Spending money is an action that we all do frequently in a daily basis, and if done on unnecessary things, then you’ll be missing out a lot of great opportunities to improve your financial wellbeing that can upgrade the quality of your life.
To stop spending money on unnecessary things you need to follow a 3 steps process that starts with identifying what is meant by unnecessary (it includes necessary things as well), why you’re doing it, and follow the advised action plan below to spend wisely.
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Impact of spending money on unnecessary things
When you spend money on unnecessary things, you waste 3 big opportunities:
1- To spend it wisely
Spending money on things you want, waste an important opportunity to spend it on things that really matter to your wellbeing and life. Things like buying courses or books to learn a new skill, or a gym subscription to enhance your fitness, etc.
2- To save it
Another waste is not saving money, or more money, which can be used to build up your important funds like emergency or education funds for yourself and family.
I always say that saving is your defense play, and it’s totally within your control. That’s why the bigger and first focus in improving your financial wellbeing, should go towards saving.
3- To make more of it
The third wasted opportunity here is not being able to make more money out of the money you spent irresponsibly, and it doesn’t make sense to me. If you like spending, then at least be wise to dedicate a portion of that spending to things that can grow your money to spend more and more.
Step 1: Identify what is meant by “unnecessary spending”
My definition of unnecessary spending is: Any spending that should have been used for another important thing that you need. It’s the first step in stopping wasting money on unnecessary things by knowing exactly what those things look like to avoid them.
The list includes 3 items that you can consider unnecessary, and they also include important things but with specific criteria. Let’s find out:
1- Things you want but not need, and you can’t afford saving
This is where you can include all the wants not-real items as explained in the Needs and Wants Matrix before. They are the things that are not basic to your wellbeing and life nor add value to their quality.
In other words, you don’t need them, and you don’t want them badly either. They are at the very bottom of your wants hierarchy.
The other factor here to consider these items “unnecessary” is if your spending on these items is interfering or affecting your saving goals.
If I have all my full emergency fund, education fund, future fund for my kids and own my house and car, then I’ll be guilt free when spending on unnecessary things. That’s why if you are as rich as Richard Branson or Bill Gates, it’s okay to buy yachts or islands since you have your needs and high level wants covered already and still have a lot of money.
This category includes items like magazines that aren’t relevant to your work, frequent shopping, unhealthy snacks, upgrades to your car, etc.
The list also includes keeping up with the Johnson’s when buying things you don’t need nor want, only to be at the same level with your neighbors or peers. If they bought new car or clothes, you need to do the same.
2- Things you need but at the wrong time
Having important things is good, but when you have them at the wrong time, this should be considered as unnecessary spending.
A car can be classified as important to you according to your own circumstances. An unnecessary spending happens here when you go after a new car or a new big and fancy car while you don’t have its money so you’ll do loans and pay more for the interests, or you can pay for it, but it’ll leave you with nothing afterwards.
Many experts advise in this scenario to go for a used car, or a small car that is cheaper and you can afford, then later you can go after that new or big or shiny car when you have the capacity to purchase it.
3- You need but too much
Frequency is another dimension where you can go wrong in spending money on an important thing. An example would be going out for dinner frequently in the week. Although it’s an essential meal you’re eating, but because it’s more expensive than cooking at home, the frequency of doing it makes it an unnecessary spending if that money can enhance your savings.
Another example would be using a taxi or Uber frequently instead of other cheaper transportation only because it feels a little more comfortable or faster. It’s okay to do so in emergency cases when you need “fast”, or if you have your spouse and kids and you don’t want them to suffer the inconvenience of the public transportation if it’s inhuman in your country.
Gaming can be also considered here and I’ve talked about this into details in another article here
4- You need but could have avoided it
This list includes fines or penalties you have to pay because you were late in paying your bills for example. It’s an important thing to pay those fines, but you could have avoided this by setting a simple reminder for example.
5- You need but with a cheaper alternative
Another scenario where you can spend money on an important thing but still counts as unnecessary, is when you buy an item that you identify as important to you, and that item has a very similar alternative with the same or even almost same quality but with a cheaper price.
Paying 5 times more using Uber when you can use the public transportation is an unnecessary spending unless justified as explained above. When used more often, then frequency makes it more unnecessary.
Maybe you love reading and with tracking your expenses you realize that you spend money on books while you can have a cheaper alternative as I discussed in detail in an article about whether spending money on books worth it or not.
Step 2: why are you spending money on unnecessary things?
Now that you know what unnecessary things look like, it’s important also to understand why you’re falling for the trap of spending money on them. There are 5 reasons why:
1- No purpose or goals to do with your money
The first and far most important reason why you spend unwisely or carelessly is not knowing why to properly manage your money or what to do with it.
Not having a purpose or goals doesn’t mean you have a lot of money. Even rich people have purposes and goals to make their money grows. A lot of people have pain points and debts to settle but they’re not aware that they can make goals to increase their savings to settle it earlier for example.
At this point in time, you’re not aware of your opportunities and you can’t improve what you’re not aware of.
2- Don’t know your needs and wants
Another reason why you spend on items that doesn’t matter is not knowing that they don’t matter, or not knowing what really matters so you can see that your spending behavior is on the wrong track.
A need is something you must have for your basic life like food for normal health, and a want is something that upgrades your life like eating with friends for social wellbeing.
I even differentiate needs and wants into 2 tiers as linked to above (needs and wants matrix). Not knowing what you need makes you vulnerable to spending on things labeled as important but they’re not on reality, not to you at least, or not now.
