People often talk about personal finance in terms of large money decisions, like deciding whether to buy a home or creating long-term savings goals. But over time, the little financial decisions, many of which occur on a daily basis, matter too. And it can be hard to know where to draw the line between needs, wants, and wastes.
When it comes to purchases, waste is anything that you don’t get any benefit from or use, Jennifer Faherty, a New Jersey-based certified financial planner, told Business Insider. According to Faherty, you can avoid wasteful purchases by doing the following:
To help you find and fix money drains in your spending habits, here are five things Faherty says are common wastes of cash:
“Oftentimes people spend money on things that they already have in the house,” Faherty said. “It happens more than you think, especially with couples who are just starting out." This could be small items, like food or cooking implements, or something more expensive, like clothing. It happens because people aren't organised, she said.
Periodically going through your closet and storage areas and checking the pantry before you leave the house to go grocery shopping are key to saving money.
According to Faherty, you may be wasting your money if you could have got the same item at a lower cost just by shopping around. But it depends on your situation.
Calculating the financial value of your time can help you decide whether it's worth it, for example, to visit several different stores looking for the best price on an item. How much is that extra hour of driving/shopping worth to you?
Sometimes it's fine to skip shopping around, "because time is money," Faherty said. “But if you can infuse some planning into it, then you can save on some costs."
Faherty said this is up to your discretion, provided that you derive some value out of using brand-name groceries and can afford to buy them.
Some people are very brand-loyal when it comes to their favourite cookies or yogurt, but will buy store-brand canned goods or frozen veggies.
Just make sure that you have your top financial priorities, like a retirement savings plan and paying down debt, in order before regularly splurging.
If you have items that constantly need to be replaced, like disposable cups or cleaning supplies, it may be time to upgrade to reusable items. Similarly, if you have things you need now, but that you won’t need long-term (like baby onesies), it makes sense to limit those purchases to avoid overspending.
According to Faherty, many bank account fees, like overdraft and maintenance fees, can often be avoided through organisation.
Do some research when picking a bank account to ensure that you meet the bank's requirements to avoid a maintenance fee (like a minimum balance or required monthly direct deposit). Automate your bills so they come out of your account right after your paycheque hits, so you don't get hit with an overdraft fee.
“I think it’s easy for people to get overwhelmed, but many of these things take less than 10 minutes to do, and you don’t have to do all of these at once,” Faherty said. “The key is to make it consistent and bite-sized so it doesn’t get overwhelming.”
Savvy spending is about knowing your finances and staying on track with your budget.
“Sometimes people don’t like the idea of budgeting because it feels so restrictive,” Faherty said. An alternate approach is making sure you’re able to easily afford your essential items, like living expenses, debt repayment, and saving for the future, and leave the rest for discretionary spending. Faherty calls this wiggle room “planned spontaneity.”
As long as you make sure each purchase has value, you actually use it, and you can afford it based on your discretionary-spending budget, you’ll be on the right track with your finances.