Become aware of what you’re spending

A hugely important aspect of financial wellbeing is the ability to control our spending. Human beings are hardwired for instant gratification. Combine that with social media — particularly sites like Instagram — and you can see why so many people live beyond their means. A video on the Bloomsbury Wealth YouTube Channel.

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Transcript: Robin Powell & Carl Richards/ Financial planner & author.

RP: A hugely important aspect of financial wellbeing is the ability to control our spending. Human beings are hardwired for instant gratification. Combine that with social media — particularly sites like Instagram — and you can see why so many people live beyond their means. And it’s not just people on lower incomes who have a problem with it.

CR: In my experience, I haven’t seen a correlation between the amount of income somebody earns and their ability to be good with their money. I don’t think I’ve ever seen that – in fact we know there’s a lot of people who are big hat, no cattle. High income and high lifestyle creep – in fact, that’s a huge problem. As soon as you’re used to living on £25,000, you come out of school, you get a raise, and the first thing you do is match your lifestyle to your new income… and probably a little bit more with some debt. And then you just keep doing that, and the key is to just really fight against that lifestyle creep. So as income goes up, lifestyle doesn’t and you get more and more aware. But I haven’t found a correlation between – just because you make a lot of money, does not mean you know how to take care of it.

RP: So, what’s the answer to overspending, or spending money on the wrong things? For Carl Richards, the secret is to increase your awareness.

CR: The biggest way to solve it is to stop thinking about budgeting as a constraint. Stop thinking about it as a stick to beat yourself up with, and start thinking of it as a simple tool for awareness. After you spend money, take three seconds and just notice what you did. No shame, no blame. Don’t try to make a change – there’s no goal. The only goal is to notice what you did. That awareness will drive behaviour change without you really focusing on the behaviour change.

RP: Some personal finance experts recommend tracking every purchase you make. That might not be for everyone. But Carl Richards says it’s important to find a system that works for you.

CR: I set my credit card up once, I did an experiment where I would get a text message every time something got spent. The trick is it’s a high spend alert, and you can set the number. So I set it for a pound! Every time anything over one dollar was spent, I would get a text. Just commit to reading the text. Another way to do that would be to carry a three-by-five index card in your pocket, and write it down – or send yourself in Notes, that’s the other thing I’ve seen people do, take a note in Apple Notes. All you’re doing is saying, “I just spent £7.50 on a sandwich”. And do that for 30 days, I think you’ll be shocked at what you learn.

RP: Remember, it’s human nature to seek pleasure through spending money. It’s important, as well, that we treat ourselves from time to time. So don’t be too hard on yourself. But do think of ways to increase your awareness of what you’re spending. It could make a big difference.

Disclaimer — The information in this video does not constitute advice or a recommendation, and you should not make any investment decisions on the basis of it. If you do however require advice please do not hesitate to contact Bloomsbury Wealth.

 

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