26^th November, 2020 by elmads

Financial advisors, planners, our parents and teachers always talk about saving money for our future by spending less and live within our means, which is absolutely, undoubtedly and undeniably true! Almost all people around the world knows about it, but why are we still seeing individuals not doing it? why, even though it is easy to say but still hard to do? It is mostly because how people perceive money, their own personality and also because they do not monitor what they spend and prioritize where to spend it.

People tend to say that they spend less than what they earn, but when you ask them how much they spend in a month, they cannot even give us a quick answer nor a hard estimate, so how will we even believe them that they spend less if they do not even know what are their essential spending? How will an average person like you and me, save more if we do not even know how much we spend daily, weekly or even monthly? that is why spending is one of the main culprits why some people are not accomplished savers.

Do not get me wrong, I am not demonizing spenders here, remember that savers and investors are also spenders. No one will be able to live their lives without spending money, not even Jeff Bezos, Bill Gates, Warren Buffet and other billionaires of the world. The difference they have from other people is not only their wealth, but also their self awareness. They know what they want, they spend the money that they have strategically, and they absolutely keep track of it.

Essential Expenses

The first step in becoming an accomplished saver is knowing our expenses. Year 2020 Statistics show that, 60% of Americans do not know how much they spend last month, that is a staggering 199 million Americans. What more if the survey was conducted in a worldwide scale? It would be an understatement to say that the numbers would balloon into just half a billion.

To know how much we will save is to knowing what are the real essential expenses that we have. You must always right down and have a log of your essential expenses per month. I will give you some lists which are the basic needs expenses of an individual and/or a family in order operate with their daily lives. Please remember some expenses may not apply to your own country like Gas because tropical countries do not use heating systems, while other countries do not pay for water bills. Below are the usual basic needs expenses in this day and age.

• Utilities (Gas, Electric, Water and Internet)
• Transport – For commuters (Public Transport-to and from school, work, shopping & etc). With vehicles (Car insurance, petrol/fuel, vehicle tax & car maintenance)
• Household (Rent/Mortgage, cleaning materials & maintenance)
• Insurance (not everyone has it, but this is essential for someone who has dependents. See my blog titled “Saving Money for Safety and Security”, there is a section there in which I discussed the necessity of securing an insurance)

Listing the rudimentary expenses of our life is very important, as these are the expenditures that we cannot live without. The absence of these expenses will lead to the impairment of our activities of daily living. Just like a newly born baby, he/she will not be able to survive without food, which is the breast milk of his/her mother for nutrition. Plus, a proper home and heating, which is to regulate their body temperature and protect them from the various dangers of the external environment.

Here is a question for you. Does knowing what are our basic needs monthly expenses enough to make our financial journey run smoothly?

In my own opinion, It is an outstanding yes, and a no. Knowing where we spend our hard-earned money is knowing who we really are.

“Do not tell me where your priorities are. Show me where you spend your money and I’ll tell you what they are”.

James W. Frick, former vice president for public relations, alumni affairs and development at the University of Notre Dame.

My dear readers, I will now take you to a deeper dive into the world of spending and the importance of self-awareness.

Non-Essential Expenses

The definition of spending as per Cambridge dictionary is, “the act of giving money for goods and services that is used for a particular purpose”. Just like saving money spending is also behavioural, it is deeper than what we think of. It is mostly tied to a particular purpose which is happiness.

We spend on products and services that we like, adore and love. Have you ever heard someone say to you that they bought a car, clothes or a gadgets because they utterly hate it? It sounds absurd is in it? because it is imbedded and natural to us human beings that we only purchase things that we like based on our hobbies and experiences, which makes us fulfilled and happy. For instance, I love shoes but I mostly buy a pair of running shoes because I run as an exercise during my spare time.

In addition, I will prefer purchasing a pair of shoes rather than watches, but other people will choose the latter because of their own reasons. This can be because they just love looking at their wrist for the time or having a lavish good looking watch fits well with their line of work. Another example is my wife, she prefers to receive gadgets rather than having lovely flowers as a gift because she knows that she will be able to use electronic devices in its maximum potential, whereas flowers wither away after a week or so. Yet, some women will disagree with my wife’s opinion about it.

use it in the future. Also, spending to achieve attention which corelates to excessive expenditures . Both examples are behavioural in nature, as it relieves stress by obtaining lavish items, and/or seeking approval and likes from others.

Spending with true joy and happiness

Spending is both essential and non-essential. Essential spending are the things that we need in order our life to continue, while the non-essential expenditures are matter that give us fulfilment and happiness. It is usually tied up to our hobbies and experiences which are activities done regularly in one’s leisure time or pleasure.

