How to Spend Money Wisely

Wise spending habits are essential to creating the life you want. Poor spending habits can lead to debt accumulation and financial hardship. Knowing how to spend money wisely using the key steps listed below is a framework that anyone can adopt to better position themselves to achieve their definition of financial success.

Understand your priorities and align your decisions

What are your financial priorities and values? You can determine what your financial priorities are by acknowledging your financial situation and casting a vision for your future financial state. Determine the spending habits you need to adopt to close the gap from where you are to where you want to be. For example, if your priorities are to diversify your investments you may aim to buy into real estate. Whereas if you need to build an emergency fund your priorities may be to limit your spending and redirect your money to saving. 

After determining what your priorities are, be sure that your financial decisions are tempered by them. That does not mean that you can’t treat yourself to a movie or a new pair of shoes, but it does mean that you should consider the amount of discretionary funds you use for leisure.

Spend mindfully

Before you make a purchase take some time to evaluate if the purchase aligns with your priorities. Consider how the purchase will impact you in the short and long term. Opportunities to spend are ever-present. Spending has become easier and faster with advances in technology. This behooves the consumer to make conscious decisions that are not driven by impulse. Sometimes, I challenge myself to do a month of no spending to reset my habits and mindset. After going four weeks without purchasing, all the impulses I experienced eventually waned. Additionally, you gain a renewed mindset that helps you gauge if a purchase will enhance your life or not.

Another powerful way to avoid impulse buying is to practice gratefulness. The ways to glamorize and embellish your lifestyle are boundless. However, developing a consistent practice of acknowledging the things that you have and demonstrating appreciation for them will help you withstand the lure of impulse buying. 

Develop a budget

Budgeting is a way to predetermine how your money will be spent based on your needs and priorities. Having a budget that works for you, allows you to direct your spending intentionally. You need a game plan before your income comes in to maximize your ability to reach your financial goals, otherwise, you may fall prey to the wit of marketing and impulse buying. Starting a budget can be daunting and complicated particularly if you’ve never attempted to develop one. Learn more about how I strategically approach budgeting in a beginner-friendly way by reviewing our budgeting activity book here. 

Nuf said, have a budget.

Bonus – Spend on assets and not liabilities

I have found several financial teachers that I follow. A common thread in all their advice is to spend money and time to attain assets and not liabilities. Assets are items that increase in value while liabilities depreciate. Being financially free means that you no longer have to exchange your time for wages. If your goal is to become financially free, building a portfolio of assets to cover your expenses is a great way to start your journey. Some ways you can start building your assets are by investing in the stock market, starting a side hustle,  learning a new skill, or starting a business. While each of these options takes time to pay off, in the end, the return can be well worth it. There are risks associated with investing, be sure to research the advantages and disadvantages of any investment decision you could make.