Thursday, March 28, 2024

LOUISE FAIRSAVE: Spending principles

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SO FAR WE HAVE ESTABLISHED that smart spending requires:

• Self-examination of your goals and life values, especially to the extent that your life values and goals are consistent. Ultimately, you will need to rank your goals based on what wealth means to you and set important priorities by separating your needs from your wants.

• An understanding of the time value of money. This in turns points to the opportunity to save and earn more over the long term – delayed gratification.

• An appreciation of the stages of life and the need to provide adequately for each stage. Although there can be innate pleasure in spending in your youth, some of those funds may better be saved and invested for funding comfortable retirement.

• An appreciation for the investment risks involved and making reasonable attempts  to mitigate such risks.

Today’s article now provides five principles of wise spending that will help to keep you  on a smart spending track.

1. Live within your means. Do not be unduly influenced by what others do, say or think. Your circumstances are unique; there is no one like you. How much you earn, spend, give to charity, save or invest is entirely your responsibility and depends on your current situation and your financial goals.

2. Avoid buying on credit, including leasing or renting-to-own. This is definitely not wise when buying anything that will depreciate in value over time. Your goal is to earn interest, not to pay interest.

3. Monitor every cent you spend over at least a six-month period and compare it to your explicit life value and goals. This is the most potent tactic in moving to spending wisely. This process serves as the basis of developing a workable budget consistent with your value and goals.

4. Buy the best value you can afford, not necessarily the cheapest. It is important always to consider the long-term value/cost of the product or service which you are buying. For example, avoid wasting money on most brand-name products. Typically, the bigger  the brand, the larger the marketing cost that is built into the price you pay.

5. Continuously eliminate “fat” from your spending. This means critically reviewing discretionary spending that you could possibly do without.  For example, is bulk purchasing really working for you or is there lots of waste?

Wise spending involves you taking the time to gather an understanding from personal experience of how money can work for you. Hence, you need to hold on to as much as possible in order to test your investment muscles and gain a greater and greater appreciation of risks and returns.

Changing your money habits will require deep thought and regular time to study, review, adjust, and to plan, plan, plan. Any significant behavioural change that you wish to achieve will need the discipline of application, deep thought and time.

• Louise Fairsave is a personal financial management adviser, providing practical advice on money and estate matters. Her advice is general in nature; readers should seek advice about their specific circumstances. She can be contacted at louisefairsave@nationnews.com.

This column is sponsored by the Barbados Workers’ Union Co-op Credit Union Ltd.

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