Spend money effectively

Do you know how to spend money? We have talked about expenses in this column several times. Many times it has been about managing expenses, being efficient on costs and even preparing to cut back when we have to. It is time to look at the other side: How to spend well; to spend money in a way that works for us.

The only way to manage expenses properly is by spending money well. Here are three things you can do to help you do that: 

1. Have a spending plan.

This doesn’t have to be a huge spreadsheet that you overanalyse nor does it have to be about setting restrictions. It is more about being intentional about the way you spend money every day. This could mean going to the supermarket with a list of things you need and an estimate of what they will cost as compared to going to the store without a list, making decisions about what you will put in your shopping basket at the spur of the moment and getting surprised at the till when you see the total cost.

If your monthly budget for groceries is Sh20, 000, but you go for shopping with Sh10, 000 in your purse, did you purpose to spend that entire Sh10, 000 or did it just happen without your notice and leave you hoping that the figures will magically work themselves out? When you go for lunch or take someone out, do you decide beforehand how much you are prepared to spend or do you just go with the flow?

When you go on holiday, do you have a spending plan in place or is your plan to swipe your credit card mindlessly for every bill that comes along? You need to be very conscious and deliberate about the way you spend your money.

This will empower you to make the right decisions and to say no when necessary. If you are deliberate about your spending, when it costs Sh2, 000 more than what you had planned, you make an immediate call on what you can take away from the basket. You also learn how to pack in more stuff for less, for example, by buying things in bulk from a wholesaler. When you are conscious about your spending, it will bother you to go over the limit, and that’s a good thing. 

2 Keep only what you are prepared to spend in your everyday account.

If you earn a salary, you can take out the money you need to pay your monthly bills and spend it, as most people do, or you can do something different. For this you need a savings account, so if you don’t have one, open one. Then instead of having your salary go into your current account then transferring some of it into your savings account, do the opposite.

Let your salary go into your savings account first, then transfer just the amount of money you need for the entire month from your savings account to your current (transactional) account. I have been doing this for about six months now and if my example is anything to go by, you will save more. How?

When money first goes into your spending (current) account, you think about spending first and push saving to the back burner. And unless you have a standing order, you will delay saving or miss out on it altogether. Then when things become more expensive, we dip into what is in our spending account and our savings take a hit.

Practise this principle every day by carrying in your wallet or your mobile money account only what you are prepared to spend. No excesses. 

3 Make room for the expenses that are valuable to you.

Imagine you are ninety years old and you look back on what you did with the money you earned. Will you be happy with the reflection? Many of us, unless we change something, will find that all we did was survive. We paid bills, then the bills became bigger and bigger. We may earn more money, but our bills seem to grow in proportion to how much we earn.

We do need to do the practical things – pay the bills, rent, school fees, invest, etc, but will you be happy with just that? Are there some things you would like to do that make all these things worth it? Things that give meaning to why you work hard.  They don’t have to mean anything to anyone other than you. I meet too many people who are working hard, even earning decent incomes but do not do anything other than pay bills and what they are expected to do like show up in the bar every so often.

Don’t be like that. Think about the things that add meaning and value to your life. It could be playing a sport, treating yourself to a good meal at a fine restaurant every month, going on holiday every year, indulging in books, etc. Your idea of a rich life. There is no right or wrong; the choice is yours. These treats keep you motivated. Life is more than just paying the bills.

This will mean taking a look at how you are spending money and realigning your spending to things that are important to you. Remove something that is not all that important and replace it with something meaningful.

Spend less on airtime this month so you can go for that special dinner. See what happens when you stop hiding behind the all too famous excuse of “I can’t afford it”.  Maybe the reason you couldn’t afford it was that you just didn’t make room for it.