A person could have different activities in their life, but there will always be one that they will truly love and pleasure. It is where smart spenders focus their energy and spend some of their money into. I know someone who buys various hiking gears as she loves hiking with some of her friends, this in turn strengthen their friendship even more and also improves herself in an intrapersonal level. A person who buys and collects Star Wars merchandise, displays these items in his room and enjoys the sight of it with his children. Lastly, an individual who collects various branded shoes which gives him the euphoria of hunting different kinds of it, he wears some them while sells others, this gives him the opportunity to meet other sneakerheads which further expands his connection and network within the sneakerheads community. All of these people spend money, but they spend it where their heart is at, which is spending with meaning.

Furthermore, clever spenders use their money for comfortability. Such as, hiring your own driver, or a cleaner. Why did I say they are clever? well because they hired not just for comfortability but also time. This give them more time to spend for other activities, like more bonding time with their children and family, hobbies and passion, which grows them more into a better person. Their non-essential spending is focused in both given examples, this is also why their budgeting strategies worked for them. These persons know what they want and they already have a plan where some of their money needs to go to, and that is definitely not with unnecessary stuffs that will only give them short-term gratification.

Moving forward, once we have the list of our spending and have categorized it, we need to check our essential spending. We need to ask ourselves, are all these essential? are all of it being maximized? For instance, we might be spending on both broadband subscription and mobile data subscription at the same time, but which one of these are we using more? We might be the type of person who is mostly outside working or travelling and rarely stays at home. It might be frugal and smart to either find a cheaper broadband subscription or just completely unsubscribe in our plan.

On the other hand, maybe we are a person who works from home, mostly utilizes our home broadband, and not much with our mobile data subscription, it could then be a wise decision if we could just transfer from post-paid subscription to a prepaid mobile data. We always need to find ways to review our essential spending, as there are categories we might not be utilizing anymore and that we can live without. A penny saved is a penny earned, and a penny that can be allocated and spent to more important matters of our life.

Moreover, once we have sorted out our essential spending, we can move now to non-essential spending. I have highlighted this category strongly because this is the number one reason why people worldwide go into debt and have a negative income cash flow after a month of receiving their salary. Always know what we love most based on our hobbies, passion and happiness, then spend a portion of our income into it. This category is the most flexible part of budgeting as we can spend more, less or none at all depending on our priorities. In my own budgeting strategy, I leave non-essential bucket as the last of my list, whatever is left after deducting all of my needed expenses and savings, will go to this portion.

The Value

As you have noticed, I greatly emphasize about behavioural spending, because the road to smart saving is hard without knowing ourselves and how we spend money. Even my most favourite delayed gratification and prioritization will not work, if we always just purchase everything that is unimportant in our life, compared to when we already know what makes us truly happy and what will make it fruitful for us in the long run. Just like what Marie Kondo says from the popular Netflix series “Tidying Up”, we always need to ask ourselves this “does it spark us joy?”. Does it spark us joy, even if the item we purchase now will be a year or 5 years of older in future? will it still give value to our life? You might be thinking if what I am saying is even possible. My answer is an absolutely yes!

where I learned all of my investing knowledge and strategies, where I do my investing and savings log, where I create my blog, where my wife reads my blog which afterwards she gives her own constructive criticisms and ways to improve it. The massive value, life changing realizations and mind set happened because of this laptop, even after 3 years have passed. Did I know that I’ll be using this laptop since the 1st time we bought it? certainly not, but what I do know is that I will be using this for a specified purpose to grow myself and expand my investing knowledge. All of the other wonderful things that happened afterwards were just a plus, which I am truly grateful for.

I cannot emphasize enough! that products or services bought cheap or expensive, without bearing in our life will always be a waste of money, but if that products or services whether cheap or expensive, gives value not only to us but also to our love ones, then that is money truly well spent.

-Elmads

To sum it up

Before saving money, we should keep track, write or log what are our expenses, then categorize them from essential to non-essential spending. Review our essential spending and see if all of it is needed and if not, we might want to reduce or just completely remove it from our expenses. Secondly, focus on non-essential expenses which we truly hold valuable in our life, then try to spend wisely and frugally on it. All these spending steps are done for the purpose of saving because a controlled spender is the best saver.

My dear readers I end my blog with the remark to “Never go into debt and always spend money with a reasonable purpose”.

Knowledge is my Sword and Patience is my Shield,

Evan Louise Madriñan / elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.