How to Spend Money Smartly

Create a Budget Plan. Review your expenses and income to get a clear overview. Keep track of receipts or jot down your expenses in a notebook each time you shop. Review your receipts every month and tally up these expenses to build your budget.

• Organize your purchases into categories (food, clothing, entertainment, etc.). The category with the highest expenses (or items you find unusually expensive) could be a good target for cutting back.
• Once you've assessed your spending habits, set a monthly (or weekly) limit for each category. Ensure the total budget is less than your income for the same period, and any leftover money should be used for savings if possible.

Create a Shopping Plan. Impulsive shopping can quickly inflate your expenses. Take the time to make a list of what you need when you’re calm at home.

• Do a preliminary price check before your actual shopping trip. Write down the prices of the items you need at one or more stores. Return home without purchasing anything and decide what to buy on your second trip, the “real” shopping trip. The more focused you are and the less time you spend in the store, the less you'll spend.
• If you treat each purchase as an important decision, you’ll make better choices.
• Don’t accept free samples or try things just for fun. Even if you have no intention of buying, the emotional reaction after trying a sample can convince you to make an immediate purchase rather than taking the time to consider it carefully.

Avoid Impulse Buying. While planning your shopping is a good thing, impulse buying is detrimental. Follow these steps to avoid inefficient shopping:

• Don’t shop just for the fun of it. If you shop for the joy of the act itself, you'll almost certainly buy more than you need.
• Avoid shopping when you're not clear-headed. Alcohol, drugs, or lack of sleep can impair your decision-making ability. Even shopping while hungry or listening to loud music is a bad idea because you may not stick to your shopping list.

Go Shopping Alone. Children, friends who enjoy shopping, or even friends whose shopping taste you like can influence you to buy more.

• Ignore advice from salespeople. If you need information, politely listen to their advice but ignore all buying suggestions. If they don’t leave you alone, exit the store and return later to shop.

Pay in Cash. Credit and debit cards encourage you to spend more for two reasons: You can spend beyond your means, and since no real cash is exchanged, the transaction doesn’t feel as “real.” Similarly, installment payments make it harder to realize how much you’re spending.

• Don’t carry more money than necessary, because if you don’t have extra cash, you won’t overspend. Similarly, withdraw a weekly amount from your ATM card that matches your pre-calculated weekly budget instead of withdrawing cash whenever you run out.

Don’t Be Fooled by Marketing Campaigns. External factors often influence what we buy. Be cautious and try to understand all the reasons you might be drawn to a product.

• Don’t buy something just because of an advertisement. Don’t trust advertising, whether on TV or on product packaging. Ads are designed to encourage purchases without presenting all your options.
• Don’t buy just because something is on sale. Discount coupons and sales are great for products you were already planning to buy, but purchasing unnecessary items just because they’re 50% off won’t save you money in the long run!
• Be aware of pricing tricks. Understand that a price of “1.99” dollars is effectively “2” dollars. Evaluate products based on their real value, not because they seem like a bargain compared to another product from the same company. (By comparing the “worse” product, you may be tempted to pay more for features you don’t actually need.)
• Don’t automatically buy a product that’s priced in the middle of a range. Marketers know that if they want you to buy a high-priced product, they can influence your decision by offering extremely expensive items alongside it, making the mid-priced product seem reasonable and affordable.

Wait for promotional events and discounts. If you know you need a product but don’t urgently need it, wait for it to appear in the clearance section or try to find a discount coupon.

• Only use coupons or take advantage of discounts for products you really need or have already decided to buy before the discount event. The allure of a discount can easily tempt shoppers into buying things they don’t actually need.
• Purchase certain products off-season. A winter coat will be much cheaper if bought during the summer.

Do your own research. Before purchasing expensive items, search online or read consumer reports to find the best product at the lowest price. Look for products within your budget that meet your needs and are durable.

Calculate all costs. You may end up paying more than the sticker price for high-priced items. Read the fine print and total up all the costs before making a decision.

• Don’t be misled by installment payments. Calculate the total amount you’ll pay (monthly payments x total months) to find the most affordable option.
• If you have any debt, include the total interest you’ll have to pay in your calculations.

Occasionally treat yourself to a small, inexpensive gift. This may seem counterintuitive (isn’t this buying something you don’t need?), but in reality, treating yourself helps you stick to your plan. When you try to avoid unnecessary spending, you might eventually “break” the rule and end up spending more than usual.

