We’d all love to be rich, wouldn’t we? Or at least, we’d all love to be well off enough to be able to do what we want, and buy what we want, without having to consider the cost every time. Finding a good deal is always satisfying, but having to find a price you can afford all the time is not so much fun.
When you are constantly balancing your income and outgoings, always having to compromise between what you want and what you can actually afford can get quite tiresome. And if things are really tight, even the smallest of treats can leave you feeling guilty for wasting your precious cash.
So how do you avoid the constant battle with the balance sheet? How do you decide what to actually buy? And how can you treat yourself without the guilt trip?
One of the most effective ways to manage your spending is to prioritize everything into one of three categories: need, want or would like. These three broad bands cover pretty much everything you buy, as well as the different levels within individual items.
The bands are self-explanatory. “Needs” are just that: things you need to have to survive, like food, toiletries, transport, rent, heat, and light. If your job doesn’t pay you enough to cover your basic needs, then it’s time to change jobs or start acquiring new skills to help you advance in your current company.
“Wants” are those things that make life that little bit nicer and lift it above mere subsistence. Going out with friends, looking and feeling good in your clothes and hairstyle, and adding a few treats to your trolley at the supermarket. These are the things we really work for — the little rewards that make the nine-to-five worthwhile.
Finally, the “would-likes” are the things that we dream of — the things that are special and rare and really make us feel pampered and rewarded. These are the things we save for or put in the extra hours for and maybe go without other stuff in order to get them.
When it comes to budget planning, it is important to sort out your spending into the three categories and pay for them in order. You must pay for your needs first, and if there is anything left, then you can look at your wants and perhaps even start dreaming of your would-likes.
Of course, not everything is as clear-cut as the examples given above, and sometimes you need to be really honest with yourself about whether you really need something or whether you just want it. If you are in any doubt, it usually means it is a want, not a need. Cigarettes, alcohol, and chocolate are good examples of things that people prioritize as needs when they are really just wants.
Even unexpected income still needs to be spent considerately. It may be tempting to splash out if you get a small lottery win or pick up the pot in your online poker game, but the three tiers still apply. You need to make sure you have covered your needs before you start spending, and then make sure you have everything you want before you move on to the more whimsical would-likes.
You can use the same three-tier concept for choosing how you spend on almost anything, from a car to a holiday. You need a reliable car as transportation from A to B, you want certain features that make your journey more comfortable, and you would like one of those new models you saw advertised on the TV. You need a holiday break to recharge your batteries, you want to go abroad to a sunny location, and you’d like to stay in a private villa rather than a crowded hotel.
The important thing is to take the time to categorize everything and make sure that each level is filled before you move on. A car full of features and creature comforts is no use if it is not reliable. The most luxurious private villa is no good if you book in the rainy season. Similarly, that stunning new outfit that you want to buy for work will be of no use to you if you’ve spent your train fare for the next three weeks to get it.
If you separate your needs, wants and would-likes, and are honest with yourself about them, you’ll find it much easier to manage your money — and even to treat yourself now and then.