Are you as good with money as you think?

We all know how damaging poor spending habits can be when it comes to reaching our financial goals.

But given how frequently we slip up and make the wrong decisions around money, which is already becoming harder and harder to come by, we could use all the good advice we can get.

Daniel Mainga is the general manager at Minet Kenya’s pension division. He speaks to Hustle about how you can identify bad spending habits, change them and make wiser decisions around cash.

How can we identify what bad spending habits we have? 

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Are you spending without a plan? A plan in this case is a budget. A lack of one often leads to impulse buying.

There are several types of impulse buying and they’re all centred around the consumer’s exposure to stimuli while in a store, and their train of thought when shopping.

When experiencing emotions like stress or happiness, you may feel more motivated to buy a product or service that either dulls or amplifies your current emotions.

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Therefore, considering the consequences that your near-future purchases are likely to have can help you control the urge to make an impulse purchase.

How does research before spending help control bad spending habits?

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Research helps you compare market prices for the items or services that you need. This, in turn, helps in budgeting for specifics.

Having a budget will help you prioritise your spending. You can focus your money on the things that are most important to you.

Getting out of debt may be your priority, for instance. A budget gives you a spending plan that ensures you’re reaching this goal, and helps protect the money you’re saving.

How do we avoid and control spending triggers?

You must always purchase items because you need them, not just because other people are buying them. You don’t know their journey, plans or needs. If you need an item, plan for it, set aside funds, and then make the purchase.

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Identify the emotional and psychological triggers that cause you to spend.

When you remove those triggers, you’ll remove the temptation and opportunity to overspend.

The small purchases one makes often can really add up, and when checking your expenses, you’ll find that you have spent more than you intended to.

Keep track of your expenses as this helps you account for every shilling spent. Once you know where the money is going, you’ll be in a better position to cut back in the areas you need to.

How do we identify an accountability partner?

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An accountability partner should be someone you respect and who’s financially disciplined.

Be clear on what you want to get out of the partnership and what you think you’ll need, which will evolve with time. It helps to set expectations so that your partner knows what you’re hoping to get out of the relationship.

The person’s ethics shouldn’t be questionable. Don’t choose a friend as an accountability partner as you’ll need to have someone who’s objective and is not worried about hurting your feelings because they’re too close to you.

What saving patterns can we create so we don’t spend too much?

To get started, budget for your money, save first before spending, identify your savings vehicle, and identify your short and long-term goals.

For short-term goals, vehicles such as money markets or fixed deposits ensure your funds earn interest even as you pack funds for long-term investments.

Set up a standing order with your bank that ensures you transfer funds to your savings vehicle immediately income hits your account.

How do we separate what we want from what we need before spending?

Naturally, there are items you can do without, which you can categorise as ‘wants’. You can target a future date to buy a want, and start setting aside funds for this.

However, a need is what you must have and therefore must feature in your budget as a priority or immediate need.

The 50/30/20 budget rule holds that 50 per cent of your after-tax income should be spent on your needs, 30 per cent should go to wants, and 20 per cent should go to savings.

This budgeting rule of thumb allows you to spend 30 per cent of your take-home pay on the things you want. They key, however, is to separate your needs from wants early so you’re more aware of how you are spending your money.

In what ways can we track our spending?

Budgeting is the top tool that you can utilise in tracking expenditure. If followed strictly, it can be helpful and within a few months, you’ll be able to identify areas where there’s been overspending. Adjustments can then be made for the following months’ budgets.

But keep in mind that when preparing a budget, it has to be realistic, otherwise you may find yourself adjusting it too often.

Is rewarding yourself a bad spending habit?

No. You must always plan to reward yourself, but this should feature in your budget.  

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MoneyDr PesaDaniel MaingaMinet KenyaHustlePension