Simple ways to develop better spending habits

To improve our financial stability, we are largely inclined to focus on keeping a budget, saving, investing and increasing our income. What we tend to forget that how we spend our money greatly affects all these other aspects of financial wellbeing.

Here are seven simple ways to develop better spending habits that will have positive impact on finances.

1. Create a spending plan and stick to it

A spending plan is a list of things you want to channel your money into. This will include recurrent expenses, such as food, shelter, and electricity and water bills, as well as one-time expenses based on your priorities, which could include a dinner out once a month, Sh2,000 for fuel every two weeks or a salon appointment every month.

Put the items with the highest priority at the top of your budget, like food, for instance, and make it a habit to spend only on the items on your spending plan. Set aside cash for the items you’ve ranked highest. 

2. Carry out pre-purchase research

This mainly applies to big-ticket items, such as household electronics. The decision to settle on a vendor for these items should be informed by research on the prices offered by different stores, including those online.

Impulse buying on such items may see you miss out on better offers from other stores. Before spending on big items, take the time to do some research, compare prices, select a quality model and find the best after-sales service and support. When you have the most information, then you’ll be in a position to make the most financially sound decision. 

3. Know the triggers that push you to spend – and avoid them

We all know someone who shops when they’re sad, or have a friend who eats out every time they’re too tired to cook. Maybe we’re these people. Spending triggers are places, people or situations that make us want to either spend too much or spend when we hadn’t planned to.

The triggers could be friends who prefer to hang out in places that are more expensive than you have budgeted for, or situations that make you want to spend, such as having extra cash than you need in your wallet. Limit your contact with those triggers or look for alternatives that are less expensive so you can learn to spend in line with what you’ve budgeted for. 

4. Look for cheaper alternatives

There is always a cheaper option for most purchases you want to make – you just need to find it. Make it a habit to always use the less expensive alternative without compromising on quality.

For instance, you can fill a water bottle from the office whenever you need to step out, rather than buying bottled water. Or have your morning coffee at home or at the office if it’s provided, which would definitely be cheaper than buying it from a coffee shop. Eat out less – it is more economical and healthier to cook at home. Try home workouts off DVDs or free mobile applications instead of paying for a gym subscription. And even when going shopping, compare pricing to be sure you’re not paying extra for a brand name or specific type of packaging. 

5. Look for ways to make savings before making a purchase

Most stores have regular discounts – for instance, in January before children go back to school, around major holidays and at the end of the month – and clearance sales. Look out for deals, such as buy-one-get-one-free offers, or 20 per cent extra free, and stock up on such items. Sign up for store email updates to know when sales are on.

6. Have someone keep you accountable

This could be a friend, sibling or spouse who will help you keep your spending habits in check.

Share your money goals and spending plan with them, and keep them in the loop before making any big purchases. Accountability partners are important as they will remind you what you’re working towards and help keep you focused on your goals.

7. Resist avoidable upgrades

Most of us will want to move to a bigger house, or get a better phone the moment we receive a salary increment, an annual bonus or an unexpected windfall.

Analyse every purchase or lifestyle upgrade before you execute it. Is it a must-have? If you have survived this far without it, why is it so important now?

Most upgrades will come with extra costs that will require extra spending; for instance, a bigger house means higher bills, and a bigger car means higher insurance premiums. 

The writer is a private equity market research analyst at Cytonn Investments.