Sharing Daily Discoveries About Personal Finance And Business Topics

Spending What You Have

financial planning

While listening to the radio today, I heard a person talk about how serious he is in teaching his kids to save money as he feels that everything in life revolves around it. He would give them a lecture to no end if they decided to buy items such as toys just for the heck of it. While learning to save is definitely a way on how I have maintained a financially stable lifestyle, I’ve honestly never had to feel guilty about buying expensive items or spending a lot for others because I have the habit of only spending what I have.

For example, like many other people I have a credit card. Most people use a credit card to make purchases on items because they do not yet have enough funds to buy the product. Since they know that payday is around the corner, they could easily pay off the credit card afterwards and this way they can get the product today. While that would be an ideal scenario, as we all know in most cases it’s often that the card holder makes purchase that costs a lot more money than they have and so they opt for some form of monthly payment which results in fees such as interest payments. For myself, I personally use a credit card as simply another form of payment. If I was to buy a $3000 HDTV with my credit card, it’s not because I don’t have that much funds in the bank, but rather I do not want to bring that much cash to the store. This habit has helped me to avoid financial debt as I don’t have to worry about paying off any loans.

I also personally don’t consider incoming income as my current pool of funds to buy items as it is not officially in my pocket. In a lot of cases, this is also a reason on why at the end of the day we see so many high paid individuals who seem just as broke as many people with low wage jobs. Let’s say that a person makes about $35,000 a year with an approximate payout of about $2916.67 a month. What a person would do most of the time is that they would then preplan their monthly purchases based on that payout. First off, housing and groceries are at the top of the list so let’s pretend that they spend $1000 a month for all of it.

They then decide that it would be great to buy that new car with monthly payments of about $900 a month. So far, it looks like they still have about $1016.67 a month to spare. With all that, they could easily afford that new cell phone with an unlimited calling plan and let’s add some entertainment features to the house with things such as cable and a high speed Internet connection which will all add about another $150 a month. With $866.67 left, we could easily just put it into the savings account right? Unfortunately, we did not include items such as the gas and insurance that one would have to buy for the car or the occasional impulse shopping and recreational activities. It’s easy to see one can spend more than they have regardless of how much you make.

If this was me in this scenario, I personally wouldn’t buy items such as the cell phone unless I already have the funds in my pocket. For example, if the cell phone bill costs $45 a month and I intended to keep it for a year, I wouldn’t enroll into it unless I had $540 in the bank. Many people say that I am crazy and that there is no way they could accumulate that much money at once to buy things like a new car, but if that is the case then I have to ask “Is the car completely necessary?”. For example, is public transportation or car pooling out of the question? While there are many people who can definitely manage their finances by relying on future income to make payments on loans or debts, I personally find that only spending what you have to be a great way to manage your finances.




one Comments to Spending What You Have

  • Very nice. You’re site is very helpful.

    Kevin Johnson 12/7/2005 11:47 pm

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