We all have them. Those little weaknesses or certain eccentricities that mean it’s very difficult for us to resist buying certain things. Because of these, if you want to transform your finances then coming up with a financial plan alone, to be honest, is not going to cut it. It’s very easy to come up with a brilliant financial plan when you’re sat at home at the kitchen table. You could spend hours refining it, researching it based on what you currently spend and really working out how you’re going to change things. But the problem with focusing on the numbers alone is that you’re neglecting half the problem. And that is:
Spending is emotional.
Take me, for example. I know on there are certain things I shouldn’t be spending money on. If I go into the Apple Store and they’ve just launched a brand new laptop that looks amazing, without even knowing my budget, I know that I shouldn’t really buy it but if I'm not careful, then the chances are that I could find myself reaching for my wallet. Another weakness I had when I was younger was late-night shopping. When I first came to London I started my first job as an accountant. It was a very exciting time for me. I was about 22 and things were great. I had a good group of friends and we went out all the time. We used to go out to the pub probably more often than I should have, but financially the problems started on my way home.
In the UK it’s quite common for folks to leave the pub and pick up some fast food, such as a burger or kebab. But my weakness wasn’t so much for food. It was for music. There was a very famous music store in London which was open until midnight every night. At the time the pubs in the UK closed at about 11pm so every time I left that pub on a Friday night, I’d think, “I’ll just pop into that music shop and see if anything new is out.” You could guarantee that when I woke up the next morning, there would always be a bag at the bottom of the bed and not in the kind of Christmas stocking kind of way. A bag reminding me I’d bought something I shouldn’t.
You might be thinking “So what? It was just a CD. What’s the problem with that?” The problem was that often it wasn’t just a CD. It was several CDs, DVDs or Box Sets which, over time, added up to a very considerable sum. It was certainly enough to completely derail any kind of spending plan that I would have had (even though at the time I didn’t even have one!).
Whilst the things that tempt me to spend won’t necessarily tempt you, the point is that we all have such spending soft spots and it is really important that you take some time to understand yourself a bit better because the better you understand how you spend and how you react to money, the easier it will be to do something about it, such as by removing yourself from a situation or potential temptation. Let’s go back to my misspent youth. In that example, if I’d have chosen to walk a different way to the train station, taking a route that didn’t pass the music store, I could have saved myself a small fortune. Remember, the better you understand yourself, the more prepared you can be.
If you want to better understand your soft spots I want to do one simple, yet extremely powerful exercise. Find a quiet corner and take 10 minutes to think about the last five things you bought that, in hindsight, you knew you really shouldn’t have. Once you’ve done that, think about why you bought those things at that time. What was it that made you do it? And most importantly what could you do differently to avoid that situation in future? Just by performing this one simple task you can begin to plug those money leaks. And that’s the first powerful step in taking charge of your finances.
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