How to Control Your Spending

June 21, 2012

in Saving money

By Ken Tan (guest contributor)

If you take a walk through ION Orchard during the weekends, chances are that you will see long queues at high-end clothing boutiques such as Prada or Louis Vuitton. Take a closer look and you will be surprised – young female teenagers form part of the crowd, decked in short skirts, powdered make-up and high silhouette heels.

My wife and I like Prada designs – we think they’re classy and elegant. So we join the queue. Also, we like to observe the spending power of the young.

The doors open and we enter the Prada boutique. Right in front of us are some young people (they seem to be local polytechnic students) happily browsing through the latest designs. They soon open up their purses and either a thick wad of money or a “bling bling” credit card appears (banks do offer credit cards to students above 18). Sometimes their boyfriends will be taking out these cards to impress them.

When I was younger, I do not recall any young students shopping at Prada. When I was a teenager, I had to earn my money. I worked at Mrs. Field’s for a mere $4.50 per hour. I did not have the money to spend and I would pass by Valentino and Hugo Boss and look in with envy. My lunch consisted of a McDonald’s deal. Now, times have changed.

Are you able to control your spending?

Yes, we spend to pamper ourselves. But are we able to control our spending and plan for our retirement?

It is always easy to spend, but it is not easy to earn. So having the discipline to monitor your expenses helps. Every individual is unique, and brings their personal norms, beliefs and attitudes that shape their expenditure patterns and the perceived value of spending. For example, some may feel that buying a pair of Jay Chou tickets is a complete waste of money, while the die-hard fans do not think so.

What we want to avoid is incremental spending that could ruin your budget. For example, you might have a plan to save $1,000 per month but then decide to save less to spend $150 on a pair of Levis jeans because it seems like a small portion of your budget. Then you start to develop the mindset that a small amount is “OK” to spend. Eventually these small amounts add up to a big amount.

This may well be happening for the young people spending in the Prada/Louis Vuitton boutiques. They may feel that it’s only a “only once in a blue moon expenditure”, but this could become habitual and result in under-saving.

5 questions to help you maintain financial discipline

Here are my five pointers to think about before you fall into the trap of making a “small one-time expenditure”:

1. Do you have the financial capacity to buy, such that you will NOT feel remorse?

2. Can the item purchased change the way you live or impact you?

3. What are your personal financial objectives in life? Will this be affected by your spending?

4. What are your financial beliefs?

5. Is your reason to buy valid or just influenced by trends, ads and peer pressure?

Personally, my answers for the five questions when I bought some Prada items were:

1. Yes. I bought Prada in Europe during our honeymoon. It’s a special occasion and I am able to afford it WITHOUT feeling remorse. In fact, this is my first time buying Prada.

2. Yes. Taking the example of Prada, I like the classy design. I am also in the people business, where first impressions count.

3. I have a specific objective in my financial goals. In 2011, this was to earn a certain amount of passive monthly income through investments that will contribute to my end goal when I reach the age of 35. Before I spend, I will think if the purchase will impact my financial goals. The conclusion was that I do have spare cash to spend.

4. My financial belief is that I can spend when I have excess cash on hand. I have a budget and do not deviate from it. But I’m not cheap, and I do spend when I perceive value in something.

5. My reasons to buy are personal and I’m not a “Trend Chaser”, so to speak.

Keep asking yourself these questions when you want to spend, and you will soon develop the habit to think before you spend. Try it and see if it works for you!

By guest contributor Ken Tan, who blogs at investment blog KT Wealth.

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{ 1 comment… read it below or add one }

vincent r. dela torre June 26, 2012 at 11:33 am

is gambling part of an expense? because people always think “if i am lucky then i will bet who knows…

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