If you want to live comfortably, you need healthy financial habits.
Table of Contents
A top priority must be to live within your means.
Only 46% of Americans report making more than they spend, according to a Pew Research study.
Overspending leads to borrowing, usually with higher cost debt associated with credit cards.
#1 To seriously cut spending, you need to examine your household budget.
Build a simple budget plan. The key to spending at least within your means is to know your fixed expenses (more predictable but less flexible) and variable expenses, where we may be better able to control.
Track your daily spending for a month and review it for items you may not have needed.
see our post: “How To Control Spending With A Simple Budget”
Income volatility is often a big reason we may spend more than we make or can’t make ends meet.
34% of Americans have large earnings swings of 25% year-to-year. Those swings could go in either direction: upward (due to a large bonus) or downward (illness, job loss). An emergency fund would be useful for those experiencing a downturn in earnings. Without consistent, stable income year-to-year, families have to work extra hard to understand their budgets and keep spending control.
An extreme case of this is when someone wins the lottery, a sports figure lands a multi-year contract, or someone receives an unusually high bonus that may not necessarily be repeated and is by no means assured. For these situations, seeking out a financial professional, you can trust to help you make rational decisions is an excellent place to start.
#2 Learn to deal with inconsistent income.
You need to consider your current lifestyle and review your budget. If you received a large bonus, don’t leave it in your checking account. It is too easy to spend. Using the windfall amount to pay down debt or investing in investment accounts like an S& P 500 low-cost index fund or a retirement account is a prudent move.
When I worked on Wall Street, my salary was always relatively modest, while my bonus could amount to as much as 80%-90% of my total compensation. It was difficult to rely on the reward. I always knew that job loss was high in my industry. Often it had little to do with you and more to do with the overall environment. Twice my firms failed (bankruptcy in one case, closure in another).
There were significant time frames where I was not working, and it was not clear whether I would land somewhere. Once, my husband, an attorney, and I both lost our jobs on the same day!
Losing our jobs at the same
Linda: “Hi, Craig, not a good day. They closed our firm today, and I just packed up boxes to send home. I am with friends now. Home soon.”
Craig: “Linda. I’m in your camp. I’m on my way home soon too.”
Linda: “Craig, I know you are always supportive! Thanks.”
Craig: “No, I meant my boxes are on their way to the apartment, too. They let me go, too.”
We did not have children at the time, but it gave us a lesson about living carefully within our means despite sometimes earning outsized paychecks. There will always be droughts that you must plan for. Understanding what your reasonable costs are will keep you more grounded.
Good financial habits at any stage of life will help your comfort level through the tough times.
When wants become needs
I only have to look at my own family and our home to see the fruits of what has become “must-haves.”
With the proliferation of technology, we have expensive smartphones, data plans, giant screens, video streaming, music plans, video game consoles, online shopping, smarter cars, and so much more. These plans add to our monthly fixed costs or encourage overspending to a great degree.
This transformation into our lives has brought so much variety, information, knowledge, and benefits at our fingertips, but we need to better manage our money in paying for it all.
#3 Use cash for more categories
Increasing your pain of spending is the best way to curb unnecessary buying. For more expensive items, like furniture, I have asked the salesperson for a different price if I pay entirely in cash, and I often receive a discount.
Learn how to save money on groceries.
#4 Go to go your grocery with a detailed shopping list.
It saves time and stops from meandering down all the aisles. I often give myself just enough time to buy what I need. When shopping for groceries without a list, I find surprises in my cart. It feels like somebody possessed me. I bought things we didn’t need but forgot the items I needed to cook with that evening.
#5 Save money with coupons and apps
Confession: my husband has been doing most of our food shopping. He has been an avid user of coupons for years and is a loyal shopper at certain outlets. We have also been using Ibotta and Checkout 51 with good results. Using coupons can be fun, but you need to be organized—recommended apps such as thegrocerycame.com, couponsuzy.com all worth a try.
#6 Use unit pricing.
Take the case of buying carrots:
- One pound of baby carrots, $0.99 ($0.99 per pound)
- Two pounds of baby carrots, $1.89 ($0.94 per pound
- One pound full-size carrots $0.68 ($0.68 per pound)
If you have time to peel and cut the carrots, the full-size carrots are the better deal. All you need is basic math to make better buying decisions.
