Written by Paul Richard, Executive Director
Institute of Consumer Financial Education
Practically everyone loves to spend money usually, surveys say, "because it's fun." Spending money is even more fun and exciting, however, when it is carefully planned in advance, because it will buy even more. But the advertising messages are seemingly Irresistible, that millions of Americans, young and old, routinely take on expensive short term credit card debt in addition to wasting 20 to 30 percent of their money, because of poor spending habits and practices.
Consider the extent to which some merchants and credit card issuers will go in order to entice people to spend beyond their incomes: no fee and low fee credit cards, instant credit approvals, first time buyer programs, sweepstakes and contests where chances of winning are increased with each credit-based purchase, extended manufacturers warranty programs, replacement insurance programs and, of course, "cash-back with every purchase."
Everyday spending decisions, especially credit based ones will have a far more negative impact on your financial future than any investment decision you may ever make. Take heed: Spending is the key to savings, spending is the key to a prosperous financial future.
It is not just credit-based spending decisions that get people into trouble. Some people who have either exhausted credit or ruined their credit rating have no trouble over- spending at all. Cash slips through their fingers so fast that at the end of the day, if they started out with $30, they often have less than $3 remaining and will have great difficulty determining just where it was all spent. Does that sound familiar?
Spending Perception Scale
Following are 20 statements pertaining to spending techniques. There are five responses to select from which indicate the degree of your likeness to each Statement. Just mark the number on a sheet of paper. Should a statement not apply to your situation, skip it and adjust the scoring accordingly. The scoring section follows afterwards.
1. Totally like me
2. A lot like me
3. Equally like and unlike me
4. A little like me
5. Not like me at all
1. ____ Each time I receive any money, I usually put a small amount of cash aside as savings.
2. ____ Each time I receive any money, I usually deposit it into a checking or savings account.
3. ____ I keep track of the money I receive from all sources.
4. ____ I set aside a pre-determined portion of my money for regular weekly expenses.
5. ____ 1 set aside ten percent of the money I receive for savings.
6. ____ My money is managed (both spending & savings) according to a written spending-plan.
7. ____ My food and grocery spending is planned in advance and done with a list.
8. ____ I rarely make less than two trips a-week to the grocery or convenience store.
9. ____ Grocery and other coupons are utilized whenever possible.
10.____ Comparison shopping for quality, value, price, etc. is something I do for practically every purchase, large or small.
11.____ I do not have any credit cards with a balance owing.
12.____ I do not have any loans with balance owing.
13.____ I have comparison shopped for food and clothing in the last year.
14.____ I don't dine out (breakfast, lunch or dinner) two times a-week.
15.____ I have received an earnings statement from Social Security.
16.____ I account for all my cash spending by collecting receipts.
17.____ I balance checking/share draft accounts with each statement.
18.____ I have looked into joining and/or am a member of a credit union.
19.____ I am saving money towards my college education.
20.____ I have given money/food to needy person in the last two weeks.
17-27 VERY PERCEPTIVE. Time to teach others how to do it.
28-42 Pretty Good. Concentrate on improving a few of the weaker areas and you'll be amazed at the difference overall.
43-58 Average. An hour a-week focused on improving spending would equal an increase saving and give you more to invest.
59-75 Lousy. Immediate changes required to avoid financial disaster - implement a spending-plan, get on a pay-as-you go basis as soon as possible.
75 + It Stinks! go to: Spending By Choice