Why We Spend Unnecessarily and What to Do About It

Why People Spend More Than They Earn

First Published: ADawnJournal.com July 21, 2010

Remember “the number one personal finance tip of all time” I mentioned in Ten Timeless Personal Finance Tips By Financial Author A. Dawn article? That is, you need to spend less than you earn. To spend less, you need to know why we spend more than we earn. If you can grasp the basics of the “spending more than earn” scenario, it will be a lot easier for you to save money by spending less. Let’s look at the most important factors that cause us to spend more.

Lack of Information – The majority of the population have no idea where their money is going exactly. We often ignore small spending here and there; but at the end of the month all these tiny expenses add up and turn into something big and beyond our control. To handle this, you need to keep track of your spending. I don’t believe that dollar-for-dollar budgeting works. However, you need to keep track of your spending to see the patterns in your spending behaviour and take steps to cut down on unnecessary expenses. Here is an article to help you find personal finance software to track your spending: Personal Finance Software Review by Financial Author A. Dawn

Lifestyle Habit – Keeping up with the Jones, competing with colleagues, a tendency for showing off riches to the world, acting rich and successful but not able to survive without steady paycheques, feeling a sense of power while spending money, being jealous at other people’s stuff and trying to match their possessions, an inability to say NO to others when they ask for something (although you’re not in a position to afford it), not treating credit card spending like real money, not being true to yourself, and much much more – all these are variations of lifestyle habits. Let’s be honest here – If you aren’t able to save money because of one of these reasons or a similar one, it can be a serious problem and has to be dealt with seriously. I doubt that reading articles online will be any good resolving this. If you think you have this problem, I would suggest you read a few books, and based on the severity of your problem you may need to consult a qualified financial professional. Books I recommend:

The Simple Living Guide
Your Money or Your Life by Dominguez and Robin
The Millionaire Next Door by Thomas Stanley & William Danko

Instant Gratification – Here is an excerpt from my book Invest Now which is very suitable: “Every day, we face tempting opportunities to spend money. A sea of indulgences can distract you from investing for your future. “Buy now!” “Pay after one year!” “Don’t pay interest for six months!” Everyone everywhere is urging you to spend, spend, spend. I’ve even seen a “Vacation now, pay later!” advertisement on the subway. But every dollar you spend now is a dollar in lost investment opportunities that could have grown a lot more in the long run”. We are bombarded every second to buy into some “now and pay later” scheme. We want what we don’t need when we want it, and are willing to drag on paying interest to fulfill our instant gratification mentality year after year. What we don’t realise is that a $100 item is costing us $150 at the end of the interest paying term and it is prohibiting us from investing for our future – because we are paying interest on many other similar things and becoming money constrained. How should you handle instant gratification syndrome? Here are a few simple tips: try to pay for everything in cash; learn to delay major money sucking purchases, your urge will likely wither away if you can delay a few days; if you are at a store and can’t stop yourself from purchasing something you don’t need and/or is out of your budget, try counting 1 to 10, or take a few deep breaths, or try walking around the store. Once you try one of these; most likely your strong desire will go away.

Not Having Any Goals in Life – We tend to spend recklessly if there is nothing to look for in the future. Setting up goals for different stages in life is a smart way to save money and accomplish goals. These goals can be broken down into smaller parts. For example, instead of saving for a $20,000 down payment for a condo, it’s a lot easier to save $5000 each year for 4 years. Also, have set plans about your life such as buying a house by 30, paying half of the mortgage by 40, retiring at around 50, and so on. Each time you purchase something, think before paying for that item. Take a moment to think whether this purchase will help you achieve your goals or will take you away from your goals.

Whether your spending habit is causing you debt problems or keeping you from achieving your future goals, take a deep look at the causes and eliminate them to start saving for your life. No one else will care for your future and money like you do, and only you can take the necessary steps to secure your financial future.

My Favourite Money Quotes

Money Quote Tips

I would like to share two of my favourite money quotes with you. The first quote is going to be in my first book Invest Now. The second quote will be in my second book Save Now, although I am not 100% decided yet about the second quote.

First Quote 

Money is like a sixth sense—and you can’t make use of the other five without it.

—William Somerset Maugham

Second Quote

The art is not in making money, but in keeping it.

—Proverb

First Published: ADawnJournal.com Dec 10, 2007

How Long It Takes to Double Your Money?

Double Your Money

Have you ever looked at your savings account statements and wondered how long would it take to double your money at interest rates mentioned on those statements? By using a simple formula, you will be able to figure it out very fast.

This simple formula is called The Rule of 72. The rule works when your interest rate is compounded annually and you are not taking out any money or interests from your account. To find out how long it will take to double your money, take your interest rate and divide 72by your interest rate. Yes, 72is the magic number here. Let's say your high interest savings account is paying you 3% interest, divide 72 by 3 and it comes to 24 years. If you add more money every month to your capital, your money will double in lesser years. If you have a mutual fund which returns roughly 10% annually, your money will double in 7.2 years. Don't be discouraged by these long years. Investment is a discipline and you should not expect miracles to happen overnight.

First Published: Apr 17, 2007 ADawnJournal.com

Knowledge Is Power; And Also Money

Knowledge Is Power

Knowledge Is Power

Turn Knowledge Into Money Making eBook

There are many of us who have a range of talents that render our friends almost speechless with envy. However, try and find, when we try to convert those talents into money that they seem to be in very limited demand. Looking for a job when you have a talent for music should be straightforward – your skills are very clear, and the vacancies should be obvious. It is similar for any talent that can fall under the bracket of “academic” – they can be very desirable talents particularly for those who do not have them. Nevertheless, for those who do they often seem to be frustrating and unproductive, sitting there making no money whatsoever, unless you can win a competition based on your talent.

Many are now coming to the conclusion that if those talents are not going to just go out there and make money by themselves, they will need to be twisted into some shape that makes them lucrative. No one is going to pay you money just for knowing how to do something – unfortunately. However, what you can do is to turn your talent, knowledge or intelligence into book form and sell that book. Once upon a time, in order to write and sell a book, you needed to write to publishing companies with your plan, get it accepted, and then submit your book at various stages for feedback and editing. If it did not conform to what the publishers wanted, then it would not get published. So you could be as intelligent and knowledgeable as you liked, but getting published was next to impossible for many.

With the advent of the e-book, this is no longer such a concern. People with knowledge to distribute can now write a book in Microsoft Word (or any other desktop publishing program) and distribute it themselves. If you are good with web design, or know someone who is, then you can design a website to go along with your book, providing you with a product and the means of advertising it all in one fell swoop. Writing an e-book and publishing it can also be a way in to the still thriving paper-based literary world.

So if you have a certain, specific talent which your friends are always commenting on and expressing envy over, then why not think about writing an e-book. You can send it to your friends without asking them to pay for it – they can even act as a focus group by telling you what they like and what they do not. Setting up an account with PayPal enables people to pay for the book, whereupon you can send the book to them, and hey presto. You are making your talent into money – finally. Instead of getting frustrated with a dormant talent, you will be getting rich from it.
First Published: Mar 13, 2009 EntrepreneurJourney.com