How To Spend Less

There is so much you can do to reduce your monthly spending it’s sometimes hard to know where to begin. On the other hand, when you want to save money, these obvious savings can be difficult to spot. That’s because your spending habits are so ingrained it’s difficult to see what you can change. It takes a conscious, guided exercise to re-evaluate your spend.

It’s also not enough to measure how much you’d like to spend and then just arbitrarily spend less – if you spend £400 a month on groceries, you’ll find it hard to halve that without completely changing the way you shop. That’s a massive change. Don’t underestimate the difficulty of reversing what is basically a large collection of bad spending habits.

In this series of posts I’m going to look at the spending categories that are common to most budgets and examine each in turn. I’ll point out how you can generate extraordinary savings by taking a fresh look at how you spend in each of these categories. You’ll see that even small changes that don’t look like they’re very significant can, over time, add up to major improvements to your finances.

Why do we overspend on ordinary items?

If we’re spending more than we need in each category every single month, how did we end up here? What made us overspend so much on things that can be bought cheaper?

There are a number of influences at work, but here are a few to think about:

The Ratchet

This deserves a longer post, but there’s an effect in our spending that I like to call The Ratchet. When costs go up by a little, they stay that way. When small increases creep in, we tend to accept and live with them rather than re-optimize our spending.

Companies count on this, and this is why there are introductory offers for almost everything. We are encouraged to sign up for something with a 50% off offer for the first 3 months. After this period the price increases and since it’s only an increase of $19 or something, we ignore it. This happens in multiple different places and soon we’ve signed up to lots of stuff we don’t need and that we’re overpaying for.

Unconscious Spending

When we spend less than a certain amount on something, that spending feels immaterial. $2 for a latte, fifty cents for a bar of chocolate.

This is why contactless payments and micropayments are good at increasing our spending – they make small transactions much easier. They reduce the mental load required to move cash from your bank account to someone else’s. I’ve written a whole article on this.

Misplaced Brand Loyalty

Brands spend huge sums on their marketing, and they do this for a reason.

At its best, marketing promotes the qualities of a brand and informs potential buyers how those qualities could be useful to them. Most marketing today is not so altruistic. The advertising executive’s job is to convince the maximum number of people that a certain brand is both essential to their lifestyle and better than other brands for reasons that cannot be checked or proven.

When you take a long hard look at the additional benefits of a top tier brand over other products, you often find there’s not much there, or the benefits are carefully worded claims. In fact, it isn’t worth the huge mark-up in price and you probably won’t even notice trading down to something more affordable.

In addition, brands tend to take advantage of loyalty in their customers, squeezing their loyalty for as much profit as they can. Don’t get caught in this trap!

Lifestyle, Appearances and Peer Pressure

We buy lots of things so other people can see that we have them. You don’t need a BMW, you need a reliable car that can get you from A to B safely with your family and your things. You can probable cut certain categories of spending down to a third of what they were if you’re willing to make just one or two hard choices.

Victims of Sales Techniques

When you walk into a grocery store or a car dealership, the store and its staff are not there to ensure you get the best deals, they don’t want you to walk away only with what you need. They work for the store, not for you. The salesman gets a bonus based on how much you buy, not how satisfied you are. Everything about the place is designed to make you buy more things, more expensive things, and things in larger quantities. Why do you think four chicken breasts are slightly less expensive by weight than two chicken breasts? They’re the same meat, from the same factory. The company just wants you to buy more, because it means more profit for them.

What can we do to take back control of our spending?

It’s a lot harder than it sounds, and you shouldn’t approach the subject lightly. You’re going to be fighting against your own bad spending habits and an environment designed to make you spend more, not less.

If you want to take control of your spending, then you have to systematically go through every item you spend your money on and ask yourself:

  • Am I buying this for a good reason?
  • Can I really afford this?
  • Do I really need this?
  • Can I renegotiate the price?
  • Is there a cheaper alternative?
  • Am I being impulsive? Should I wait an hour or a day?

More specifically, for each of the categories that you spend money on, from rent to groceries to utilities to holidays, there are techniques you can use to re-evaluate your spending, reduce your costs and get more for your money.

In this series of posts I’m going to go through each category one by one, encouraging you to take a fresh look at your spending habits, asking questions and proposing alternatives that might help you reduce the amount you pay.

Among others we’ll cover: Rent, utilities, insurance, groceries, holiday costs, childcare, eating out and clothing.