For the majority of the population, spending habits involve an acknowledgement that the exchange of goods/services for cash will deplete the spender’s net. But, what happens when you find yourself questioning every purchase, asking if you can afford that date night extravaganza if you tighten the purse strings over the next week or two, contemplating the new TV against next month’s utilities.
“If you’re asking yourself these questions, the reality is that you truly can’t afford it,” says Jeremy Vohwinkle of Generation X Finance.
While this is in no way condoning frivolous, thoughtless spending, the principle remains accurate -- to a degree. If a purchase or set of purchases necessitates rigorous calculations and justifications, this may indicate a need for pause. However, smart budgeting is at its core a series of calculations and justifications.
The process of smart budgeting, as opposed to the sickening obsession and rationalizations Vohwinkle alludes to, can eliminate the mind crunch while maintaining the healthy awareness of how spending influences the bottom line.
The Questions
Smart budgeting allows you the security and freedom to prepare for daily, monthly, yearly expenses, those unplanned emergency expenditures and establish a savings plan for the future, all while ideally living life relatively unshackled to the numbers.
It involves awareness of goals and constant reality checks.
It involves questioning and justifying.
The key difference between these questions and justifications, though, is that they occur way beforeyour tires hit the shopping mall parking lot.
The Justifications
Unlike other drafts, blueprints or plans for major projects, financial planning involves a cyclical form of justification that requires a methodical series of looking backward and forward and back again. Each step of the plan, each breakdown of time, involves keeping in mind the broad endgame, the elemental steps and the occurrences that led to the current situation and the possible occurrences that will lead to the next step.
These justifications are in place to ensure that the steps outlined meet your personal financial goals with legitimacy and encompass every aspect of your financial life.
Justifications And Questions Work Together
When asking if a purchase is affordable, the purchase must be brought back into the context of the overall financial plan. Where does that purchase fit in the larger picture? Has it been accounted for in any way prior to that moment? Impulsive spending can easily lead to financial ruin, and the practice is easily habit forming.
In most instances, however, a quick reality check can dissuade unnecessary purchases that can wreak havoc on sound financial planning.
As with any other form of financing and investing, knowing your stops and following those pre-set regulations can save your balance. In the context of financial planning and smart budgeting, these stops are referred to spending thresholds – and they work.
One And Done? No Way
While the fundamental difference between the questions Vohwinkle mentioned and those involved in smart spending is planning ahead, financial plans and smart budgets cannot be calculated once and then left to collect cobwebs in the recesses of your mind.
Life never follows and exact path, and therefore, even the best-laid plans deserve and demand constant maintenance, upkeep and checkups.
Seriously take into account the financial freedom afforded through explicit and exhaustive financial planning. Invest in yourself and avoid the stomach churning questions in line at the cash registers. Know before you shop what you can afford and how your purchase fits into your finances.
This article is part of a collaborative project between NASDAQ contributor and Benzinga Managing Editor Joe Young and Benzinga Personal Finance Writer Rebecca Sheppard.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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