though the overall trend was toward paying off debt, the efforts were hampered because sometimes I “cheated” a little bit to make sure I had the money to meet expenses.
Look at where the money is coming from. If you truly have the funds, I have nothing against spending money on the things that you like. However, you aren’t living within your means if you repeatedly have to move $100 or $250 from your emergency fund to cover costs, or if you don’t pay off your credit card balance “just this month” in order to avoid depleting the checking account. You don’t actually have the money for the purchase. You are just shifting things around, and using a little bit of debt to mask the problems.
Consider where the money will come from, and be honest with yourself. Consider saving up for what you want, and then buying it when you truly have the money.
Before you spend money, think about the impact it will have on your life. Consider whether or not you can use the money for something else — something that will actually benefit you more.
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My favorite question to ask myself is based on an old toast, “May you have what you want, but more importantly, WANT WHAT YOU HAVE!” It helps put everything, including spending in perspective. Cheers!
“Enough” is one of the most power concept there is to master in life!
When it comes to my kids, I don’t mind spending money. I buy them almost everything they want that my money can afford. But when it comes to myself, that’s a different story. As long as something is usable, I don’t need a new one.
That’s a good mentality to have James. Why fix what’s not broken?
Time is money, but the more you spend the more you have to work, try to reverse it and reduce your dependence on gadgets and other new products, buy used or waive the need completely. You will feel better and have more time for your family and friends.
We just finished having our carpet replaced with tile and laminate. I spent a couple of years investigating different kinds and trying to decide whether to go with carpet or laminate. When I thought about having to replace carpet again in 10-12 years, that made my decision. Now that it’s done, I’m glad I chose to go without carpet.
Tips and things like this are important for people to know especially during a recession. People are not used to having to budget so strictly.
These are all great things to think about. I’ve found that creating a zero-sum budget forces you to think about all of these things ahead of time. That way you know where every penny of your money is going each month before you are even tempted to spend it.
I generally try to think of how long it’ll take me to buy a larger purchase in terms how many days I’d have to work. It puts things into perspective and makes me realize if it is worth it to me or not.
This really strikes a chord with me as I am extremely analytical before any sort of purchase and not just for major purchases. Sometimes, I get criticized for it but I guess I just enjoy it too, trying to outsmart all the companies that try to shove useless and excessive products to us customers that we really don’t need.
-Jean
These are all great questions to ask. I’d maybe add on that too much in the way of positive purchases in life can become detrimental over time. For example, I tend to consider buying and reading books as a means of enriching my life. However, if my library were to grow to be too big, for example, I’d actually be lessening my life experience as the pleasure of reading would be eclipsed by the unpleasantness of not having room to live in my condo.
Good post. I like to think about my spending in terms of hours at work. Is such and such item or purchase worth 2 hours at work? It helps me stay on track and not waste money.
I should definitely do this exercise when I go and buy lunch at work. There’s usually no reason for me to do that, and it ends up being expensive.