Spending money is a fact of life. In our virtual age, there are lots of ways that we can unload ourselves of expendable funds. The way we spend, whether using credit, cash or even rewards points, plays an intricate role in our individual financial planning. Find out which mix of spending strategies works best for you to save money and increase your net worth. Be sure you “know yourself” well, because you’ll need to consider your own finances, lifestyle and attitude towards money.
Be sure you “know yourself” well, because you’ll need to consider your own finances, lifestyle and attitude towards money.
So get started now, and figure out which of these six different types of spending work for you.
- Cash-only Spender
A cash-only strategy involves using bills and coins instead of debit/credit cards to make daily purchases. When you actually watch your cash disappearing as you pay for goods and services, it’s easier to realise the tradeoff you’re making for each item you buy. This can help you be more mindful of your spending.
The cash-only strategy may be ideal if you are easily tempted to make impulsive purchases. People who regularly cut back on small indulgences in order to meet larger financial obligations like paying off education or housing loans can be more prone to impulsive spending.
- Envelope-method Spender
Similar to the cash-only strategy, the envelope strategy involves using bills and coins to pay for everything. However, this budgeting and spending strategy takes things to the next level by dividing your expenses into clusters. The idea is to withdraw a fixed amount of money from your bank account each month, and put the cash into envelopes labelled with your expenditure categories like groceries, transportation, gifts and entertainment. Once you use up the cash in any given envelope, you cannot spend any more in that category.
In this age of online banking and mobile finance applications, the envelope strategy may seem quite old-fashioned. However, it can still be effective if you’re the type of person who needs a highly disciplined approach to spending. This tangible style of managing your money can also be useful if you are new to the process of budgeting.
- Online Spender
In contrast to the envelope strategy, an online spending style utilises modern applications like internet banking and online shopping. The whole idea is to do your spending at online stores. Aside from online retail stores and blogshops, Money Smart Singapore suggests a couple of online grocery shopping options that can help you save both time and money. To manage your finances even more conveniently, you can use internet banking to facilitate and track your spending. Today, many banks enable their customers to check account information, pay bills, transfer funds, and explore other services and products online.
The online spending strategy may be beneficial if you have a hectic schedule and little time to go out and do your shopping at a bricks and mortar retail store or grocery. This could be a practical solution for working students, busy parents, business owners and the like.
- Reward Points Spender
The reward points spending strategy takes advantage of various credit benefits such as cash-back, reward points and travel miles. By choosing your credit card provider carefully and consistently using that card to make most of your purchases, you might easily rack up enough points to pay for all or most of your next gadget or vacation.
This type of spending strategy can function well for you only if you already have an excellent credit history and/or no other debts. Reward yourself for the hard work you’ve put into reaching a glossy financial standing by reaping all the benefits that you can from that little plastic card.
- Needs-only Spender
A needs-only strategy allows spending for necessary items like food, transportation, rent and utilities only. By creating a list of your “needs” and “wants” you can automatically figure out what items you can and cannot spend on within this system.
This spending strategy can work well if you wish to quickly eliminate a debt. However, it is important to note that restraining yourself from spending on discretionary items can backfire. Allot a small percentage for you to spend on and have a discretionary account.
- Free Spender
A free spending strategy requires automatically transferring an allotment to a savings plan, contributing to your retirement fund, emergency fund and investment accounts, and paying all of your recurring bills every month. Any additional expenditures can only be made after those “musts” are taken care of. By covering all your financial obligations at month’s start, you can freely spend your money the rest of the month. After all the big deductions are made, you don’t have to be too concerned about those smaller daily purchases.
This type of spending strategy can function smoothly for responsible payers as well as conservative spenders who are capable of diligently saving, investing and paying for all their regularly occurring obligations. To successfully pull off this spending strategy, it’s important to be disciplined and committed enough to pay attention to covering the important things first.
She was nominated and selected for FORTUNE Most Powerful Women conference in 2016 (Asia) and 2015 (San Francisco, Next Gen).
Anna has 10 years of experience in the financial sector and is currently a Director in Tera Capital. Her previous work experience includes positions at Citigroup, United Overseas Bank, a regional role in Business Monitor and a boutique private equity firm based in Shanghai. She graduated from Singapore Management University (Finance and Quantitative Finance).
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