What’s the difference between the way an average person spends their money and how a millionaire does?
This is an interesting question and may help answer why the rich retain most of their money as opposed to the majority of people. According to a recent study, the answer is quite simple . A millionaire spends one minute longer thinking about their buying decision. They ask themselves:
- Do I really need it?
- Do I really want this item?
- Can I buy it cheaper somewhere else?
- Would my money be better spent on something else?
Unfortunately, we only get to spend our money once. Therefore we need to make sure of where we spend it and how we can maximize our utility from it.
I find that many people spend a lot of money on lattes, lunches and takeaways. Let’s use an amount of say £250 per month. This may sound a lot but in reality it’s pretty much in line with what most people spend on these items. Now that adds up to £3000 per year. Most people don’t relate that the £5-£10 per day on coffee and takeaways can add up to £3000 per year.
Now ask yourself this, would you rather have the lattes, lunches and takeaways or would you rather cut back to spending say £100 per month on those items and put the remaining money into paying off your mortgage faster, cutting your consumer debt or putting money into a long term investment plan? When put this way, it makes a lot of sense to cut back on your non-essential daily spending and save it for more important items.
Keeping up with the Jones
This is one of the most flawed financial things you can do. In my opinion and experience, the Jones usually can’t add!
I often get asked “how come my neighbor or friend can afford nice things like flash cars or exotic holidays?” Well the reality is they often can’t necessarily afford them, it’s just that they are up to their eyeballs in debt.
Next time you go out to buy something, take that minute longer and think. Ask yourself the question “am I getting the best value for my money buying this item or should the money go on something that is more valuable and important to me?”
Tip: It is a well documented fact that people who use cash tend to spend less than those who use credit cards.
An extensive survey was done in the US which showed that people spent approximately 20% more when using credit cards as opposed to using cash. This is because our ‘pain’ of handing over cash is more than handing over plastic (credit cards). When you pay using cash, you will think more about what you are spending your hard earned money on.