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How do I Develop Good Spending Habits?

By Lori Smith
Updated Jan 28, 2024
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To develop good spending habits, you should first have a plan. Create a realistic budget for yourself, analyze where your money is currently being spent, and make appropriate adjustments. Also, be sure to open a savings account and make regular deposits so that you have cash available in case of emergencies. Furthermore, eliminating credit card debt is essential to improving spending habits while preventing needless finance charges. Finally, plan ahead for purchases and avoid impulse shopping.

Many of the experts say that you should pay yourself first. This means that every time you get a paycheck, you should take a percentage of it and immediately place it into your savings account. You should not use this money unless it is an emergency. Over time, the cash you deposit into this account will grow and earn interest.

One of the most effective ways to improve spending habits is to create a budget and stick to it. Before you do this, however, you should figure out what you currently spend on everything from gasoline to grocery store purchases. Keep a log for one month, and then analyze it. You may be spending more than you think on morning trips to the coffee shop, for example.

Once you know where your money is going, eliminate unnecessary purchases. For example, start making coffee at home instead of paying for it elsewhere. Some people have a habit of buying their favorite magazines at the grocery store checkout line. Many times, a monthly subscription to the same periodical can be more economical.

When you know what your current expenditures are and you adjust some of your bad spending habits, you should figure out how much money you can afford to save. If possible, take at least ten percent of your monthly salary and put it in a savings account for emergencies. If you are unable to set aside that much, decide on an amount you are comfortable with and make sure you are diligent about paying yourself first.

Then, create a budget based on the remaining income. Factor in your fixed living expenses, such as insurance, mortgage and car payments. Include food, gasoline, automobile repairs, tuition, medical needs and any other expenditure that arises on a regular basis. You should also decide how much you can allocate to discretionary spending.

If you have outstanding loans or credit card debt, focus on paying those off. You may be spending a lot of money on finance charges each month. First, select the cards that assess the highest annual percentage rate (APR) and pay more than the minimum monthly amount each month.

When those charge accounts are paid off, you can then focus on paying off the others. In order to be successful, however, you should adjust your spending habits and make all purchases with cash. In other words, if you continue to use your credit cards, you will not get very far.

Instead of charging items, use the money you set aside for discretionary spending to pay for your purchases. This is a predetermined amount of cash, separate from savings, that you can use for whatever you like. Once it is gone, though, do not spend any more. You can use it for entertainment, such as going to the movies or dining out; to purchase a gift for yourself; or even to save toward a vacation. The bottom line is that you should plan ahead for the things you want to buy.

You can also develop good spending habits by avoiding impulse shopping. An expensive outfit that you purchase on a whim, for example, can hurt your budget. You may be able to save a lot of cash by purchasing a similar item on sale, using a store coupon, or even waiting a day or two to think about it before committing to the purchase. In other words, give yourself time to change your mind before spending the money.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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