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Prioritize Your Spending
One thing I have learned over the years is that if everything has the same priority, then nothing has a priority. That is particularly true when you are trying to find out what you can save money on. The best way to go about this is to identify the benefit of a purchase and weigh it against any other purchases you want to make. View it as making a
wish list of purchases and honestly grading them in importance against one another. You don’t have to use a sophisticated matrix to do this. A few simple questions are all you need to get a pretty good idea. Some of these questions include:
- Do I have the money for this?
- Is the purchase going to deplete my savings?
- Is the purchase going to put me at risk of not being able to make scheduled payments (i.e. mortgage/rent, car payment, utilities)?
- Do I have to limit my spend in one of the core survival needs like food, shelter, transportation?
- Is this purchase replacing a working equivalent?
- Is this purchase creating or eliminating risk?
- Does this purchase create a new liability (see following chapters for explanation)?
Simply put: Run the numbers on every major purchase decision to find out if it’s really necessary and then assign it a number placing it in relation to the other bills and purchases you want or need to make. The more reasonable the purchase is, the smaller the number should be. Also, use factors like: “What would happen if I didn’t have
this item or service?” This will help you identify the things that are truly essential for you. I.e. if you loose your job if you don’t have a car, then “a car” is truly essential for you. However, the numbers need to tell you what car you can afford and when to replace an existing one. If the answer
to a TV purchase question is “I can’t watch HD Movies on TV if I don’t spend $2500 on a new Flat Screen TV” ask yourself, how much of a burden that really is and if your current TV doesn’t still satisfy you real need (if a TV actually represents
a need to you).
(read
on ...)
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