Start Budgeting Today By Understanding Why You Spend
Why Americans Spend
There's no way around it; America is a nation that thrives on consumer capitalism. We're all about getting more for our buck. Who isn't? So, when stores and manufacturers offer quantity discounts or big sales, we jump on it. We overindulge because it's a bargain. When questioned, Americans are often aware of how unhealthy (both financially or medically) overindulgence is, and agree there should be change. Implementing change into our own lives is a whole other story.
Today, Americans are raised in a world of advertisements. Would you want to see this summer's slew of action movies if you hadn't seen the ads for them on television? How about the newest sandwich at Burger King, smartphone from T-Mobile, or television from Sony? Would you need these things? Would you ever think twice about them if they weren't waived in your face every 10 minutes? We are obsessed with unnecessary upgrades and excessive entertainment.
To lessen the extent that Americans examine their own spending habits, both companies and consumers have learned to break down expensive items into monthly payments. However, we didn't stop there. We break down even small items into this same payment scheme by using credit cards. Even used sparingly, when you don't have quite enough money in hand to cover a desired item, credit card debt (and the interest that comes along) can really run up.
We are constantly bombarded by the marketing and advertisement industry. It's part of our culture. Ads are so common place that we discuss them around the water-cooler, in class, and at home with family. Superbowl commercials are famous for being over-the-top, and continue to be referenced in conversation for weeks after first airing.
Americans cannot escape this excessive marketing, but with mindfulness, we can recognize when our spending desires become unreasonable. The purpose of an advertisement is to convince customers of a product's usefulness, and that there is a need for that item. This is not evil. It's not misleading. It's a simple fact. As consumers, individuals are responsible for weighing their personal needs, desires, and fantasies with realities. In order to control our overindulgence and overspending, we must recognize when and why we desire products and services.
Image, Self Worth, & Enjoyment
There is nothing wrong with our desires to have fun, feel worthwhile, and look good doing it. We all want to be comfortable in our outward appearance and feel respected by peers. I don't consider this to be shallow. It is human nature to crave acceptance, and we find a sense of self worth and happiness when this is achieved.
The importance and idea of appearance varies between individuals. For some, it is physical beauty. Others aspire to demonstrate control. Appearance is not only physical, but an overall impression. It's someone's dress, mannerisms, habits, speech, and a slew of other things we subtly collect as we interact with each other. Many of us struggle with excessive spending because we are constantly reaching for that specific appearance, idealized in our minds, but seemingly unattainable. We keep spending and spending on the next new thing. Whether it's based in fashion, technology, entertainment, or a fad is irrelevant. The next thing always trumps the previous and we are again, left behind.
Let's face it: New things feel good. There's something about a new hairstyle, car, phone, computer, game, or book that just makes you feel happy. As fleeting as it is, that enjoyment exists. Does it disappear when you stop the spending? Enjoyment doesn't go away. No one can stop you from enjoying yourself, from laughing, or smiling. Buying new things makes us feel good for a while, but what extra stress does it add to our lives? With more stuff comes more upkeep. This means you have to put extra time and energy into storing, moving, maintaining, and making payments on that "stuff." Those responsibilities almost always outlive the enjoyment new purchases bring.
Spend With A Purpose
By taking a moment to think about each purchase as a long-term commitment, we can avoid overspending. Our appearance is who we are to outsiders. Before swiping that card or clicking the PayPal button, think about how this purchase achieves your ideal appearance. Think about how it helps you become what you aspire to be. Does it help you grow as a person? Will you want it in a year? Will it cost you months of stress and worry in the future? Does it fit? How often will you use it? Does it replace something you already have, or duplicate it? Is it really more convenient?
Going to the movies every weekend costs a lot of money over time. So does eating out, getting your nails or hair done, and going to the gym. Spending money on things that you truly enjoy and benefit your well being is admirable. However, many Americans spend money for the sake of convenience without thought to how it affects their future wallet or body. Is there a better way to eat lunch than spending $7 on fast food every day? With purchases, stay away from living in the moment. Advertising counts on consumers caring about the "now" and not the "later" when it comes to spending. If left unchecked, our impulses will control our lives.
Every item you place in a shopping cart, every service you buy, should be important to you. It doesn't matter if someone else thinks it's a waste of money because they don't share your interest. So long as you consider it beneficial to your (and family) and have examined how it will affect your future finances and responsibilities, I have no qualms with anyone spending extra cash. It should be just that, however, extra cash.
How to Budget
Most people find it difficult to sit down and figure out how much they actually spend on "extras." It's not something we want to think about. We don't want our failures pointed out, but it's time to face the truth. Gather up all your bills and necessary expenses. These should be things like housing and car payments, student loan payments, utilities, entertainment, phone, groceries, and gasoline expenses. The easiest way to do this is simply reference last month's bank statement. Don't worry about where the rest of it goes, just look at what it takes to live. Ignore all the meals out, movies, and other unessential spending for now. Total up your living expenses for the month and compare that with your net (take-home) income. The difference between the two is what your finances can handle in extras.
Multiply your extra money 12 (months in a year) and then divide it by 52 (weeks in a year) and you have your weekly extra allowance. Extras not only include indulgences, but savings as well. Decide how much you'd like to save or invest each month and split it with the fun stuff. Now you have a budget, but what do you do with it? Writing it down is one thing, sticking to it is another.
If you don't have it already, get direct deposit set up with your employer. Then, spend a day getting as many living expenses as possible set up for automatic payments from your checking account. Most banks charge a fee if you don't have at least three bill pay accounts using their service. ING Direct provides automatic bill pay with their checking accounts with no restrictions or minimum payment requirements. Forgetfulness will never cause you to be late on bills again.
I have found it easiest to have two checking accounts so bills and extra spending can be handled separately. It's just less confusing when you don't have to sort through hundreds of small transactions all jumbled together. Open a second, spending account, just for the extras. You can set up an allowance for yourself two ways. First, you can ask if your employer allows direct deposits into more than one account. Most do. You can designate a fixed amount be deposited into your spending account, while the rest is dumped into your bill-pay checking. Alternatively, you can schedule an automatic weekly transfer through your bank between the two accounts.
You did the math, you know how much "extra" money you have to play with, and you know your regular bills are covered. Make sure you label your debit cards with a Sharpie, one for BILLS and the other for SPENDING. It's easy to get the cards mixed up in your wallet.
It is extremely important that you only use your bill account for bills and avoid any further credit card purchases entirely. Hopefully, you were able to put aside something in savings each month or week to cover the unexpected. Check the balance of your spending account often so you don't accidentally incur overdraft fees. I have to mention ING Direct again. They simply charge a small amount of interest on negative balances, less than 1%, with no overdraft fees at all.
By assessing each purchase you make, you can still have fun and enjoy life while on a budget. Don't feel pressured or obligated to get the next big thing. Make purchases you know you can enjoy for a long time by thinking about how they'll affect other things in your life. Don't worry about past habits and regrets. You will feel a weight lift from your shoulders as you learn how much extra stress impulsive and excessive spending added to your life.