When you come up with your lists of what you need (real and not real) and what you want (real and not real), you will be able to control your spending on unnecessary things.
3- Peer pressure: Keeping up with the Johnson’s
One of the main reasons why we spend on things that don’t matter to us is keeping up with the community or society we’re living in, physically and digitally. The degree varies, some people are obsessed with this and keeping up with the Johnson’s is what life is all about, and for some it can affect small purchases here and there to feel equal to others.
4- The invisible money syndrome
The invisible money syndrome is something that I came up with for losing control over our spending due to not seeing actual money being taken from your physical wallet every time you use your cards to pay for something.
When you use cash to pay for things, you can see your money shrinking after a purchase which can help controlling your next spending. Sometimes the control happens with an attempted purchase. You take your money out from your wallet, then you see what’s left and remember your future obligation might leads you to putting them back in and canceling that spending.
Nowadays, most of our purchases are made digitally either online or using cards so you’re not actually feeling or seeing money going away which facilitates the spending. The only control you have is when your card’s limit is reached but it’s already too late.
5- No accountability
Another important factor in my opinion is not having a supporting group. Spending is a behavior and if done wrong, its correction sometimes will require support from a professional or even your peers, and not having them in place, can contribute to continuing with the unwise spending behavior you have.
Step 3: The Action Plan to stop spending on unnecessary things
Now that you know what unnecessary spending is, and the reasons behind your unnecessary spending, it’s time to come up with an action plan to correct this behavior and upgrade your wellbeing using the below 5 recommendations:
1- Knowing your Why and What
The first action you should do is to identify your purpose and the goals that you want to accomplish with your money. You can use the following questions to guide you:
- Why you want to control your spending on unnecessary things?
- How are you seeing your money couple of years from now if you stopped spending on unnecessary things?
- What are the changes you’re seeing in yourself and your life couple of years from now when you control your spending on unnecessary things?
- What are you going to save for and how much you’re targeting for it? Will controlling your spending help?
- What are you looking forward to doing to increase your money? Will controlling your spending help?
2- Identify your needs and wants
Now it’s time to know what are important to you and what aren’t, and the way to do that is by creating your Needs and Wants lists as mentioned before in all 4 levels:
- Needs – Real: What are the very basic things you need each month that you can’t go by without them?
- Needs – Not Real: What are the upgrades to the basic things you need each month that you can go without for a while?
- Wants – Real: What are the things that can add value to your life but can go without for a period of time?
- Wants – Not Real: What are the things that you can go your whole life without them affecting it ever?
3- Overcome the invisible money syndrome by
As we discussed, not seeing your money or not dealing with your money physically can hinder your control over your spending, including the one on unnecessary things. That’s why my recommendation is to visualize your spending using one or all the following:
1- Have a few papers in your wallet to use as a representation to the money you’re willing to spend in each week or month. Let’s say you have a budget to spend $100 a week. Then you can have around 14 pieces of papers labeling them as follows:
- 1 piece equivalent to $50
- 1 piece equivalent to $20
- 2 pieces equivalent to $10 each
- 10 pieces equivalent to $1 each
When you pay for $20 worth item by card, you trash the $20 piece and so on. This will give you the feeling of you spending actual money and help you control it.
2- Another way is to have a piece of paper in your wallet labeled with the total you want to spend in a week or a month and write it to the right side.
Let’s say you want to spend $1000 in a month for instance. Then each time you spend, you tear the right part of that paper changing its label to the remaining digital balance. So, if you spend $100, then tear like 1 cm from the right part and write $900 to the right of the remaining paper, and so on.
Both are my exercises that I give in my coaching. The first one I usually use with small amounts for short duration like a week, and the second exercise can be applied to larger amounts and longer duration.
Of course you can come up with your own practical visual representation exercise that serves the same purpose of helping you see the money you have and physically interact with it to help you take control over your spending.
4- Have a supporting system
Spending on unnecessary things is an abnormal behavior that for some people it’s an easy fix, and for some it requires work, time, and support from others to make it right.
That support could be professional by a financial expert, a coach, or a mentor, and it can be done with your friends that can hold you accountable for the fixes you apply to yourself.
You can have that support physically or digitally through forums and online groups
5- Tell your closed circle
Telling your close family members and friends that you’re optimizing your financial goals will help them setting their expectations about your spending going forward.
When telling them, it’s obvious that you’re going to cut down unnecessary spending that you identify but that’s not what you’re going to tell your family and friends because this will translate as you are saying, “what you do is trivial or silly or not important” and that’s bad for your relations. What you’re going to tell them
An example would be going out with your friends each week to a fancy restaurant. In this case you tell them that you won’t be joining them in the weekly outgoings because you’re optimizing your financial status and part of your plan is going out biweekly or even once a month.
This should, if they are real friends, to have them support your decision, not including you on the first 3 outings but call you in the 4th to ask if you can join them.
Maybe they get interested in knowing more about your project and maybe join you or change their way of meetings each week to a cheaper one.
Frequently Asked Questions
Is it okay to spend money on unnecessary things?
Yes, but ONLY if you have your important savings covered first. If you still don’t have a decent emergency fund in place, or paid your college or house debt, then money wasted on the unnecessary things identified above is a wasted money.
Does stop spending on unnecessary things really make a difference to your financial wellbeing?
Yes it does. A simple exercise I recommend is coming up with your needs and wants list and compare it against your monthly expenses. You’ll be surprised of how much money you spend on things you want that could have been put into a better use like saving or investing