6 Tips for Spending Money Wisely (and Avoiding Debt)
7 MIN READ
Published September 29, 2023 | Updated October 30, 2023
For some people, financial problems can be due to not having enough income. But for most, the problem arises because they spend more than they make. Everyone’s guilty of slipping up sometimes and spending money on something they don’t need. But learning how to spend money wisely can help you curb bad money management habits, reduce your expenses, and avoid debt.
What Does It Mean to Spend and Manage Your Money Wisely?
Spending money wisely means spending money on things that matter the most to you. It means spending less than you earn so you can pay your bills in time and save for your future needs. An example of spending your money wisely is using savvy ways to save money and implementing frugal habits that will allow you to achieve your financial goals. All it takes is to tweak a few of your money habits and learn how to manage your finances mindfully to start creating a better future.
6 Smart Tips for Spending Your Money Wisely
Most people worry about earning more, but not many people focus on managing the money they have effectively. While it’s important to create wealth, the importance of money management should not be overlooked. Tracking your expenses, learning ways to be a savvy shopper, and budgeting can all help you spend your money wisely.
1. Know Your Finances
The first step of money management is making a monthly budget. To make a budget, compare the amount of money you spend each month on your fixed and discretionary expenses against your income. Having this information on hand will give you a clear picture of whether you're living paycheck to paycheck or have enough money to save for your future.
Use an online budgeting tool or app to create your budget. With a better awareness of your spending habits, you’ll be able to make informed decisions about where to spend your money and where to cut back. Review your budget and your bank account regularly to spot memberships you don’t use anymore and expenditures you can cut back on.
2. Avoid Impulsive Buying
Impulsive buying habit is the tendency to purchase something without planning in advance. You’re also more likely to make an impulsive purchase when you’re bored or upset. An easy way to avoid this is by practicing a bit of discipline. Before you buy something, ask yourself if you really need it and how the purchase will impact you. Think of whether the purchase can put you in debt or if you have a plan to pay for the purchase.
An effective technique to learn how to spend money wisely is to wait 24 hours before you make a purchase. If you still think the same way about the product and if you think it will improve your quality of life, you can purchase it.
3. Save Money
“It's simple. You need to budget so you don’t live beyond your means and create savings,” says Teresa Dodson, debt expert and founder of Greenbacks Consulting. “It can be as little as $10 a week, but if you create a plan and stick to it, that amount will start to accumulate,” adds Dodson.
One of your main priorities should be to build an emergency fund so you don’t rack up credit card debt to cover unexpected expenses. Have a goal of saving up at least three month’s worth of living expenses. After you’ve accounted for all monthly expenses, make a plan for what you’re going to do with the remaining money in your checking account. A good practice is to transfer the extra money to a separate savings account so you’re not tempted to use your debit card for impulse purchases.
If you’re planning any large purchases in the future, such as a car or a vacation, set up a separate savings account for these short-term goals. You can also participate in a money-saving challenge to make it fun and exciting to save for a financial goal.
4. Invest Wisely
Another priority should be to save money for your retirement. When you’re investing for long-term goals such as retirement savings, consider putting it in an account with tax benefits, such as a 401(k) and IRA. Consult a professional for investment advice to ensure you’re getting the most out of your money. If you have a 401(k) with an employer match, your goal should be to max out the account each year so that you can get the maximum match from your employer as well as the full tax benefits.
5. Be a Smart Shopper
With just a little preparation and product knowledge, you can become a smart shopper. Compare the price of a product at multiple retailers so you can find the best possible deal. Consider buying a comparable generic brand instead of a name brand to save more money.
Read reviews of the product before you purchase anything. Do your research so you can ensure that the product you’re investing in is good quality and long-lasting.
Smart shoppers find ways to save money without sacrificing quality. A great way to do this is by using rewards and points for purchases. If you visit certain stores or purchase from a brand frequently, sign up for their loyalty program. You’ll earn points for every purchase and can use those points for gifts, merchandise, and deals.
6. Learn More
Managing money is a crucial part of life. You don’t need to be an expert, but to improve your financial health, it’s important to keep learning so you can make the most of your hard-earned money. Think about what you already know and then add to your knowledge with the help of books, courses, and websites.
There’s a wide range of educational resources available to anyone interested in learning more about finances. Here are a few suggestions to start with:
- How to Money: Your Ultimate Visual Guide to the Basics of Finance (book)
- Personal Finance for Dummies (book)
- Investor.gov (website)
- Kiplinger (magazine)
- Money Girl (podcast)
The Bottom Line on Spending Money Wisely
Learning how to spend money wisely is an important step towards financial freedom. It’s easy to fall into splurging and overspending habits, and before you know it, you may be deep into a debt trap. When you make a budget, start tracking your spending, and learn how to save for your future, you can make better choices without feeling deprived. Smart financial habits will make your money work hard for you so you can enjoy financial wellness.