Like an enlightened zen koan, unraveling the riddle of saving means mastering the art of spending. To save more and save steadily -- the essential habit for reaching many financial goals -- you must learn to spend Foolishly on purchases large and small. So, here are 10 rules for spending to help you make the most of your money.
- Spend less than you earn. That this should be the first rule guiding you may be obvious, but it's also imperative. No one has ever overspent their way to financial security.
- Buy what's important to you and forget the rest. There are some essentials that no one can do without. After covering your basic needs, the rest of your money can be used at your discretion. That's your discretion, not the discretion of every whimsical fad that catches the public's fancy. Chasing the newest thing won't make you as happy as putting your dollars into things you value, even if your neighbors think you're crazy for collecting old pinball machines.
- Rethink essential purchases. When I say "essential," I'm thinking of basic food, shelter, and things of that nature. Yet every one of us routinely categorizes some discretionary purchases as mandatory. In my case, that's fancy cheese and chocolate bars. For you, it may be DVDs or new video games. When you put these non-essential purchases back in the category of discretionary items, you may buy less. (Or you may not. I struggle with the chocolate.) If they become an occasional treat, you may enjoy them more. You may find you don't need them at all.
- Buy for value. This means getting the best product with the longest life for the dollars you're spending. Don't immediately opt for the cheapest thing, unless quality doesn't matter for that purchase. This will mean doing some research, a particularly good idea for bigger purchases that you plan to have for a long time.
- Invest in quality. This is a variation of buying for value. For items that will get a lot of use, or things that will become a permanent part of your household, try to buy for life -- your life, that is. Pick the one dining room set you'll own forever, or one set of screwdrivers you'll pass on to your grandchildren. This requires more thought about your needs and tastes. It may also require you to save up money before making the purchase. Even if you spend more up front, you'll save the cost of buying several dining room sets over a lifetime.
- Scrimp on low priorities. Spend as little as possible on anything you really don't care about or consider disposable. For that matter, cut items of low priority from your spending altogether.
- Know your needs. You can keep the clutter out of your house by foregoing purchases for anything you don't really need. The same rule can be applied when buying things like computers or cell phones. If you're not going to use the fancy features, don't pay for them.
- Reexamine your brand loyalty. It's easy to get into habits, like pulling the same laundry detergent or loaf of bread off the shelves every time you go to the grocery store. Try a cheaper brand or the generic alternative occassionally to see if you can get away with spending less to get the same quality.
- Anticipate purchases. Buying anything in an emergency, especially a major appliance, can set you up for buyers' remorse. If you know that your washing machine has only a few loads left in it, start your research for new machines now. Anticipating purchases will also help you save money to buy them, or at least start you thinking about how to work them into your budget.
- Check your impulses. If you feel yourself about to pull out the credit card for something you just can't live without, give yourself a little cooling-off period. Wait a few days or a week, and come back for it. If you still can't live without it, it may be an important purchase for you. If you've forgotten all about it, you probably weren't going to use or value it anyway.
Take these rules with you on your next shopping trip and see whether they curb your spending or make your purchases a little more thoughtful. Have any tips for spending Foolishly? Share them with me and I'll follow up with more Fools' Rules for spending.
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