Your Journey to Wealth #2 – Let’s talk about spending!
Everyone is unique in their own way even when it comes down to spending habits. I might not understand why anyone would want to go out of their way to get designer sunglasses and you might also not understand why I would want to spend so much on hair weaves or makeup. It all boils down to what makes us all happy and there’s no big problem with ‘what’ you’re spending on but the ‘how’ matters a lot. Do you know your spending habits? Let’s take a look at some types of spenders and you can decide where you fall.
The Competitive Spenders
There is this theory I love very much from school because if it’s relatability. It’s called the ‘Relative Income Hypothesis’. In layman’s terms it simply states that an individual will aspire and struggle to keep up with the spending pattern of those around him. So the ‘poor’ neighbour will base his spending pattern on the ‘rich’ neighbour he sees. By doing this, his saving power will fall and will be less than that of his ‘rich’ neighbour. Also, the ‘poor’ neighbour will actually be consuming more than the ‘rich’ neighbour because the poor neighbour uses a higher percentage of his income to keep up. And this is the reason why two individuals can be living on the same street, driving similar cars etc. but one person is seriously suffering and most likely in debt. Now are you that ‘poor’ neighbour? Let me give you basic difference between both neighbours. The rich neighbour probably earns enough to take care of this “lavish” life and may even be doing that with enough savings and investments on the side that will help maintain this lifestyle in the long run. Meanwhile, the poor neighbour doesn’t want to be left behind and can sometimes even try to outshine the rich neighbour socially with little to no spare cash left for savings. As humans, we often get comfortable in our current luxury and strive for better. Once we attain a certain level of comfort, that becomes the new floor and stepping below that level becomes difficult.
The Frugal Spenders
These are people that tend to prioritise their spending a lot and look for various ways to get the ‘best offer’ always. This can be a good and a bad thing and sometimes they can be labelled ‘Alaroro’ (meaning stingy). Now there is a difference. A frugal spender is simply conscious. He/she makes choices that work with the goal/budget at hand most times and will not mind being excluded from activities that will hinder that goal from being actualized. Needs and wants are clearly defined and they meet at a fine line. Sometimes you might even have to pay for the things they consider ‘irrelevant’ if you really want them there. You need at least one of them in your circle and you can be sure that any money spent while hanging out will be worth it. If you fall into this category, you might be smiling to yourself but just being spending conscious won’t make you rich but that’s an awesome start.
I think everyone would love to have a friend like this. These types just always feel the need to be the front person at events or hangouts and are always willing to foot the bills most times. I think a stingy spender would love to be besties with a social spender.
The Stingy Spenders
These are the absolute worst and I won’t dwell too much on them. They are money hoarders. They love to collect and keep money but will jump at every opportunity to spend yours. I am unaware of what the money is really being kept for.
These categories of spenders just want to be happy. They spend on items for emotional/ luxurious reasons. Everyone falls into this category actually but the degree differs in different people. Shopaholics are extreme luxury spenders. My take on this is that you need to do a personal evaluation to determine where you belong. Do you struggle to afford your current lifestyle given your level of income? Do you limit yourself to what you can afford?
I saw a quote a while back and I think it was by Jay-Z that says ‘you can’t afford something until you can buy it twice’. On this journey to financial freedom, you need to be honest with yourself 100%. You already know your wants and your needs. You know your financial status (without dwelling on seasonal gifts) so the best person to plan your finances is you.
“YOU CAN’T AFFORD SOMETHING UNTIL YOU CAN BUY IT TWICE”
Before I end this, here are some tips to help you optimize your spending no matter the category you fall into:
1.Know and set your financial goals. Do you need to pay a major fee? Maybe save up for a business, course, starting a family of your own or even start a retirement fund in the near future? This would guide your spending habits.
2.Pay with cash. Sometimes I forget when I’ve made a POS payment but paying with cash is a physical exercise that I’m always aware of so that helps in being a conscious spender.
3.Always separate you needs from your wants. Needs differ from individual to individual. But before splurging, always make sure it’s really worth it.
4.Spend on your own basis. Don’t be that person that spends to flow with the crowd. For example, an event/ hangout is being organised and you are being asked to contribute an amount that is way out of your financial comfort zone at the time. You don’t always have to eat out at fancy restaurants with friends if that puts a strain on your money goals. Feel free to pass especially if it is of little to no social/economic importance. Learn to say no.
5.Do not borrow to spend on luxury. I don’t think this can be overemphasised.
6.Track your expenses. This is so important for reflection. Even the little spending matters in the long run. So try as much as possible to keep track and you can adjust your spending pattern as needed when you review it.
7.Go on a spending fast. I read a little bit on this a while back and it’s quite a good challenge for shopaholics. Doesn’t mean you won’t spend money but money will be spent on only essentials for the period of time the fast is on. This means no new weave, no new phone (except maybe for business), no new clothes or asoebi (wedding materials) etc.
Remember! Try not to be that poor neighbour to trend (especially for social media). Steadily work your way up till when you are able to increase your standard of living without stress.