A new year is upon us, and that means many are setting (and forgetting) new year’s resolutions. New beginnings are a common time to think about spending, saving and budgeting. In this space we’ll talk through a few concepts that might be useful as you consider your relationship with your money in the coming year.
One of the trickiest things to define when mapping out a plan is what kind of spending to actually worry about. Spontaneous purchases on amazon or a fancy bottle of wine at a restaurant is more of a luxury than a necessity if you’re looking to cut costs. But what about grocery spending? Doctor visits? School tuition? Your mortgage?
Probably the best way to look at it is to consider only things you want to change. If you’re happy in your house and committed to staying, then there is not much to do about your property taxes. They are of course an item that must be considered as part of cash flow planning, but there is not much reason to spend mental energy on them.
There is a potential big blind spot however, which is the savings that can be had even in “non-negotiable” categories. For example, many people believe you should spend as much as possible on tires, since they are an important safety component when it comes to driving. Even if you consider safety non-negotiable, you might find through research that certain less expensive tires are just as safe as the top tier. Even if you remain committed to the most reputable and well-known tire brands, you likely will find that you can achieve substantial savings by shopping around. The kneejerk reaction to spend as much as you can on safety-adjacent stuff might be just as influenced by marketing as any actual incremental security.
Healthcare beliefs can be like tires but even more emotional. If you have the means, you might say that you’re not going to scrimp at all on healthcare for you and your family under any circumstances. This makes sense, but can lead to unnecessary expenses if you simply put a blind eye to all matters related to healthcare cost. Massive savings can be had just by making sure your provider is in network for your insurance or that you correctly coordinate benefits between primary and secondary policies. If you’re willing to get more involved through tactics like getting estimates, exploring other care within your network, and negotiating in advance, you might be able to pay a great deal less without any sacrifice in quality of care.
Another source of unnecessary spending is the desire to be spontaneous. While spontaneity has a role for all of us, there is no place for it financially if you’re aggressively trying to work your spending down. Things like dining out, buying clothes and weekend getaways are easy to stumble into and the costs can add up quickly. Planning just one nice restaurant meal each week could not only help control the budget but also give you something to look forward to in advance- and that anticipation can greatly increase the enjoyment per dollar spent.
In the end, the most important spending principle is to be honest with yourself. Every dollar we spend is because in the moment we have convinced ourselves it’s a good idea, but that justification can be ephemeral. If you use a transaction aggregator like Mint, it can be instructive to go back over your transactions weeks or months later and see what you value after the fact and what you don’t. Even better is to look at your amazon.com purchase history, which is never purged. Which items you’ve bought do you still use? Which did you never use? Which items make you wish you could go back in time and unorder them? An honest relationship with your past spending is one of the best ways to develop better decision making about the future.
If you are happy with your spending, you have nothing to worry about, but most of us have some work to do in this realm. Like we always say, we cannot control markets, but we can control spending, and your spending habits likely have the most outsized impact of anything on the path to your secure financial future. Hopefully, these tips can help you develop a mindset that serves you as you make decisions about your money in the future.