Are you having problems because your monthly spending goes beyond your budget? You are not alone. This is a common problem for anyone who is trying to improve their financial behavior. Having been born and raised in a consumerist society, we are all driven by the need to spend. Regardless of how self-sufficient you try to be, there are still things that you need to pay for.
In most cases, it is our spending that got us into trouble when the economic crash happened in 2007. It simply implies that there is a lot of room for improvement in the way you spend. But before you can hope to improve your financial behavior, you have to understand the spending influences that affect your decisions.
5 factors that influence the way you spend
Our spending habits are influenced by a lot of things. While the general list may be the same, our own personalities filter out those that have the most and least effect in our spending decisions. You need to understand that pinpointing your exact spending influences is unique. Even your own spouse may be affected by a different set of factors or influence intensity. This is why you need to do your own analysis of your own purchasing behavior.
Here are the 5 factors that will influence your spending personality.
When we talk about wealth, this basically refers to your ability to make a purchase. Naturally, you will be influenced by how much you can afford to spend. If you do not have money, you do not have anything to pay for your expenses. Unless of course, you put yourself in debt – which is not really advisable. The more you have, the more confident you will be in making purchases. To be smart about this, you need to make sure that you are being influenced by your disposable income. It should never be based on your net or gross income. That way, you will know that what you are spending is based on the extra money that you have.
Spending influences are also defined by your age and your experience. According to a study done by PEWSocialTrends.org, the debt situation between younger and older household differ during the recession. Households that are headed by 35 years old and above have debts that fell by 8% only from 2007 to 2010. Those who are younger have debts that fell 29% within the same period. For credit cards in particular, more of the younger households cut back on their debt by 10% while the older households only experienced a 5% drop. The age difference is important because they are both at varying stages in their lives. The older households are typically married and have children. They needed to cope through credit cards because more people were relying on them. The younger households, even those who are married may have a lower parent percentage. That means cutting more from their expenses is possible.
Another way of looking at this is through the generation differences of consumers. Your spending habits will vary from your parents, your grandparents and your children. That is because you all grew up under different circumstances. Your experiences can be one of the strongest spending influences.
You will also be influenced by your educational attainment – or at least how financially literate you are. According to a collection of data from CollegeBoard.org, those who are high school graduates usually expect more federal or state financial aid. These include food stamps (8% high school vs 1% of degree holders) and other financial assistance programs. Those who have graduated from college are more likely to have a job and thus have the means to support themselves. That indicates that they spend more on their basic necessities – simply because they can afford to do so.
Spending influences from your life events should also be considered. We have mentioned that as you age, your priorities will change and so will your buying choices. According to Gallup.com,
having children, for instance, is a major driver in changing the spending patterns of parents. One thing is for sure, the daily spending is higher for those who have children below the age of 18 ($108) compared to those who do not have young kids ($79). The same is true when you get married or when you retire. Your particular situation in life will affect how you will spend your money.
Finally, the external environment is also a part of the spending influences of consumers. Whatever your family will require will influence how you spend. This is especially true if you are responsible for spending on their needs. For children, they typically get their financial foundation on their parents.
And for your friends, remember the saying that your friends will define who you are? That is because they can influence areas in our lives that we never thought about before. Part of this is how you spend your money. Haven’t you noticed that when one of your friends purchase a new gadget, you are all itching to do the same? The same can be said for your neighbors and work colleagues.
Society is also a major influence because our economy is mainly driven by consumer spending. They naturally want you to spend your money to drive businesses forward. You can endorsements and advertisements that are meant to get you to spend even if you never intended to.
How to be smart with your spending choices
All of these spending influences can have a good or bad effect on you. Of course, if it has a good effect, then you know that it can stay. But if it gets you to practice bad spending habits, you know that you have to distance yourself from that influence.
Here are some tips that will help you be smart with your spending decisions.
Always know your budget. If you do not have a foolproof budget plan yet, then it is high time that you make one. You have to understand how much you can afford to spend every time you go on a shopping errance.
Make sure it is aligned with or will not jeopardize your financial goals. If your spending will get you off course, then you might want to reconsider or look for cheaper ways to meet that spending need.
Learn to say no to spending and yes to saving. Whenever it is possible, you may want to consider prioritizing your savings instead of your spending. It is important for you to realize that smart spending is not just about buying only when you can afford it. You should also know when to completely forego an expense so you can put more money in your savings.
Get a cheaper alternative. While there are expenses that you need to spend on, it does not always have to be the most expensive one. You may want to consider the price because the high price item is not always the best. There are usually more economical versions of what you need. Just make sure that you are not totally sacrificing the quality of your purchase.
Focus on the experience and not the material thing. We wrote an article about which is better, materialism or experientialism. The latter gives more happiness to the consumer so you may want to find out how you can have this as part of your spending influences.
As you try to improve your spending choice, make sure that you practice purchasing with cash and credit. You can be a smart spender even with credit purchases as long as you understand credit management.