Spending Reality Check: Do You Need It or Just Want It?
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You've written down your list of goals. Check.
Put your goals in order of importance. Check.
Figured out how much it will cost to reach each goal and when you need the money by. Double check.
Now what?
In order to reach your goals, you need to figure out how to pay for them. But what if you don't have enough money to cover it all? Then it's time to look at how you're spending your money. You might be surprised!
Where'd it go?
Think about how much money you get each week or month. Maybe you get $25 a week for allowance and earn $10 for walking the neighbor's dog every Saturday.
Now think about how you use that money.
Spending $5 a week on Robux or $10 a week on smoothies might not seem like much, but it adds up quickly. Do you feel like you have money left over that you can save? If not, it might be time to get your spending under control.
How do you do that? By understanding the difference between something you need and something you want.
Want to make your cash work harder?
Guessing game: need or want?
Make a list of everything you pay for yourself. Include it even if it's just a $1 soda from the school vending machine. Remember, little expenses add up!
Now split the list into things you absolutely need and things you just want.
Take a hard look at your list. Is there anything you included as a need that's really a want? In the list above, for example, is Starbucks ever a need? What about streaming subscriptions?
Wants that feel like needs
Sometimes you can want something so bad it feels like a need. What's up with that?
You may be experiencing the pull of something called consumerism. It's the feeling that buying the newest, latest, greatest gadget or face mask or clothes is key to a happier life.
Do any of these examples sound familiar?
Scenario 1: Maybe someone you follow on TikTok has a cool vibe. They might not be saying, "Go buy this!" But you still want to start shopping for the clothes they wear. And they're not cheap.
Scenario 2: Have you ever dropped your phone and cracked the screen? Who hasn't? But when you get to the store to have your screen fixed, the newest version of the phone calls to you: "I have a better camera and come in a limited-edition color!"
Are you tempted to upgrade your phone instead of getting your current one fixed? Even though your current phone works just fine? That's the power of consumerism.
Fighting the urge to splurge
Consumerism isn't just the temptation to buy newer, cooler stuff. It's the thing that could be getting in the way of reaching your goals.
If you're spending all your allowance on video games or makeup, it's going to be hard to afford the new Bluetooth headphones you want.
Remember the 50/30/20 rule? That's the budgeting guideline that puts 50% of your income to needs, 30% to wants, and 20% to savings.
If you're overspending on wants, especially on impulse purchases from social media, think about ways you can fight that temptation. Maybe you can mute the accounts that tempt you to spend the most. Or even block the apps during the times of day you're most likely to shop, like late at night or on the weekends.
It might also help to think of it this way: When you overspend on wants, you're basically stealing from your goals. Not cool.
You're the boss
By paying attention to what you buy every month, you can see quickly if your late-night shopping habit is hurting your headphones fund.
And once you get a handle on your spending, you'll see how even tiny changes can have big results. Cutting out just one $5 coffee a week would save you $260 a year ($5 x 52 weeks) that you could put toward your goals.
So, check in on your overall spending often to make sure your money is going to your needs, wants, and savings in correct proportions.
If it is, congratulations, you are making progress toward your most important goals. Keep it up!
Your next steps:
- Write down all the things you consider to be necessary spending every month. Does it come to more than 50% of your monthly income?
- Examine that list: Could any of the items actually be considered wants?
- Learn more about how your paycheck is affected by taxes and deductions by reading the next article in this series.
Want to make your cash work harder?
This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The securities, investment products and investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
For illustrative purpose(s) only. Individual situations will vary. Not intended to be reflective of results you can expect to achieve.
Investing involves risk, including loss of principal.
This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information.