April 2007
Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers NJAES Cooperative Extension
Want to save more money and grow your wealth over time? One solution is to simply watch what you spend! Many people today routinely purchase items that were once thought of as luxuries. Advertisements encourage us to buy the latest home electronics, brand new luxury cars, and lavish vacations. In addition, television shows depict lifestyles that most middle-income households cannot afford, even though we may try. In light of all this, it is important to get grounded financially and live the good life – within our economic means.
Making any kind of behavior change is difficult and takes a great amount of perseverance. Research has shown that when people want to change, instead of being forced to change, they are more successful. To voluntarily change your spending habits and behavior, start by tracking how much money you spend in a month on credit cards and with money taken from ATM withdrawals. Use the expense tracking tool found at njaes.rutgers.edu/money/pdfs/expensetracker.pdf.
To determine what expenses to reduce or eliminate, you must have an idea of where your money goes. Expense tracking is a task that many financial counselors and educators recommend for their clients to get a handle on their spending. Another recommendation to change spending habits is to increase your saving habits. One relatively painless way to do this is to automate your savings plan. To do this, simply have your bank or brokerage company take money directly out of your checking account or paycheck and place it into an investment or savings account.
To avoid impulse shopping, limit the amount of time you spend with “shopaholic” friends and at shopping malls. Additionally, when deciding to purchase an item, you may want to wait for at least a day. If, after that day has passed, you still think you need or want the item, then maybe it will be a good purchase. If the item in question is a “big ticket” item (e.g., appliance), you may want to wait a few days before deciding to purchase or not purchase. This strategy works in avoiding some impulse purchases. When you do decide to buy something, think in terms of durability over novelty.
One of the best things that parents can do to help reverse this era of overspending is to teach children about personal finance. While many people believe personal finance should be a topic taught in school, unfortunately, it is not always included, even though there are widely available programs to teach children about financial management. One is the National Endowment for Financial Education’s High School Financial Planning Program (see www.nefe.org).
Additionally, as parents and community leaders, adults can model good financial behavior to children. Teaching children about personal financial management, as well as the wise use of credit, is one of the best things that can be done to change the financial health of our country.
In summary, through some simple, common sense tactics, such as expense tracking and automated savings, it is possible to live on less and make wise consumer decisions. In addition, children most often learn financial management skills from their parents, so it is important to model good behavior to change the way they think about and handle money.