Humans are creatures of habit. In fact, it is estimated that we spend around 60% of our time each day acting habitually without giving our choices a second thought. Moreover, because you do it instinctively, chances are you are not even aware of some! The good news is that it can take as little as 18 days to develop good habits. Start by recording all your expenses for a month. Where does most of your money go? Are there cheaper alternatives? Identify your worst spending habits and start changing them, one step at a time. Thank yourself later.
The decisions you make are influenced by how you feel at a particular moment. For example, you may have heard that grocery shopping when hungry can make you buy more than you would normally. However, it seems that this effect extends to non-food items: research from the University of Minnesota found that hungry mall shoppers spent 64% more money on non-food items than those who ate before shopping!
Seeing a large sum of money appear in your bank account feels good. But that good mood can make you overly optimistic, tricking you into thinking that you can afford more than you actually can. After payday, do you decide to buy things now and survive on the remaining budget later? Remember, an unexpected bill or dental emergency is enough to get you into debt. And being optimistic about paying off debt can cost you more than the purchases were worth!
If you were buying a £12,000 car and someone told you that you can get this car for £11,990 in a store that is 20 minutes away, would you go? Probably not. But if someone told you that a £12 pizza is on offer for £2 in a different branch, you would probably be more than happy to take a 20-minute stroll. This is the relativity principle: people tend to think in relative (percentage) as opposed to absolute (e.g. £10 less) terms. Thus, a £10 price difference seems much more negligible when it is attached to a larger price tag. However, your account balance does not think that way – a £10 saving is a £10 saving. Keep that in mind the next time you are making an expensive purchase.
Small things can have a big influence on your finances, especially if performed frequently. That £2.50 coffee that you grab each morning? Just this alone costs you £75 per month! Even if those expenses do not sound stunningly high, they can amount to a significant proportion of your salary when you add them all up.
Many people choose to allocate a proportion of their money to savings and a proportion to paying off their debt. However, because the interest cost of debt is much higher than the interest you get from your savings, it makes no sense to transfer money to a savings account while having debt on your credit card (or if you're expecting to have to use it in the nearest future).
While deals can be an effective way to save, they may also tempt you to make purchases that you would not consider normally. Ask yourself: Do I actually need this product? What are the alternatives that I could spend this money on? Will this actually make me save, or just consume more than I need? Buying an unnecessary item on sale does not make you save – it makes you spend!
While thinking about ways of saving money is a great thing, take into consideration the amount of time you must devote to make the saving. Learning about your regular monthly expenses (e.g. energy bills, transport) and finding ways to make them cheaper is more effective than comparing yoghurt prices. Ultimately, examining every promotion in your local supermarket will absorb more of your time and energy than it will save you money. Instead of spending time on small savings, invest it. Take the time to develop new skills that can help you earn more. Get that extra hour of sleep to increase your productivity at work and personal wellbeing.
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