A Finance Professional’s Top 10 Rules For Spending Wisely

In order to bring you a finance professional’s top 10 spending rules, I collaborated with Allison Eklund, a financial consultant who works for a company providing securities and investment advisory services. We all go back and forth on what the “official rules” we need to follow when navigating our spending are. And while we may not always agree on the particulars, at the end of the day, it really does help to have specific spending guidelines. Even if we can’t always afford to follow through meticulously, even if we make mistakes, it’s good to have a compass to point us back to the right path.

I first asked Allison about her own personal rules and financial life, including spending and savings habits. She said, “I was not born with financial skills; personal finance is learned, not inherited. The rules I have developed are to always put money away from every paycheck. On top of my retirement account, I try to put an additional 10%-15% into non-retirement savings. This savings account does not have a particular future use attached to it. Something I struggled with for a while was learning to save for the sake of saving. It’s been a really important lesson, because it’s easy to save for specific things, but not ‘just because.’ However, I have learned that the road to wealth entails saving money without defined future uses. If I do those two things every month, I feel a huge sense of relief.”

While it may seem bizarre to start a spending article with a savings strategy, Allison’s savings strategy helps shape her budget every month and give herself spending parameters. In a way, factoring saving in first really helps define your budget. As for spending, we came up with the following 10 rules for spending wisely, complete with Allison’s expert commentary:

1. Visualize your purchase in the long-term.

If you’re looking for an exact “how to” for spending mindfully, this is it. Visualize the life of your purchase before you buy it. Are you using it in six months? How about in two years? One of the first things you should think about is the long-term value. Allison encourages the visualization process because it will, hopefully, help eliminate buyer’s remorse because you’ve thought through the purchase, instead of spending impulsively. 

2. Ask yourself, “can I afford this?” instead of asking, “do I deserve this?”

On this point, Allison says, “When deciding to buy something, instead of thinking first if I deserve it, I consider if I can afford it. I used to justify a splurge by considering how affordable, or discounted the price was. This isn’t helpful. The savvy spender should consider a forward projection of expenses, rather than an items’ perceived value.

“I’ve also victimized my bank account with the ‘treat yo self’ mentality. It seems like this unhealthy thought process of ‘treating yourself’ to make yourself feel better momentarily has been exacerbated by social media recently. Retail therapy is fleeting; buying something to create happiness doesn’t work. Instead, consider treating yourself not to consumer spending, but to something that money cannot buy.”

3. Track your outgoing money.

Allison uses her mint.com account regularly to get a better understanding of what her “macro financial picture” looks like. This is a huge help for people who are constantly wondering where their money is going. The only way to find it is to take a good look, and understand your finances first on a monthly basis, then maybe on a yearly basis, and beyond.

4. Don’t ignore your finances.

On the subject of tracking your outgoing money, Allison also added a broader perspective for those who are a bit farther away from tracking their every expenditure: stop ignoring your finances. The lesson here is, if you want to spend your money wisely, you need to know exactly what money you’re working with, not playing guessing games.

Allison shared a brutal truth that comes up in her line of work, “Here’s the reality I see play out all to often: too many women decide to ‘opt out’ of the conversation about their finances, deferring to their husband or male counterpart. This leaves women uninformed and susceptible to being misled about a huge aspect of their lives. By ‘opting out,’ you are forfeiting your voice and control over something that is yours. Therefore, take hold of your finances now, do your own research, and learn while you are young and your brain is sharp. Ask questions, even if you think they are dumb or unnecessary. And trust your gut.”

5. Only spend on your credit card if you know you’ll be able to pay it off at the end of the month.

Allison heavily warned against credit card debt, reminding us that it isn’t just student debt that can hold 20-somethings back. On the subject, Allison says, “We are preyed on by credit card companies encouraging us to open credit cards for the rewards. Yes, I am guilty here. I have been sucked into opening high-reward credit cards. Was it the worst thing I’ve ever done? No. Yet, these are almost always high-fee credit cards and the rewards are lackluster compared to the risks involved.  

“I’ve found that most reward-heavy credit cards have a ‘but’ clause. For instance, you may receive 50,000 miles for opening this card today, but you have to charge a certain number of dollars in a certain number of days. Or, another clause may be that you may also have to pay an annual fee, or face higher interest rates relative to other credit cards that don’t have heavy rewards. I’d encourage anyone to read the fine print and ask more questions than you think are necessary before signing on for a new credit card.”

6. There are occasional exceptions to these rules.

Allison provides her own example of a situation in which she needed to break rule #6: “This year, I had to buy a new MacBook. Instead of buying all at once, I had a credit card with 0% APR for an extended period of time. In this circumstance, I did not follow the ‘pay it all off in a month’ rule. I spaced out my payments, interest-free, over a few months. This type of strategy really helped with evening cash flow. “

7. Learn to say “no.”

Simply put, “Every time you say ‘yes’ to one thing, you’re saying ‘no’ to something else.”

8. Instead of spending small amounts of money consistently on clothes, save for investment pieces.

Allison: “I follow this spending rule now, but I haven’t always. After watching True Cost, a documentary about the real lifecycle of clothing from creation to disposal, this became a hardline rule for me. Purchasing higher-quality items can save money over the long haul. I will use the example of shoes. It seems like when I buy inexpensive shoes, I have to buy more of them. Thus, in the long run, buying an inexpensive pair of shoes that won’t last more than one season isn’t really a practical purchase. “

9. Assess your daily or weekly habits and figure out what’s draining your budget.

Our expert says, “I would highly encourage people to inventory what expenses they have that are ‘auto-billed.’ If it’s your phone bill, utilities, insurance, etc., that’s a good thing, as you don’t want to ever be late or forget these bills. However, if your account sees constant withdrawals by several subscription-based services, consider how much value you are really receiving. Subscription services are a great first place to cut expenses. Many startups eyeing millennial consumers are built on the subscription service business model, hoping you will ‘set it and forget it.’ Be careful with what you sign up for and make sure you turn off the service if it’s not serving you.”

10. Make a line item for your retirement savings vehicle in your budget so you don’t spend the money you should be putting away.

As Allison’s savings strategy in the intro proved, integrating retirement savings for your budget is a rule for spending wisely because it governs the amount you have to spend. Allison says, “Probably the biggest reason our society doesn’t have enough saved for retirement is because it’s not a line item expense for so many of us. Even at a young age, this is necessary. In fact, the sooner you start, the easier it is. The later you start, the harder it is, and the more you will likely have to save to make up for the past. When you start putting money into a retirement savings account at a young age, you’re choosing to work smarter, not harder.”

Allison Eklund is a Financial Advisor with Tridea Advisors, offering securities and advisory services through KMS Financial Services, Inc.

Image via Unsplash