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How to Spend Money Wisely

Spending Basics
1
Create a budget. Track your spending and income so you have an accurate picture of your financial situation. Save receipts or write down your purchases in a notebook as you make them. Review your bills each month and add those expenses to your budget.
Organize your purchases by category (food, clothing, entertainment, etc.). Categories with the highest monthly amounts (or monthly amounts you consider surprisingly high) may be good targets for saving money.
Once you’ve tracked your purchases for a while, create a monthly (or weekly) limit for each category. Make sure the total budget is smaller than your income for that period, with enough left over for savings if possible.

2
Plan your purchases in advance. Making spur of the moment decisions can balloon your expenditures. Write down what you need to buy while you’re calm and at home.
Make a preliminary trip before you go on your real shopping trip. Note the prices of several alternatives at one or more stores. Return home without buying anything and decide which products to buy on your second, “real” expedition.[1] The more focused you are and the less time you spend in the store, the less you’ll spend.[2]
If you are motivated to treat each purchase as an important decision, you will make better decisions.[3]
Do not accept free samples or try something on just for fun. Even if you don’t plan on purchasing it, the experience can convince you to make a decision now instead of considering it carefully in advance.[4]
3
Avoid impulse purchases. If planning your purchases in advance is a good idea, buying something on the spur of the moment is a terrible one. Follow these tips to avoid making shopping decisions for the wrong reasons:
Don’t browse store windows or shop for fun. If you’re only buying something because you find the act of shopping fun, you’ll likely end up spending too much on stuff you don’t need.[5]
Don’t make purchasing decisions when your judgement is impaired. Alcohol, other drugs, or sleep deprivation[6] can harm your ability to make sensible decisions. Even shopping while hungry or listening to loud music[7] can be a bad idea if you don’t stick to your shopping list.
4
Shop alone. Children, friends who love shopping, or even just a friend whose tastes you respect can influence you to spend extra money.[8]
Do not take advice from store employees. If you need a question answered, politely listen to their response but ignore any advice on purchasing decisions. If they won’t leave you alone, leave the store and return later to make your decision.
5
Pay in full and in cash. Credit and debit cards increase spending for two reasons: you have much more money available to spend than you normally would, and because no visible money is changing hands, it doesn’t register as a “real” purchase. Similarly, running up a bar tab or using a delayed payment scheme makes it harder to realize how much you’re actually spending.[9]
Don’t bring more cash with you than you need. If you don’t have the extra money, you can’t spend it.[10] Similarly, withdraw your weekly budget from an ATM once a week rather than filling up your wallet whenever you run out.
6
Don’t be fooled by marketing. Outside influences are a huge factor affecting what we spend our money on. Be vigilant and try to be aware of all the reasons you’re drawn to a product.
Don’t buy something on the basis of an advertisement. Whether on television or the product’s packaging, treat ads with skepticism[11]. They are designed to encourage you to spend money and will not provide an accurate portrayal of your options.
Don’t purchase something just because it’s reduced price.[12] Coupons and sales are great for products you were already planning to buy; purchasing something you don’t need just because it’s 50% off does not save money!
Be aware of pricing tricks. Translate that “$1.99” price into “$2”. Judge the price of an item on its own merits, not because it’s a “better deal” than another option by the same company. (By making the “worse deal” atrocious value, someone can trick you into paying more for add-ons you don’t need).
7
Wait for sales and discounts. If you know you’ll need a particular item but don’t need it today, wait until it ends up in the bargain bin or try to find a coupon for it.
Only use a coupon or take advantage of a discount for an item you absolutely need or decided to buy before the discount occurred. The attraction of a cheaper price is an easy way to get customers to buy something they don’t need.
Buy products only useful at particular times of year during the off season. A winter coat should be cheap during summer weather.
8
Do your research. Before making expensive purchases, go online or read consumer reports to find out how to get the most bang for the least buck. Find the product within your budget that will last longest and meet your needs best.
9
Take all the costs into account. You’ll end up paying a lot more than the sticker price for many big-ticket items. Read all the fine print and add up the total amount before making your decision.
Don’t be fooled by lower monthly payments. Calculate the total amount you’ll spend (monthly payments x number of months until fully paid) to find out what the cheapest option is.
If you’re taking out a loan, calculate how much total interest you’ll have to pay.
10
Give yourself occasional, inexpensive treats. This may sound paradoxical (isn’t this buying something you don’t need?) but in fact, it’s easier to maintain your spending goals if you give yourself the occasional reward. Try to go cold turkey on unnecessary spending and you may eventually “crack” and splurge much more than you should.[13]
Set aside a very limited amount of money in your budget for these treats. The goal is to give yourself a small reward to keep your spirits up and prevent a giant splurge later.
If your usual methods of treating yourself are expensive, find cheaper alternatives. Take a bubble bath at home instead of going to the spa, or borrow a movie from the library instead of going to the theater.