Four things to consider before you spend money

There is no doubt that the way we spend money matters.

For many personal finance enthusiasts, the first tip about spending is to ‘spend less than we earn’. We can do this by asking ourselves ‘why‘, before we make a purchase. I like to call this the needs test

We are encouraged to ask ourselves –

Why am I buying this?

Why is this item or service necessary?

Why am I buying this now? Etc.

These are important questions and knowing why we need a product is more or less a fundamental principle of spending. However, in this post, I have assumed that you have already passed the needs test. But even if you have not, the following considerations will help you spend better.

 

Four things to consider before you buy anything

Here are four things you need to know before you make a purchase. Interestingly, these four things are connected and you may need to think of all four before you make that purchase.

1. The cost of the items 

Price matters. The amount of money we spend on things is important, though it is often hard to properly categorise this. To effectively examine the cost of a product it is equally important to consider the benefit. Yes, I’m taking you back to Econs 101 – cost benefit analysis (CBA). This simply means that we consider the cost and benefit of buying something in light of other alternatives.

For instance, you may be thinking about paying for an online course, moving to a new place or even doing another round of grocery shopping.

It may mean considering the benefits of taking that particular online class as compared with the cost, and if the alternative – taking a cheaper course or not taking the course makes more sense.

The benefits may not necessarily be immediate, but it is good to articulate the potential benefits and try to be as realistic as possible.

I will also add that CBA does not have to be a long-drawn-out case of ‘analysis paralysis’ or an internal battle on whether you should spend.

In other words, it may not be practicable for small purchases though I have found that once you incorporate the CBA mode of thinking, you are more likely to apply it to all purchases. Particularly for items that are not on your shopping list. Getting that $1.99 pastry may not be a big deal but can quickly add up if you find yourself doing it often.

2. The quality of the items

When thinking about a purchase, it is useful to consider the sort of quality you need. It is generally known that higher quality goods/services cost more. This is the case for food, clothing, furniture and even education. Case in point, a two- year degree at Harvard may cost more than a four-year degree at a local university in Nebraska.

Notwithstanding the above, quality can also be subjective. Webster’s dictionary defines quality as “superiority in kind.” This means quality is graded. For instance, clothes at Target may be of a higher quality than those at Walmart, while clothes from Zara trump those from Target.
In a sense, you have to determine what quality works in the different scenarios. When thinking about quality, you should consider:

• • Your budget
  • How frequently you will use the item
  • How important the purchase is (you don’t want to be pennywise pound foolish on matters of health).

 

3. The quantity or frequency of the purchase 

The number of items you need to buy and how often you need to make such purchases are important considerations to make before you spend.

It may be better to spend less for items that you need frequently to ensure it does not cause a financial strain. For me, I am addicted to cereals and eat cereals several times a week. Knowing this, I realised I couldn’t continue to buy the big brand names – Kelloggs, Nestlé etc, which cost more than the store brands. I also had to change my buying habits for most of my groceries, opting for store options.

Of course, this is a personal decision and will often depend on your budget, your savings goals and your values.

 

4. Your values and goals

You’re probably rolling your eyes at this one. “Chioma has come again, right?” But like many other things we do, our purchases say a lot about us. The things we spend our money on often reflects our values, our goals and our preoccupations.

“When your values are clear to you, making decisions becomes easier.”

Roy E. Disney

Now is the time to allow your purchases reflect your truth. I will be the first to say this is a hard one but not impossible. It takes discipline, humility and honesty to remain true to ourselves in this area of our life.

 

What do you consider before you spend money?

I have just shared four things that can help with your buying decisions. Are there other things you consider? Please share in the comments.