The importance of being aware about spending

Ever wonder why it's so tough to stick to a budget? This video delves into the crucial skill of controlling our spending. We explore the powerful pull of instant gratification, amplified by social media, and reveal why living beyond our means is a widespread challenge that transcends income levels.

Think a bigger paycheck solves all your money woes? Not necessarily. We break down the phenomenon of "lifestyle creep" and how easily our spending habits inflate to match our earnings. Discover why simply making more money doesn't automatically lead to better financial control.

So, what's the secret to taming overspending? This video introduces a surprisingly simple yet effective strategy: increasing your awareness. Learn how a shift in focus – from restrictive budgeting to simply noticing where your money goes – can unlock lasting changes in your financial behaviour.

Key takeaways

Controlling spending is crucial for financial wellbeing, and modern life makes it easy to overspend due to instant gratification and social media.

Higher income doesn't automatically equate to better money management; lifestyle creep can negate increased earnings.

Increasing awareness of spending habits, without judgment, is a powerful tool for behavior change, often more effective than strict budgeting.

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Looking for a reliable guide to financial planning?

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Transcript

Robin Powell : A hugely important aspect of financial wellbeing is the ability to control our spending.

Human beings are hardwired for instant gratification. Combine that with social media — particularly sites like Instagram — and you can see why so many people live beyond their means.

And it’s not just people on lower incomes who have a problem with it.

Carl Richards: In my experience, I haven’t seen a correlation between the amount of income somebody earns and their ability to be good with their money. I don’t think I’ve ever seen that - in fact we know there’s a lot of people who are big hat, no cattle. High income and high lifestyle creep - in fact, that’s a huge problem. As soon as you’re used to living on £25,000, you come out of school, you get a raise, and the first thing you do is match your lifestyle to your new income… and probably a little bit more with some debt. And then you just keep doing that, and the key is to just really fight against that lifestyle creep. So as income goes up, lifestyle doesn’t and you get more and more aware. But I haven’t found a correlation between - just because you make a lot of money, does not mean you know how to take care of it.

RP: So, what’s the answer to overspending, or spending money on the wrong things?

For Carl Richards, the secret is to increase your awareness.

CR: The biggest way to solve it is to stop thinking about budgeting as a constraint. Stop thinking about it as a stick to beat yourself up with, and start thinking of it as a simple tool for awareness. After you spend money, take three seconds and just notice what you did. No shame, no blame. Don’t try to make a change - there’s no goal. The only goal is to notice what you did. That awareness will drive behaviour change without you really focusing on the behaviour change.

RP: Some personal finance experts recommend tracking every purchase you make.

That might not be for everyone. But Carl Richards says it’s important to find a system that works for you.

CR: I set my credit card up once, I did an experiment where I would get a text message every time something got spent. The trick is it’s a high spend alert, and you can set the number. So I set it for a pound! Every time anything over one dollar was spent, I would get a text. Just commit to reading the text. Another way to do that would be to carry a three-by-five index card in your pocket, and write it down - or send yourself in Notes, that’s the other thing I’ve seen people do, take a note in Apple Notes. All you’re doing is saying, “I just spent £7.50 on a sandwich”. And do that for 30 days, I think you’ll be shocked at what you learn.

RP: Remember, it’s human nature to seek pleasure through spending money. It’s important, as well, that we treat ourselves from time to time. 

So don’t be too hard on yourself. But do think of ways to increase your awareness of what you’re spending. It could make a big difference.