How to Create Better Spending Habits

In this day and age, it’s so easy for us to spend a week’s worth of pay with just a few swipes of our credit card, which could ultimately lead to debt, poor credit, bad spending habits, and very little money left over. If the end of the month rolls around and you find yourself wondering where all of your money went, it might be time to start taking inventory of your spending. 

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Learning how to spend money can help you get out of debt, put more money in your savings account, and reach your financial goals. Keep reading for tips on how to budget your expenses so that you can be on your way to developing good financial habits.  

How to break your bad spending habits

The first step to managing your money better is to start getting rid of all of your bad spending habits. Here are some ways to start breaking the cycle:

  • Get rid of your credit cards and use cash-only: With a credit card handy, spending is as easy as a blind swipe. Even debit cards make it easy to overspend because you aren’t having to physically pull out and count cash when you pay. If you can’t fully get rid of your credit cards, start leaving them at home when you go out. Instead, bring a portioned amount of cash with you as your budget for the day. 
  • Set a long-term goal: When we’re exhausted from our busy schedule, it’s easy for us to justify spending $5 a day on coffee or $20 on take-out—but even these seemingly innocent expenses add up.  One way to kick this habit to the curb? Start putting your focus on something big that you really want and dedicate a savings account to it. Every time you feel the urge to spend money on something that you don’t need, think about your goal, and put the money in yours savings account instead. If you start utilizing this strategy every day, you’ll have money saved up in no time.  
  • Know the difference between needs and wants: This is one of the most important things you can do to better your financial situation. Too often we justify purchases that we could probably do without, because we just really want them rather than need them. Do you really need that new purse or do you just really want it?  If it’s a necessity, then buy it, but if it’s something that you want, put some thought into it before you pay.
  • Make a shopping list: You’ve probably heard people say, “Never go grocery shopping on an empty stomach.” Well, even if you have no choice but to hit up the grocery store with hungry eyes, you can avoid overbuying as long as you make a list and stick to it. Make it a short-term goal to only get the things on your shopping list. You might find that it will not only save you money, but time, as well. 
  • Give yourself an allowance: Your parents aren’t the only ones with the authority to give you an allowance. Create a budget for yourself by looking at how much money you can afford to spend on daily expenses and what bills you need to pay. The key to this tip is to pull out the exact amount of money you need each week, and stop spending once it runs out. 
  • Don’t reach for the shopping cart: Have you ever noticed yourself walking out of the store with more items than you intended buying? At some point during your trip, you probably grabbed a shopping cart to tow the weight of your splurge. When possible, avoid using a shopping basket during your trips to the store. This will make it more difficult to carry around more items, making it less tempting to grab unnecessary items. 
  • Do a quick necessity-check before you pay: If you skipped tip #6 and decided to reach for the shopping cart, then it might be time for Plan B: survey the items in your cart. Take a look at each item one by one and ask yourself whether or not you really need it before you pay. Is there anything you can hold off on until your next pay period? Can you truly afford everything you’ve grabbed? Shopping sprees aren’t worth it if you feel guilty afterwards. Feel free to make edits to your shopping cart contents until you can check out with clear conscience. 
  • Go generic when possible: Many stores offer their own store-brand or generic versions of popular name-brand items for a much cheaper price. You can sometimes save several dollars by buying these items instead of the more expensive brands. Many retailers offer generic brands of grocery items, pharmaceutical products, cleaning products, and more. 

