Do you believe that you have mastered the way to control your money?
So did I, so did I. After turning around our financial destiny so dramatically, I developed this sense of personal finance invincibility.
You know the one, surely. This is the feeling when you have the fundamental conviction that you have mastered your spending and are making the best of your earning. This is the satisfaction you feel when you see your monthly cash flow increasing, your savings growing and your investments starting to pay off.
I’m finding that I’ve been wrong, my friends; and you may be wrong as well.
Yesterday, I was casually looking through our bank statements, as you do on a sunny Sunday afternoon if you are a personal finance nerd, when I notices something interesting.
I already knew that our spending has gone up a bit. What I noticed yesterday was quite a few small spends; these are all under £10 and many are below £5. These spends were made in the café at work, at airports or in supermarkets. What they have in common is they were all made electronically.
It adds up, you know.
What is important here, more important than the increase in spending, is why my trusted system to control money has broken down; and why the system you use to control your money may be outdated as well.
If you are still overspending and failing to control your money this is not because you have neglected important rules of personal finance but because these rules have been rapidly changing.
Let me explain.
For some time now, I used a combination of two approaches to control every day spending.
First, for my personal spending – small amount of ‘blow’ money and a bit to spend on going to work – I’ve been using cash for the last five years or so.
Second, to control household spending we’ve transformed planning into a cult. We plan weekly menus, visits to concerts and the theatre, breaks, holidays and school trips.
Where did I go wrong?
Well, my increased spending is mainly from not using cash any longer for work related spending.
I stopped doing this several months back: I find that carrying around cash is rather risky and using contactless payment is all too easy.
You see, before contactless I would have had to keep to cash: after all, getting your card in a reader, remembering your pin code and entering it is too much work for small purchases. Hence, the problems with carrying cash are more than matched by the bother of using the card.
Contactless payments are a different ball game all together. They are easy: you just wave your card at the card reader. With the introduction of ApplePay (and similar payment systems) it became even easier bypass cash.
Change here is mainly technological. Still, contactless technology has made it very easy to spend relatively small amounts of money.
When spending is easy, there is little time to reflect on what we spend and what we get. It is a bit like scoffing food: somehow your brain doesn’t register eating when you do it very fast and don’t really enjoy it.
This is why, I started this post by telling you that if you are like me and you are still overspending, it is not because you lack discipline or because you don’t know better. It is because, how you spend has changed.
Which only means that you have to match this change with changing the way to control your money.
Here are three ways to help you improve how you control your money.
#1. Control your money: keep planning…
Planning what you spend and what you spend it on is the key to good money management.
Remember that planning your spending is not about thrift and deprivation: it is about increased control.
What this means is that your planned spending should not be restricted to necessities and ought to include your preferred entertainment, sports and holidays. (Naturally, the kind of fun you plan would depend very much on your current financial situation; still, there should always be some of this planned.)
#2. Control your money: make time…
There was time when shopping was a ‘slow lane’ activity and it naturally allowed time for decisions.
Today, we shop in the fast lane – we can buy furniture by pressing a button on an internet site. Only the other day, plagued by jetlag and insomnia, I bought a pair of shoes at five o’clock in the morning using ‘one click’. Yep, this is what I’m talking about!
And just like your body knows that you’ve been scoffing – even if your brain refuses to recognise it – your bank account would know you’ve been shopping in the fast lane even if you try to forget.
To avoid debt and disappointment always make sure you give yourself time to decide on your purchase.
One trick I’ve started using is the following:
When I feel the urge to buy something on Amazon (one click) I make myself get up, walk about and count to 100. If I still want it after that I press the button.
#3. Control your money: learn to control your ‘wants’
Anything you want, wand don’t get, can easily become an obsession and a temptation much greater than it should be.
I’ve written about this before but it is so important that I feel the need to mention it again.
Most personal finance counsels you to identify your needs and look after these. Most personal finance is about supressing your ‘wants’.
I’ve always believed that money mastery comes from learning to control your wants. This means the following:
- Learning to distinguish between the ‘wants’ that are important to you and the ones that are not that important.
- Making sure that you allow yourself the wants you see as important; you can ignore the ones that are not important.
This is also known as essentialism and I’ll be wring about it more in the future.
If you find that you are still overspending, as I’ve been doing over the last six months or so, this may be because the way in which you spend your money has changed.
Long gone is the time when ‘cash was king’. Today, using internet shopping sites and advanced electronic means to pay, we spend our money in the fast lane.
To avoid debt and disappointment you need to change the way in which you control your money by planning your life and spending, always allowing yourself time to decide on a purchase and learning to control your wants.