No matter how hard you try, managing your spending habits as a young person will always be difficult.
But it should not be as challenging as it sounds.
Because managing how you spend your money can (and likely will) be a major contribution to your long-term wealth – if you are paying attention.
Today, I’m introducing four simple tips to managing your spending habits.
Let’s dive in.
Spending Habits
Your Spending Habits Can Always be Improved
Many young people don’t have a clear understanding of where their money is going due to a lack of tracking and awareness.
It’s possible that you have never received formal education or guidance on personal finance management. Or budgeting. And the importance of tracking expenses.
Or it could be impulse spending. With easy access to digital payments and a world of online temptations, it’s easy to spend without thinking twice.
What about peer pressure? The desire to keep with your friends, school mates and colleagues’ spending habits can also lead to overspending.
All these habits are natural to young people, but it should not be left to chance in your case. Your goal is to create and grow wealth both in the short and long term.
So how can you improve your spending habits?
Here are four practical ways, with some real-world scenarios.
Tip #1: Analyze and Track your Current Expenses
First things first – before you start spending your next money, analyze your previous expenses including small purchases. Allow yourself to look at your bank account to understand what is going on. Because you won’t learn anything if you make more money, and not pay attention to how you currently spend it.
Example – let’s say you got a credit alert and now you cannot account for the money. Don’t just shrug it off and move on.
Instead, open your bank app and take some time to look at your debit alerts, receiving account numbers and transaction charges. What did you spend money on that was not necessary?
At first glance, it might be difficult to fish out the ‘why’ behind your spending habits. But analyze your spending patterns to identify areas where you can cut back or adjust. Look for recurring expenses that may be unnecessary.
You’ll be better equipped in your financial journey if you can learn to analyze and track your expenses. “What could I have done better here?” is a powerful question to consider when tracking your expenses.
Tip #2: Categorize your Spending.
When you have an idea about what you spend your money on and what should be left, your next step is to categorize your spending, based on your findings.
Divide your expenses into categories like rent, groceries, entertainment, etc. This helps you identify areas where you might be overspending.
Sometimes, we are used to some expenses that we can’t see that they might be unnecessary or repeated too often. So, sort your debit alerts. Use apps or spreadsheets to categorize spending for better visibility. You’ll be impressed by the valuable information these tools will give you – if you’re not lazy and willing to look at them.
Tip #3: Create a Budget
Now that you have analyzed your current expenses and labelled your spending, it’s time to do something with this valuable information.
Based on your income and expenses, create a budget that allocates funds for essential needs, savings, and discretionary spending. Even with limited income, a budget helps prioritize needs and identify areas to cut back.
Stick to this budget as much as possible.
Because this is where most young people, including the financially literate ones give up.
Sticking to your budget might be the most challenging thing ever. But if you can manage it, there are a whole lot of benefits on the other side.
Tip #4: Find a Tracking Method that Works for You
There are many options! Try a budgeting app, a physical notebook, or even a spreadsheet. The key is to find something you’ll use consistently.
Utilize budgeting apps, spreadsheets, or online tools to easily record and categorize your expenses. Many of these tools can provide visual representations of your spending patterns.
I recently had a tracking problem with my budgeting tool, and I discussed it with my colleague, who was kind enough to help. He shared how he combines his tracking with a spreadsheet for budgeting and his Notes app for instant expenses and I had this major “a-ha” moment.
And on this tip – it’s worth mentioning – Make sure you review regularly. Regularly review your budget, expenses, and progress towards financial goals.
Adjust as needed to stay on track.
Your Money, Your Rules
Managing money and building wealth legally as a young person is a unique experience, no doubt.
But remember this. When you hit a bad spending ditch, whether unexpected expenses, or financial debt – it’s not the end of the world.
These spending habits are just small signals telling you there are other directions to explore. That you haven’t arrived at your destination quite yet.
I hope these little tips will help you navigate your financial journey. And maybe they’re just the push you need to get back on track and keep going.
