Many families suffer “hole-in-a-pocket” syndrome, meaning the money they earn seems to slip away, leaving no trace. As a result, plans they have for their family, home, church, or charity giving and future are set aside. They say they “can’t afford it,” even when the family income suggests that the plans are — or should be — affordable.
This happens because people are not aware of their spending habits and how they may be in conflict with their goals in life. Instead of changing our goals, we need to change our spending habits. Changing a habit can be difficult, but it becomes easier when we commit to following sound and trusted financial principles.
Knowledge is power — and money in your pocket.
Knowing where your money goes is the first step in spending it wisely. It is also the first step in doing more with the money we already have, and that’s like finding cash we didn’t know we had. When this happens, there’s no longer a hole through which our money vanishes — now there’s a piggy bank where that money adds up. With a little effort, we can stop referring to “spending habits” and start calling them “savings habits.”
Now, wouldn’t that be nice?
More money is not the answer.
We have enough riches and wonders on this earth both to meet our needs and help others with difficulty. So why do so many of us live from one pay cheque to the next? Because we do not set goals.
Goals enable us to ignore today’s temptations in favour of tomorrow’s treasure. No matter how we define those future riches — higher education for our children, financial security for ourselves, support for our church, assistance for those in need — the pride we feel when achieving them outweighs by a thousand-fold the pleasure from purchasing something we do not need and perhaps cannot afford.
Know the difference between needs, wants, and whims.
Many of our problems with budgeting are caused by misidentifying our reasons for spending money. Each spending decision we make can be classified according to three categories:
Needs: These are vital to the physical and spiritual well-being our ourselves and our families. They may also be required to fulfil commitments to governments (taxes), creditors (mortgage lenders, credit card companies) our church (tithing) and our community (charitable donations).
Wants: Many expenditures are made on goods and services that enhance our lives. We may consider books and attendance at cultural events important in this regard; others may choose to spend money on their hobbies or travel. True “wants” are those that enrich our lives and justify their cost.
Whims: Whims are purchases that others decide we should make, rather than ourselves. This usually happens through the power of advertising. If last year’s television set is working fine, do we really need this year’s model with its fancy gizmos? Which should we obey first: an advertising pitch or our own needs?
With those definitions in mind, pause and think of the items or services you purchased in the past month and decide which were needs, wants and whims. You may be surprised.
Start with a spending diary.
Here’s a “need” purchase worth making if you truly want to track your spending. Purchase a small pocket notebook, complete with an attached pen, and carry it with your wallet.
For one complete month, write down every purchase you make, to the penny, in your diary. Note the date, the amount, and a description of the purchase. Be sure to include all purchases made by credit cards, cash, cheque, and on the Internet. Don’t forget the coins you slip into parking meters and vending machines. At the end of the month, assign each purchase a category — food, transportation, clothes, miscellaneous, etc. — and add the totals.
Chances are you will be shocked by the many unnecessary ways money slips through your hands from payday to payday, month to month, and year to year. If so, take the next step to managing your finances. Once you can see where your money is going, you can start to redirect it to where you want it to go.