Don’t think about saving money, think about how you spend it

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There’s a lot of financial content out there on how to save money. But there’s a lot less advice about the other side of the coin: how to spend money.

The reasons seem obvious. Why would we need advice on how to spend money, when clearly spending money is the “bad guy”? Isn’t that the thing we’re trying to avoid, eliminate, reduce, restrict, discipline, control?

It may seem counterintuitive, but thinking about how you spend money, rather than save it, could help you get on top of your finances.Credit: Simon Letch

Well, let’s put it this way.

Imagine you’re trying to lose weight and the only thing you’re ever told is how to not eat. There’s a good chance you’ll start thinking “eating is the bad guy”. You’ll attempt to avoid it, restrict it, control it. Eating might even start to give you anxiety. After all, you need to stop eating, right?

In reality, what you need to learn is how to eat well, instead of how to stop eating. The same idea can be applied to spending.

Saving money is a function of spending. You can only save what you don’t spend. So a necessary, but often overlooked, part of saving money is actually learning how to spend well.

So, how do you do that?

1. Align your spending with your core values. One reason we don’t think much about whether we spend well is because it seems hard to define. It’s easy to measure spending too much, but what does spending well even mean?

How do you measure whether you’re spending well?

If you think about eating well, there are various dietary benchmarks you can use to evaluate how far off the mark you might be, not just in terms of quantity but also what you’re consuming.

With money, there are guidelines to help you understand how much is a good idea to put away into savings and investments. So it’s easy to determine if you’re spending too much.

As you start to align your spending to your core values and start increasing your return on spending, you’ll start to notice a shift in how you feel about spending money.

But when it comes to assessing the quality of your spending, that really comes down to you and your priorities. How closely do your spending patterns reflect your core values?

Maybe you say you value health, but your spending is all cigarettes, chips and chocolate. Perhaps you say you value your relationship, but your spending suggests otherwise.

That’s not to say every value has to have a dollar figure, but if you printed out all your spending transactions, what do you think they would say about your real priorities and values?

If there’s a mismatch between what you think your values are and what you’re actually spending money on, maybe it’s time to rethink your values or realign your spending.

2. Increase your return on spending. Most people want a return on investment. But few think about their return on spending.

When you want a good return on investment, what you’re really saying is: “I want to put my money in something today that will give me a bigger pay off later.”

Now think about most consumer spending – holidays, cars, eating out, gadgets, etc. There’s a high short-term reward, but the value of that purchase declines over time.

I’m not saying those things aren’t valuable. But most people aren’t taught how to spend on things with a high long-term pay off.

Think about things like hiring a personal trainer, working with a (good) therapist or relationship counsellor, engaging a career coach – these are things that have little short-term gratification but the potential impact to your overall quality of life, long-term, is pretty high.

Generally, I’ve noticed that even those who can easily afford it are often reluctant to spend on things that have high long-term value, but don’t hesitate to spend on consumer goods.

This is partly because spending on things that have a shorter life span is more normal. We’re conditioned to believe it’s normal to drop a few thousand dollars on a vacation or new laptop.

But if you really want to increase your return on spending, start noticing – how much of your spending has a meaningful impact on your life? If you look at the lifespan of your spending, how long does the impact last? A moment? A day? A week?

Instead, what would your life look like if you started to spend more on things that have a longer term pay-off, where the impact lasts months, years, or even permanently changes your life?

As you start to align your spending to your core values and start increasing your return on spending, you’ll start to notice a shift in how you feel about spending money. The post-spending guilt, anxiety, regret and self-criticism will start to reduce.

In fact, you may even start to feel good about spending money, because you know you’re spending on the stuff that really matters. You’re spending well.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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