Most of the choices we make each day may feel like the result of well thought out decision making. However, they are actually habits. One paper published by a Duke University researcher in 2006 found that 45 percent of the actions people performed each day weren’t actual decisions, but habits. Though each habit may mean little on its own, over time, how we spend our money has a great impact on our financial security.
There are certain habits that, if you think about it, you can say right away that you do them or don’t do them. You still may be doing it without thinking but if someone were to ask you, you would know one way or the other. The first one is automatically pulling out a credit card to pay for everything because you can’t afford to pay cash. If you can’t afford to pay for something with cash, you shouldn’t be using a credit card to pay for it either because you will eventually have to pay whether you have the money or not. Another is using your credit cards to spend more cash than you have while making minimum payments on those cards. The balances then build up faster than you can pay them so paying the minimum only stretches your debt out longer. Finally, sometimes people avoid a retirement plan in order to be able to spend more money at the present time. It is never a good idea to spend your retirement money before you actually get to retirement age.
On the other hand, there are some habits that you may be oblivious to. When I first started tracking my spending, I had no idea that I was spending $20 per week here and there. It doesn’t seem like much to spend $3 on a magazine or $2 on a coke. However, if you saved that money you were spending, you could make a healthy emergency fund or even retirement in the long run.
In order to see where your money is going, you need to track your own spending habits. Start by looking at last month’s bank statements and credit card bills. Put each amount you spent into a category, such as rent, utilities, groceries, eating out, and coffee. Add them up and you may be shocked at what you find. After you discover the truth about your spending habits, try tracking your spending in real-time. Carry a notebook around, and write down every purchase. Or if you prefer, look at your bank account at the end of the day and record all of your transactions.
To take control over these habits, you need to look for patterns in your spending.
- In what category are you spending too much?
- When do you spend? Is it more often on weekdays or weekends? Mornings or afternoons?
- Do you make a few big purchases or a lot of small ones?
- Do you spend more when you are with your friends or alone?
It won’t take long to find some basic patterns that will bring to light the routines that shape your financial life.
Next, ask yourself some less obvious questions. What’s the cue for this routine? Is it boredom? Genuine needs like food and rent? Do you spend to socialize or entertain yourself on your own? Do you crave the things you buy, or the shopping experience itself? Sometimes, the reason for spending is from lack of preparation. If you make sure your lunches are packed and coffee set to brew the night before, you won’t need to stop anywhere on your way to work. Finding your spending habits takes a bit of time but it is worth it.