The path to financial well-being is paved with savings. The internet is full of tips and tricks for saving more, but most articles avoid mentioning an uncomfortable truth: the only real way to save more is to spend less. At this point you might be thinking, “But I need everything I spend money on.” Maybe. But it’s more likely that each month you spend money on things you want, but don’t really need.
Reducing the amount you spend on ‘wants’ will increase the amount of money available to save or pay down debt. The first step to reduce spending is to understand which expenses are truly ‘needs’ and which are merely ‘wants’. We wrote this article to serve as a guide to developing that understanding.
Category 1: Impulse Purchases
We’ll start with an obvious one: impulse purchases. If you make an unplanned purchase because you feel driven to in the moment, it isn’t a need. This category of purchases includes buying a more expensive version of a cheaper option that can do the same job.
Let’s say you’re shopping for a new shirt to wear to work. You’ve budgeted $40, and the store has plenty of options in your price range. You pick out a classic blue shirt costing $38.50. Just as you head to the register, an exciting red shirt catches your eye! It’s even on sale! Marked down from $90 to $60. What a deal! You know that the red shirt is outside your budget, but the deal is just too good to pass up. You break your budget and make the purchase.
Impulse purchases are easy to spot, but difficult to control. Our minds can trick us into justifying nearly any impulse purchase. The constant flow of online ads can make it even harder to avoid buying things you don’t need, especially when they appear to offer exclusive deals. Take back control! Start by recognizing whenever you’re about to buy something on a whim. Build up the skill of recognizing how it feels before you make these purchases, and it will become easier to shut down the justifications before they start.
Building up the ability to say ‘No!’ to tempting impulse purchases is a great step toward reducing unnecessary spending.
Category 2: Wants Disguised as Needs
Let’s say that it costs just $6 more to go out for dinner than it does to cook. Going out to dinner 10 times every month adds up to $60 in unnecessary spending each month and $720 over the course of a year! That money that could have gone into savings or helped pay down debt.
Another category of unnecessary purchases are wants disguised as needs. Identifying these is more challenging than identifying impulse purchases. We all have certain physical needs: food, water, and shelter, to name a few. Yet, even within these categories, we make purchasing decisions: Should we go out to dinner, or should we cook something we already have? Should I buy that bottled water, or will tap water work just fine? etc… While the difference in price from making each of these decisions may seem small in the moment, over the course of a month or a year, the costs add up.
Category 3: Habitual Purchases
Habitual purchases are another type of want that feels like a need. For example, look at your grocery store receipt. Did you think about each of the things you bought, or did you just make the purchases out of habit? How much money could you save by cutting a few items from your weekly shopping list?
Once you’ve identified several habitual purchases, experiment with cutting them out of your life. Doing so will help you see which of these purchases actually make your life better and which you can cut out for good.
Prioritize Your Spending
Separating purchases into wants and needs can help you prioritize spending. Actual needs will always take priority over wants. Even if you decide to keep some wants in your regular budget, the experiment of cutting expenses can show you which things you should stop buying first in times of necessity.
Reducing the amount you spend on things you don’t need will put you square on the path to higher savings and financial wellness. The more you cut back on your spending, the more you’ll save and the more flexibility you’ll have! And even if you do have the best credit card for large purchases, it’s important to consider whether or not you need that purchase.
