How to Understand Your Spending Habits in 3 Easy Ways
Day 2: Face Your Finances Series
This post is part of the Face Your Finances series. You can achieve financial freedom sooner rather than later. You don’t have to settle for a life of debt, financial overwhelm, and living paycheck to paycheck. Don’t let your current financial situation make financial freedom feel impossible. It’s time to reclaim control and face your finances!Before we get started, if you would rather read a condensed version of this series as a 7-day email challenge, simply sign up for that option here: Face Your Finances Email Challenge
Today is all about understanding your spending habits. Something that universally connects all of us is that we spend money. We don’t all spend money the same way, but we ALL spend.
That’s why an important factor in your financial success is understanding how exactly it is that YOU spend your money.
Here’s a quick stat for you. Did you know that the average person is said to make 1-2 transitions per day and approximately 47 transitions per month? Do you think you fall into that statistic?
Contrary to popular opinion, not everyone picked up their money spending habits from childhood. Some people are born spenders, some people are born savers, and some people are born somewhere in-between.
With that in mind, everyone needs to regularly assess their spending habits in order to see where improvements can be made because let’s face it, improvements can be made. You might be surprised at what you find.
Before we get started, I want to share two quick stories with you. One is a personal story, and the other one is about a friend of mine. I’ll start with my story.
Not long after my husband and I got married, we decided to track our spending habits with groceries. We discovered that in a single month, we spent $386.91 on groceries for the two of us.
The problem with this was that most of our food went bad because we over purchased and couldn’t eat everything. However, it wasn’t until we tracked our spending that we realized how much money we were wasting.
My next story comes from a friend. She said that she and her husband tracked their spending for the number of times they ate out at restaurants or got takeout/fast food. By the end of the month, they spent over $700 on eating out. Let me repeat that:
$700 on eating out in a single month!
Hopefully, those quick stories help you realize the importance of tracking your spending. If you’ve never done this before, be prepared to learn a lot about yourself!
Now, let’s get to work.
To start tracking your spending we will cover these areas:
- Per Item Costs
- Needs vs. Wants
Let’s get starting with your spending habits!
Per Item Costs
It’s time to get that list and put prices next to each item.
Chances are you will realize how much money you are wasting on things that you pay for each month. Do you have a gym membership but never go? Do you have an HBO account but only watch Netflix? Are you paying for an expensive phone plan that could be cheaper with another carrier?
Get your list from yesterday’s bills/debt inventory and find out how much you pay per item.
Recommended: Easy Money Goals All Millennials Should Have
2.Wants vs. Needs
Yes. There is a difference between things you want and things you need.
For example, I want eyelash extensions but I need to buy groceries. I want new clothes but I need to buy gas for my car. I want the newest iPhone but I need to save for college tuition. I want to go to an expensive restaurant but I need to pay off my credit card debt.
I think you get the point.
For this part of the exercise, on a piece of paper make two columns. On one side, make a list of all the things you want and on the other side make a list of all the things you need.
It’s important that you don’t put things on your need list that are actually wants.
If you’re unsure if something is a want or a need, just ask yourself this: what would happen if I cut this purchase out of my life?
If you cut it out and there is no risk of you dying, losing your job, or endangering your well-being, chances are it’s a want.
Recommended: How to Successfully Save Money as a Millennial
How often do you splurge?
And I don’t mean buying an ice cream cone on a Friday afternoon. I mean a ‘treat yo’ self’ type of splurge.
Depending on your monthly income, a splurge is a different price point for everyone. However, a splurge is still a splurge, and can really hurt your finances.
There are a few reasons you end up splurging. One reason is because you see an item you really want and decide then and there to buy it with little thought to the financial repercussions. Or, maybe you had a bad week and convinced yourself that you deserve a shopping spree.
If this sounds like you, don’t worry. You’re no alone. I have my share of splurge purchases (most I totally regret!).
The occasional splurge is normal. What’s bad is having no self-control combined with the frequency of how often it happens.
For this exercise, take a look at your purchases from the last 3-5 months and add up how many times you splurged. Then, add up the amount of money you spent in total on those splurges so that you can see how much financial damage it did.
It’s time to get those spending habits in check!
When you have completed today’s tasks, you will have a better understanding of your spending habits. This won’t be fun, and it might even make you cringe but, it’s important!
You got this!
Tomorrow is all about credit card debt. Yep, we are totally going there! See you then!
Check out all 7 days in the Face Your Finances Series:
Day 1: How to Do a Financial Inventory With Your Money
Day 2: How to Understand Your Spending in 3 Easy Habits
Day 3: How to Face Your Credit Card Debt in 5 Easy Steps
Day 4: How to Start a Budget You Actually Stick To
Day 5: How to Save Money Like a Pro
Day 6: 17 Way to Increase Your Income
Day 7: How to Take Control of Your Financial Future