You’ve been working hard all week so you deserve to buy that new watch for yourself right?
Anyways, you can “afford” it.
A bunch of millennials including myself has fallen into the trap of spending money on items simply because we can afford them. It’s good to buy nice things here and there, but not if aren’t saving money at the end of each paycheck.
You need to prepare yourself for inconvenient occurrences. For example, if you lose your job tomorrow you need feel confident that you can survive a few months. I can’t picture anyone being “ok” after being laid off their job, however, it won’t be as bad if you have some savings stashed up.
Plus, do you really want to live paycheck to paycheck?
It’s no wonder why we’ve seen crazy statistics, such as 2/3 millennials have some type of long-term debt.
I promise it will get better though. After reading this article hopefully you’ll be more conscious of your spending, and not buy items just because you can afford them. Here are some reasons why millennials become mislead with “affording”.
That’s right FOMO (fear of missing out). It’s tempting not to purchase that apple watch when you see your friends/coworkers wearing it daily.
If they are wearing it so can you, right?
An Apple watch is about $299, depending on which one you get. Let’s say you go ahead, and purchase this watch. You’ve now invested roughly $300 on watch you may or may not use for the next few years.
You were able to afford it, but what value are you really getting from this purchase? This is only one example of the many that happen every day. It can also be the coffee you purchase each morning and never finish.
From small to large ticketed items we make are faced with this dilemma daily. The end result is having little to no money left over each month.
Bad habits like these can eventually force you to depend on your job to continue paying the bills. All because you were buying items you could afford.
Purchasing on Credit
Similar to buying an Apple watch, millennials end up buying bigger ticketed items.
Credit cards can be a convenient choice to pay for places that only accept credit, or save you the hassle from carrying cash. It becomes an issue when we are led to believe that we can afford something we currently don’t have the money for.
For example, you might decide to purchase a brand new MacBook that costs $2000. You can pay $1000 today, and the rest within 6 months.
You feel that you’ve made the right choice, especially since you’ve added it a 0% interest credit card. However, you are now making $100-$200 monthly payments for the next couple of months.
This purchase might even cause you to have less extra cash each month. If you become careless you can easily pile up thousands of credit card debt.
I get it trust me. We all want to buy nice things. After all, what’s the point of having money If you aren’t spending on yourself once in a while?
You just need to train yourself to buy smarter.
This means that you should have a set of rules in place. Such as purchasing items only if you can afford 80% or more in cash, and if it’s within your means.
That MacBook purchase from the earlier example would have been ok to purchase if you had $1,600 in cash, and was also within your means. This would mean that the remaining $400 balance wouldn’t have affected how much you saved each month.
You don’t want to let unnecessary purchases stop you from building your savings account.
The 80% ratio is just my personal preference. You can have it up to 100% if you’d like.
Personal finances are unique to everyone, so it’s challenging to say how much you should spend, or save. However, I also understand that it’s unrealistic to assume that you should purchase everything in cash. Chances are that you won’t want to wait 5-10 years to purchase a $30,000-$50,000 car in cash.
If you end up purchasing a car by making a large down payment, and financing the remainder within a year then I don’t think it’s the end of the world. As long as you can still build your savings account, then it’s fair game in my opinion.
Buying items on sale
For some reason, I used to frown upon others who bought items on sale in the past. I think this was mainly because I saw others saving money, while I wasn’t. I also didn’t want others to think I was cheap.
Today, however, I don’t worry what other people think. I go straight to the sale items when I enter clothing stores and feel good about it.
It doesn’t just have to be clothes, but with any item really.
A lot of times electronic stores such as Best Buy carry items on a special rack that are marked as “used”. These used items are sometimes only used for a short period of time. So you might find an awesome deal for a MacBook, simply because someone decided to return their laptop a few weeks later.
If you aren’t buying items on sale or used then consider these options.
Needs vs. Wants
So far you’ve learned a few tips on how to buy smarter. Yet, it’s important that you prioritize what you should buy in the first place.
In the past, I’ve bought clothes, electronics, and other material that I didn’t really need. The result of this was unused gaming systems, unworn clothes, and supplies left on the shelves to collect dust.
It might seem trivial at the moment, but it’s important that you start becoming aware of your purchases. Asking simple questions such as “Why do I need this?” or “How will this benefit me 3 –years from now?” can prevent you from wasting your money.
You can start saving right now by asking yourself which items you’ve been wanting for the past few weeks/months. Afterward, categorize these items as needs or wants. Finally, ask yourself the 2 previous questions: “Why do I need this?” or “How will this benefit me 3 –years from now?”.
If you have a hard time justifying some of these items, then maybe it’s best you avoid buying them in the first place.
Change your perspective
I hope that you consider thinking twice before making your next small or big purchase. It’s good to treat yourself with nice items when you can, but try to avoid sacrificing your savings. Follow some of these practices, and you’ll be more prepared for unexpected downfalls.
There has to be a balance between saving your money and also treating yourself with nice things from time to time. What’s the point of stacking millions of dollars if you may not see tomorrow?
However, do it wisely.
I wish you luck on your journey to not only paying off all your debt but to becoming financially wealthy.