I had a great teachable moment with my son.
Tyler had recently bought one ounce of cashews at a small grocery store with about 18 cashews for $4.99. He was “starving” on the way home from school, about a 15-minute walk home. We had just bought a large container (40 ounces) of cashews from Costco a day earlier. He had asked for them.
I asked him to do the math. He then realized he had paid 10x more for his little plastic cup. Incidentally, Amazon sells that large-sized Kirkland cashews for $26.99. Just saying!
#7 Avoid brand bias
You are often paying more for brand marketing than for higher quality when you buy name brands. The private brands (also known as private label or generic brand) and the name brands are often sitting near each other, so it is easy to compare the ingredients’ labels.
They are usually identical except for the price, with the generic brand costing one third-two thirds less. Many private brands are forms of brand names repackaged. The better-known company sells their product as private labels, generating higher margins. Check out Kirkland batteries and Duracell batteries. They’re the same.
#8 Handle the pitfalls of online shopping
Online shopping has benefits: quick, convenient, and the opportunity to avoid crowds and lines. However, it is just too easy to buy things online. Retailers know this and have developed strategies to induce overspending. To save money on shipping, they will tell us to spend more than we intended.
Retailers have had difficulty keeping with their products being “Amazoned,” resulting in softer sales, so they have improved their websites and sales approach.
They stalk us with targeted ads.
I have sometimes looked into certain items to price and read reviews, and for days (or longer) afterward, that ad is popping up everywhere. Cookies store sites we visit, and those trackers can tell if you are interested in buying something. You can disable those ads by periodically clearing your cookies and resetting your advertising IDs within your iPhone or Android settings. Or you can just use a private browser.
#9 Practice cart abandonment
One way to counter some aggressive online tactics is to make it work for you. I would not necessarily consider myself an impulsive shopper, but we all have our weaker moments. Sometimes, I have put things into my cart, testing myself as to whether I need that item. I have found different prices for the same article the next day (higher and lower). Ever see a coupon? I have.
#10 Make your own rules for going shopping for food and personal care
I have no more bottled water. My Takeya 32 ounce insulated stainless steel bottle is a great replacement. We all have some version of water bottles. Better for the environment.
See our post on “25 Ways To Save Money And Feel Good About It”
Plan your menu for the week to the best you can, especially if you have temperamental teens at home. What sounded good on Monday is not so desirable on Thursday.
Understand the store’s return policies (online and in-store), especially if you are prone to cognitive dissonance, that guilt you sometimes feel post-purchase. Marketers are well aware of that familiar feeling in that they have created post-purchase customer service, following up on our recent purchases. You’ve gotten those emails asking you if you like that new pot you bought online.
In the past, if I couldn’t decide between several items (shoes, shoulder bags, dresses), I’d buy it all, egged on by my spendthrift husband. Rarely would I return anything only to find the stuff still in the store bags. Instead, now I often ask the salespeople to hold on to things.
Bargain Hunting or Shopping Addiction
Retail expert Mark Elwood has written about the psychological benefits of seeing bargains. He points out that stores like Best Buy use Goldilocks pricing or three-tiered pricing, ranging from low-to-high prices. The store is hoping you will buy the middle option with higher pricing than the low-end but not necessarily feature-worthy enough to pay more.
We should not pay list price for anything but make sure it is a real bargain. There has been a lot of worthwhile academic research about bargain hunting being a form of shopping addiction. There is the thrill of getting a deal rather than the specific item itself.
Be purposeful when shopping
We need to be mindful of purposeful shopping. Listen for the sales details of the bargain, and making sure it is what we want. One of my weaknesses in the past was shopping with others. I love being with my friends, but the exhilaration of shopping often led me to buy more clothing and jewelry than I needed.
Spend less than you earn is essential to proper money management. Examine your household budget for ways to save money when shopping for groceries. Buy generic brands, go shopping with a list, and be purposeful about your needs.
What is your shopping experience online and in the stores? What ways are you using to control spending? We would love to hear from you!
With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.