In an economy like this one, staying afloat financially is on everyone's mind. The key is to get even smarter about spending.
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Here's a short list of life's worst spending offenses, plus some tips on how to kick 'em to the curb. Only then can you invest your money where really matters: in your personal financial security and peace of mind.
1. You don't spend -- you splurge.
I wish I had a dollar for every person who ever told me, "Actually, I hate shopping." That's usually a big, fat lie. Just because you don't hit the mall with friends -- or bookmark all your favorite Web sites' clearance sections -- doesn't mean you're not a spender.
In my experience, true nonshoppers are less than 0.00001% of the population. The rest of us either dribble our money away on a steady stream of meaningless purchases, or we go for weeks without a single purchase only to drop $350 on a coat. (Or the new iPod Nano and a coat.)
Spending Rx: Read your bank statements at bedtime -- and note the spending pattern of control followed by craziness, moderation interspersed with mania. Then get some support: Join the "controlled spending" thread on MSN Money's message boards.
2. You blow your cash by eating out.
How much of an impact does food have on your finances? To find out, I went through my bank and credit card statements for 2005. (That was before my son was born, while my husband and I were still living the stupid spending lifestyle immortalized by "Sex and the City.")
What I found: On average, we went to restaurants or got takeout about three times a week, spending an average of about $32 each time. That adds up to $96 a week, or more than $400 a month.
But those numbers don't reflect the many smaller meals and snacks we paid for in cash. So let's say we spent about $475 a month just on eating out: That's roughly $5,700 in only one year.
Spending Rx: Before you spend a similarly staggering amount on supposedly cheap pasta, overpriced drinks and pizza, consider the opportunity cost of those meals. What's that few thousand dollars really worth to you?
When my husband and I asked ourselves that question back then, it clarified what was truly most valuable to us and where we wanted our money to go. Not surprisingly, mediocre Thai food was not the answer. We slashed our food costs by cooking at home, then got serious about saving for retirement, had a child and, most importantly, got ourselves out of debt.
3. You spend to 'save.'
In New York we have a saying: "A bargain ain't a bargain unless you buy it."
Sadly, many people embrace that philosophy and then wonder why their finances suffer. Spending to save is not only the greatest oxymoron of all time, it's also a ridiculous waste of your hard-earned dough.
According to economists who study the way humans manage their mental accounts, it's far too easy for most of us to do a few credit default swaps in our brains and decide that spending $150 on a chair (marked down from $300) puts an extra $150 in our wallets.
And right now, with so many goods marked down by 30% to 75%, it's vital to avoid this particular spending trap.
Spending Rx: Beware of the slipshod methods your brain may employ when running the numbers. Look thou, therefore, unto thine actual stash of available cash when shopping. Ask yourself two questions only: Do I need this? Can I afford this?
And if that doesn't work, go extreme: Just stay out of stores in the first place.
4. You operate like the vice squad.
Cigarettes, alcohol, lottery tickets, lattes, even downloads or shoes -- I have no idea what your private vices might be. But you know, and you should know what they cost you.
Here's some help with the numbers:
- If you smoke a pack of cigarettes every two days, and a pack costs about $6, that's about $90 a month.
- If you have one (just one!) glass of wine with friends twice a week and maybe once every weekend, and each glass costs $6, that's about $80 a month.
- If you download six songs . . . well, you get the idea.
There's nothing wrong with the occasional indulgence. But when you pretend those expenses are invisible (like "vacation calories"), you don't realize that the giant whooshing sound you keep hearing is the vice squad pulling cash out of your account.
Spending Rx: Keep your vices, by all means, but be accountable. Tally up the costs with all your other expenses and make them an acknowledged part of your budget, not a stealth expense. Once the actual price tag is out in the open, it's a lot easier to control your spending or cut back as needed.
5. You go for dubious duplication.
Another ocean-sized spending blind spot is buying more of what you already have. This usually falls into one of three categories:
- Frivolous upgrades. Do you need a new DVD player in black, to match the new flat-screen TV (which you didn't need either)? C'mon!
- Shopping amnesia. You buy another pair of jeans . . . because you "forgot" that you already own 12.
- Replacing working items. Yes, you want a side-by-side fridge with a bottom freezer drawer (and so do I), but that doesn't justify spending $1,800 to ditch your "old" fridge. Which, by the way, is in perfectly fine shape.
Spending Rx: This is the biggest fix of all because it goes right to the root of why we overspend in the first place.
Here's the brutal, paradoxical truth: We blow our money because we want to be rich. And because actual wealth is hard to attain, we can't resist buying the trappings of prosperity -- the flat-screen TVs, the new jeans and gadgets, you name it.
I should know: I've been there, done that and paid for it with 15.99% interest. Now I'm trying to change my own spending habits in order to shore up my financial security.
The best way to do that is to do a thorough cost-benefit analysis before you spend -- and make sure that whatever you are buying will truly benefit you. Ask yourself: Is this where I want my money to go? If I buy this now, what will it get me? And will it make me truly happy?
That should supply your answer.
Published Feb. 6, 2009
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