• Set aside a small amount in your budget for these types of purchases. The goal is to boost morale and prevent potential splurges.
• If you’re used to buying expensive gifts for yourself, cut back. Take a bath at home instead of going to a spa, or borrow a movie from the library instead of going to a theater.

Only buy what you truly need. Take a look through your wardrobe to see what you already own. Sell or donate items you no longer wear or that no longer fit to get a clearer picture of your needs.

• Cleaning out your closet is not an excuse to buy new clothes. The goal here is to identify which types of clothing you have enough of and which ones you still need to purchase.

Know when to buy for quality. It wouldn’t be wise to buy the most expensive brand of socks if they wear out quickly. However, spending on a better, more durable pair of shoes can save you money in the long run.

• Remember, price doesn’t always reflect quality. Look for brands that offer longevity instead of opting for the priciest option.
• Similarly, wait for a sale on the item you need, if possible. And remember, don’t use discounts as an excuse to buy things you don’t actually need.

Shop at second-hand stores. Some second-hand stores offer very good items. At the very least, you can buy basic pieces for a fraction of the price of new items.

• Second-hand shops in wealthy areas tend to receive high-quality donations.

If you can't find it in a second-hand store, go for the lower-priced alternatives. Sometimes, a brand name doesn't equate to quality.

Create a weekly meal plan and shopping list. Once you have a food budget, plan your meals and make a list of what you need to buy from the store.

• This will not only prevent impulse purchases at the store but also reduce food waste—a significant expense for many families. If you notice you're also throwing away food, consider cooking smaller portions.

Learn money-saving food tips. There are plenty of ways to save when grocery shopping, from buying in bulk to knowing when products go on sale during the day.

Limit dining out. Eating out is much more expensive than cooking at home, and it shouldn't be a spontaneous decision for someone trying to save money.

• Instead, prepare meals at home and pack them to eat at work or school.
• Bring water from home instead of spending money on bottled water.
• If you're a regular coffee drinker, buy a coffee machine and save money by bringing coffee with you.

Save money. Smart spending always goes hand-in-hand with saving. Try to set aside as much as possible into savings accounts or reliable interest-bearing investment tools. The more you save, the better your financial situation will be. After all, what’s the point of smart spending if not to save? Here are a few ideas to consider:

• Build an emergency fund.
• Open a Roth IRA or 401(k) account.
• Avoid unnecessary fees.
• Plan your meals weekly.

Eliminate costly habits. Harmful habits such as smoking, drinking, or gambling can quickly drain your savings. Breaking free from these habits is essential for both your wallet and your health.

Don’t buy things you don’t need. If you’re unsure, ask yourself the following questions. If you can’t answer “yes” to all of them, you probably shouldn’t spend money on it.

• Will I use this regularly? Make sure you finish your milk before it spoils or that you wear a dress more than once or twice.
• Do I already own something that serves the same purpose? Pay attention to items whose functions can be replaced by what you already have. You don’t need specialized kitchen gadgets or a dedicated workout wardrobe if sweatpants and t-shirts work just fine.
• Will this product improve my life? This is a tricky question, but you should avoid buying things that promote “bad habits” or distract from more important areas of your life.
• Will I even remember this product if I don’t buy it?
• Will buying this make me happy?

Cut back on unnecessary pleasures. If you have a gym membership but rarely go, don’t renew it. A person prone to impulsive spending often doesn’t use what they buy. If that’s the case, sell it. Invest your time and money in things you truly enjoy.

• Following a budget plan becomes easier when all family members commit to it.
• Regularly look for better utility and insurance deals. Many service providers (phone, internet, cable or satellite TV, etc.) offer great deals to new customers. If you know how to switch between companies, you can always pay a lower cost. (Some phone companies even cover the cancellation fees of your old provider when you switch to theirs.)
• When comparing two cars, factor in how much more you’ll spend on fuel if you choose the less fuel-efficient model (miles per gallon).
• Don’t buy clothes that require dry cleaning. Always check the care instructions carefully before purchasing. You won’t want to constantly pay for dry cleaning!
• Many websites calculate the total cost of owning a car over the first five years (when it’s still new). Search for “car ownership costs.” They will estimate fuel, insurance, maintenance, repairs, etc. Also, stay on top of maintenance and follow the manufacturer’s recommendations. This will save you thousands of dollars in the long run.