Here’s a little exercise you should try the next time you find yourself on the verge of making a big spend, whether it be impulse or otherwise. Stop and ask yourself these five-second finance questions to help clear your mind and make sure that you are spending your hard earned cash in the right way.
It shouldn’t take more than five seconds to answer each one, and always go with your initial response even if it’s not the answer you want to hear.
Do I really need it?
Ie. Will my life collapse if I don’t buy this?
If it’s a new sweater, the answer is probably no. However, if it’s new car tyres, then potentially yes. (Never skimp on safety. Nothing is worth the risk). If you really need it then buy it, it will be worth the cost.
Can I afford it?
Ie. Will it send you into debt, or your overdraft? Will buying it mean that you will need to skimp on other essentials like heating, rent, or food?
If you can afford it then by all means buy it, enjoying your money is not a sin, but make sure it’s not false economy.
How often will I use it?
If something is costly but you will use it a lot then it may be worth the cost. A great rule of thumb is dividing the cost of the item by the amount you use it.
For example, an expensive pair of sunglasses may seem like a waste of money but if they protect your vision and you will wear them every day for 4 months solid, then they may be value for money.
How will it add value to my life?
How is this thing you are about to spend your hard earned cash on going to bring added value to your life? Are you buying it only for that 5-minute spending high, or will it be something that will continue to have a purpose for a long time to come?
If it won’t add true long lasting value then don’t buy it, it will be wasted money.
Can I buy it cheaper elsewhere?
This is something you should always ask yourself, no matter what it is you’re buying. Never buy something if you can get it at a better price elsewhere. It is always worth taking the time to look around at your other options before you commit. This is especially true if it is a big or important spend such as insurance, a holiday, or a long running commitment like a phone or car contract.
If you feel your spending behaviour is routinely unhealthy or negative then you should read our posts about how you are sabotaging yourself with your spending habits, and maybe you could think about putting yourself on a financial detox to try and get back some control.