Learn how to budget money

Learning how to budget your money is a huge step toward optimal financial health. While there is no one-size-fits-all way to budget, here are some steps you can take to budget your money and create good spending habits:

  • Figure out your income after taxes: If you get a regular paycheck and earn the same amount every month, look over your pay stub. Take into consideration how much of your earnings are going towards your 401(k), your insurance benefits, etc. That way, you get a more realistic picture of where all of your money is going and how much you are saving. If you have another source of income, account for anything that might reduce your earnings, like taxes or other expenses.   
  • Choose a budgeting strategy that works best for you: The whole point of a budget is to make sure all of your financial bases are covered. You need to have enough to pay your bills, spend on your needs and some of your wants, and put away for savings. There are several different kinds of budgeting plans, but one of the most common plans is the 50/30/20 budget (50% toward needs, 30% toward wants, 20% toward savings). It’s simple and easy to stick to. We’ll discuss this in more detail below. 
  • Track your progress: Now days, there are so many online budgeting and savings tools to choose from.  Download an app on your phone to make tracking your budget easy and accessible at all times.
  • Automatically send money to your savings account: This is key—sending money to your savings account automatically ensures that you will be putting money away every time that you get paid. This is one of the easiest ways to save, as it comes out of your check without being seen. This method takes little effort and makes a big difference. 
  • Don’t be afraid to revise your budget when necessary: Over the years, it’s normal for our financial situation to change. Jobs will change and so will our spending. Don’t hesitate to adjust your budget in accordance with your evolving financial situation. 

The 50/30/20 Budgeting Plan

The 50/30/20 Budget is a popular and simple budget, especially if you’re new to budgeting and don’t want to do too much math. With this budget, you’ll set aside 50% of your income to spend on necessities, which could include any of the following:

  • Housing.
  • Groceries. 
  • Utilities.
  • Transportation.
  • Insurance.
  • Minimum loan payments.
  • Child care.

This list includes what most people would consider essentials, but of course everyone’s definition of necessities is going to be different. If your basic needs end up costing you more than 50% of your income, you might need to dip into your “wants” bucket for a while until that changes. Conversely, if your necessities end up costing less than 50%, then you will have extra money to work with in your two other areas.

Carve out 30% of your income to spend on all the things that you want each month. Again, what is considered a want by one person is considered a need by someone else, whether we’re talking about a gym membership or organic vegetables. But most people would agree that “wants” would include:

  • Nights out with friends. 
  • Gifts.
  • Travel.
  • Entertainment.

Perhaps you decide that some of the things you want can wait until after you’re earning more or have more money stored away in your savings. If this is the case, you might be able to put a little more toward your savings bucket. 

It’s important to remember that every budget will need to be slightly flexible from time to time, as life’s costs don’t always add up the way they do on paper. If you don’t allow yourself to have some fun while on your budget, you won’t be as motivated to stick with it. 

Lastly, shoot for putting 20% of your income in a savings account OR put it toward paying off debt. Having a savings account is just another important piece of the Good Spending Habits pie. With it, you’ll be better prepared for emergency medical treatment, be able to go on the trip of your dreams or be able to pay off your credit card debt. 

Examples of good spending habits

Finally, ditch your bad spending habits by replacing them with good spending habits. It won’t happen perfectly over night, but here are some habits you can start incorporating into your life so you can get out of debt, and closer to your financial goals:

  • Create a spending log: This is a great way to see the trends in your spending and take notice in the areas that you could cut back on. If you’ve had yet to start logging your spending because it’s time consuming, try using online banking. This way, you can view your bank statements online or through a mobile app. These are great tools to draw your attention to your spending habits so that you can start making changes in your spending where needed. 
  • Live within your means to the best of your abilities: Make it a priority to get out of debt and stay out of debt. Avoid relying on credit cards as extra spending money, and rather use it sparingly as a tool to build credit.  
  • Set financial goals for yourself: Becoming more organized with your money is a lot more fun and rewarding when you have a goal to reach. Setting goals for yourself—whether long-term or short-term—is healthy and will likely make you think twice before swiping that credit card. 

Shop for savings/Do research before making a purchase: Even if it’s for a pair of jeans that fits just right, get in the habit of looking for deals before buying. The bigger the purchase, the more this will matter, but there is always money to be saved somewhere! Use coupons, look for specials, ask around! When it comes to shopping, you can never go wrong getting the best bang for your buck.