How To Spend Money Wisely

It can be difficult to know what to spend money on, or rather what we should spend our money on. I’ve lost count of the number of times I’ve spent hours or days deliberating if I should buy something. I imagine you can think back to a time when you’ve got caught in this psychological loop too?

It’s hard to foresee if buying a product will make you happy, or if you ‘kind of’ just want it. It can also be difficult to disentangle the emotional element of buying a product from the necessary requirements. You might ask yourself questions like:

• “It’s expensive, is it worth the money”?
• “Can I really justify buying this?”
• “Do I even need this?”
• “Should I be saving my money rather than buying this?”
• “Should I just go without?”
• “Do I deserve this treat”?

With this in mind, I wanted to share a simple framework you can use to decipher this problem. It consists of just 5 simple questions you can ask yourself before you make any purchase.

#1 What Is The Purpose Of This Purchase?

The first step with any purchase is to ask what the purpose of it is. Do you need it, or do you just want it? Both are justifiable. However, If you ‘need’ a product, then you can pretty much stop feeling guilty or hesitant to spend money, and this is where frugality and cheapness can be separated. A ‘need’ is anything that you cannot function effectively without, aside from the obvious food and water this might be something like:

• Something that improves our health (e.g. healthy food, electric toothbrush)
• Respectable clothing (e.g. work attire) that helps you feel confident.
• A comfortable and safe apartment/house – appropriate for our needs.
• A suitable and safe way to exercise: this might be gym membership if you live in a particularly urban area or it’s just too cold outside!

On the other hand if you just ‘want’ to buy something, you may want to ask yourself:

• Will it save you time, or money in the future?
• Will it improve your health and wellbeing?
• Will it make your day that little bit easier?
• Will it bring you long-term happiness?

#2 Will This Purchase Have A Positive Impact?

This is where you have to offset the cost with the impact. It’s easy to dismiss buying things just because they make us happy. However, I think it’s important to narrow down why it’s going to improve your wellbeing, productivity, health etc., in the short-term, mid and long-term.

Everyone has something that makes them tick, so understanding what you love to spend your money on is a crucial first step. What makes you happy?

• Convenience: Ubers, Deliveroo, pre-cooked meals
• Travel: City breaks, holidays
• Health / fitness: Gym membership, personal trainer, peloton subscription, Gym Clothes, Nutrition & Food
• Experiences: Restaurants, sky-diving, concerts
• Freedom: Unpaid time off work, buying holiday
• Relationships: Gifts, birthday presents, xmas presents.
• Generosity: Charity donations, tips.
• Luxury: Designer accessories, clothes, cars
• Self-improvement: Online courses, books
• Technology: iphones, laptops, fitbits, home accessories

The Serotonin Boost:

That lunch meal out might be a frivolous expense but experiences such as shopping can can boost serotonin and dopamine. These are feel-good neurochemicals which can help us get through a tough week!

On the other hand, you might also want to look at the long-term positive impact of the purchase. You might buy something that gives you a repeat hit or seratonin everytime you use it.

There is also a social element to consider. For example, buying coffee or lunch out with friends or family might seem like added luxuries but if it helps to spend good quality time with a friend, this is a pretty important aspect of life. Consequently, it is something you should spend money on (within reason).

#3 How Severely Will This Impact My Finances?

It is critical to understand the impact on our finances when making a purchase and ask what is the time-relevant impact on our finances:

• Short – 1 -2 weeks
• Medium – 1-3 months
• Long-term impact – 5 years

If it’s that lunch-time deal we’re talking about, it’s unlikely to have little more than an immediate and short-lived impact on your balance (unless you do it every day for the next year). Maybe you’re thinking about buying a new laptop for £300 – £400, this might have a longer lasting impact on your finances. However, maybe we’re talking about that new car or a holiday, costing thousands of pounds. This obviously requires more justification from the other questions, in addition to asking yourself if you can actually afford to make the purchase.

Ensuring that you have either a google docs budget or an app based budget which incoperates either the small reoccuring expenses or larger repayments is essential. It’s also essential to track the impact over time too. Using an app such as Emma, Cleo, Snoop or Money Dashboard to budget and track your finances can help with that.

Does This Purchase Represent Value For Money?

You might be struggling to justify the purcahse if it’s a particularly espensive one. Whilst branding and the buying experience is important. We can often get necessarily caught up on branding, or flashy marketing, or money off deals. The next step is to, therefore, identify if the purchase will represent value for money.

• Can you benchmark the price against an average?
• Can you find an alternative product that is lower or price but the same value?
• What is the lower, upper and average market value of this product?

Sometimes you might not be able to justify the full-price purchase of any item, but if you can find a way to reduce the price, through negotiation, a promotional code, or finding a similar but cheaper product, then this can facilitate your decision making.

There is also a personal value for money, which is the perceived value based on how much use you will get out of a product. For example, if you drive to work every day for an hour, perhaps spending another £5,000 on a car is worth it for the added comfort. On the other hand, if it’s a new jumper and you already have 10 is it worth that £50?

Understanding where something ranks between want and need is also something that can help with this.

#4 Will It Save Me Time?

Time scarcity is predictive of negative health outcomes such as reduced physical activity and a less healthy diet. Consequently, these have an impact on cardiovascular disorders and obesity to name just two. By contrast, buying time been shown to increase happiness.

One of the decisions we had to make when we were back in the UK was, what type of hoover we should buy. Initially, this was not that fun a choice, as you can imagine. However, we then started looking at the Eufy Robot Vac. At first, this seemed like it could potentially be a costly purchase, so it was important to understand what purpose it would hold. This little Robot saved me hours and hours of time and hours eventually turn into days. As we all know, if there’s one thing you can’t get back, it’s time. Buying back this allowed me more time for exercise, write, and relax.

When you ask what you should spend money on, buying time might, at first, seem like ‘a want’ but it has deep routes in health and wellbeing. Outsourcing (e.g. hiring a cleaner) might seem like an extravagant use of funds but really should we so easily dismiss it?

#5 Will It Improve Your Health?

A robot vac might sound like a frivalous purchase but it also had some health benefits. My girlfriend suffers from dust allergies and eczema and has noticed an improvement in her skin and less sneezing since we bought the Robot Vac. This is because the apartment got vaccumed everyday. When asking what you should spend money on our health should always come top of the list.

I’ve also been helping my Dad out recently by outsourcing his shopping and meal decisions to Hello Fresh. I’m trying to help the old dog learn some new tricks by helping him learn new recipes and use healthy ingredients. He has been struggling with his weight loss goals, so I thought this might help.

It’s like the opposite of buying a fancy cookbook where you get tons of recipes but you never have any of the ingredients to actually cook anything inside.

In Conclusion … What Should You Spend Your Money?

At the end of the day, you have to consider how you spend your money within the context of your overall wellbeing. Whilst it’s important to consider the financial implications, such as affordability and value for money you should always put your health first.

Quality of life is as good a reason as any to make a purchase, so if you can save time, reduce stress and improve your relationships in the process then all the better. Essentially it’s all about interpreting your needs vs wants and whether you should pursue them.

Whilst economically it’s never been harder to save there’s never been as much technology to help us combat this challenge. There are an abundance of new apps to help us save money and invest. Technology can help you automate your savings and this in turn can help you relax whenit comes to spending money.

Luckily, there are a great selection of innovative Fintechs, that can help you save money on bills, earn cashback and as mentioned set up a solid budget. All of which is going to help you spend smarter and have more money for the things you enjoy.