When my wife graduated from college, she had over $80,000 of student loan debt.
The massive $80,000 debt scared us immensely. After all, the average college graduate with student loans only had $26,600 in student loan debt the year my wife graduated.
My wife owed over three times that amount. Looking back, that debt is one of the best things that happened to us.
The debt scared us so much we decided to pay it off as fast as possible. In order to do that, we were forced to learn how to spend smarter early in our lives.
Spending smarter allowed us to spend on the things we valued while cutting expenses on things we didn’t value.
The spending smarter concept freed up a massive amount of money we used to help pay off the $80,000 in less than three years.
You can use the same spending smarter concept to find extra money to put toward your financial goals. Here’s how it works.
The Basics Of Spending Smarter
The first part of spending smarter requires you to come up with two lists then compare your results.
First, you must know your values. What is most important to you and your family? What doesn’t matter at all? Take a minute and write a list of your values. Then, order that list from most important to least important.
The other list is tracking your spending. Before you get upset, tracking your spending is not the same as budgeting. Rather, it is simply tallying up where you money is spent each and every month.
Tracking your spending isn’t always easy. If you don’t have a system in place, it can be extremely frustrating. Thankfully, technology has made tracking your spending much easier.
Rather than trying to manually calculate your spending every month, you can sign up for a service like Personal Capital that will track your spending for you.
All you have to do is link your financial accounts to their software. The only thing Personal Capital can’t track is your cash spending, which you’ll have to input manually.
If you’re worried about security, we’ve found that Personal Capital takes your safety and security very seriously. Learn more in our deep dive about whether Personal Capital is safe or not.
Once you’ve tracked your spending for a least a month, compare your spending to your values.
Does your highest value match your highest spending category? Similarly, does the thing you value least match the category you spent the least amount of money in?
Chances are they don’t. Take this time to realize where you’re overspending according to your values and adjust your spending accordingly.
Mastering The Second Part Of Spending Smarter
The second part of spending smarter is mastering the art of spending less while getting more value for each dollar spent. The lower your expenses are each month means more money for paying off debt, saving or investing for the future.
When reviewing your spending each month, look for transactions where you spent more money than the value you received from the purchase.
For instance, you may have a $50 per month gym membership but only go to the gym once or twice per month. Instead of paying the monthly membership fee, see if you can purchase a one time pass for less. If you can’t, look for a gym that will let you.
Another way to spend less and get more value is comparison shopping. Before you make a purchase, make sure you are getting the best price on the item you’re buying. A quick Google search will generally give you the answer you’re looking for.
You’ll also want to do a quick search for coupon codes to make sure you aren’t missing a discount.
An easy way to do this is installing the Honey browser extension which automatically applies the best coupon to your order when you’re checking out on one of their supported retailers.
Spending Smarter In Action
My wife and I value having phone service. That said, we don’t care if we have the absolute best cell phone service. Two Verizon phones would easily cost us at least $110 per month because they have the best network.
Instead, we opted to use Republic Wireless, which uses the Sprint and T-Mobile networks. Republic Wireless keeps our combined phone bill at $40 per month plus taxes and fees saving us at least $840 per year or more.
Living In A House We Love
While we prefer to save money on our cell phone plans, we decided to spend more on our housing. My wife and I are homebodies and I work at home. For those reasons, it was important to have a house that fit our needs and wants.
Instead of staying in our last house which was smaller and cheaper, we decided to build our dream house.
We could do this because we cut our spending in other areas to spend smarter in the areas we cared about most. We also paid off all of our other debt, freeing up a large portion of our income.
Purchasing A Vehicle The Smart Way
Another area we apply the spending smarter concept is our cars. When my wife and I buy a vehicle, we prefer to purchase a car we will drive for at least 10 years.
Driving cars for longer periods of time will save you a significant amount of money than buying a new to you car every three to five years when you pay off your car loan.
Thanks to the savings of driving our cars for ten years or more, we now essentially buy our cars with cash.
In fact, we’re in the process of researching a new to us car right now. We’ve come to the conclusion that it is cheaper to buy a new Honda Odyssey than a used Honda Odyssey when you consider the fact we’ll own the car for 10 to 15 years.
However, we really want the brand new version that just came out. Unfortunately, car dealers aren’t willing to discount a brand new car.
So, instead of paying full price, we’re going to wait six to 12 months for the newness to wear off. By then, discounts should begin appearing that should save us thousands of dollars.
Vacationing At Off Peak Times Saves Us Money
Cruising is our favorite form of vacationing. We strongly believe it provides us some of the best value for our vacation dollar. Even though we think cruising is a great value, we found a way to save even more money while cruising.
Typically, people like to go on cruises when their family can all go together. This means cruises are in high demand when kids are out of school.
Rather than pay sky high peak season cruise prices in the spring break, summer break or winter holiday seasons, we opt to cruise during the low seasons such as February or early December.
Simply investigating when a vacation is cheaper could easily save you hundreds or thousands of dollars each year.
Earn Rewards For Money You’d Spend Anyway
My wife and I have paid off all of our consumer debt. Now that we’ve proudly put our debt behind us, we’ve moved on to taking advantage of credit card rewards.
Since we’d be spending money anyway, we figure we might as well earn some money from it. In fact, we earn points or cash back on almost all of our purchases.
We often earn bonuses for $500 or more for signing up for a new credit card. When we’re not earning a bonus, we simply earn two percent cash back on our favorite cash back card.
These rewards easily add up to a couple thousand dollars or more per year which is pretty sweet for spending money we’d spend anyway.
Recently, I’ve also started using the Honey browser extension. This extension automatically applies the best coupon code available and potentially gives you cash back for shopping, as well.
It’s important to note, these types of spending smarter only make sense if you have your spending under tight control. If you are tempted to carry a credit card balance or make purchases just to earn rewards, you shouldn’t worry about rewards and cash back at all.
Spending Smarter Doesn’t Have To Be Difficult
Spending smarter doesn’t have to be difficult. Unfortunately, the typical image of spending smarter is cutting your spending on things you love. Others envision making a painful budget that leaves no money for fun.
If you figure out your values, figure out your spending then align your values and spending, you can start spending smarter in no time. You don’t even have to start by building a budget, although it would help.
Follow up the first exercise with mastering the art of getting the most value for every dollar spent and you’ll find plenty of extra money to put toward other financial goals.
You could pay off your debt faster just like we did when we paid off $80,000 of student loan debt in less than three years. You could put that money into savings or invest it for retirement.
No matter what you do, make sure the money you find from spending smarter has a purpose that will enhance your finances.
Take Action Now!
- Make a list of your values.
- Track your spending. Sign up forPersonal Capital if you’d rather automate the process.
- Compare the two lists and decide where to increase or cut back spending.
- Start spending smarter by optimizing your spending.
- Make sure you look for deals on purchases you’ll make anyway. Use the Honey browser extension for added discounts when shopping online.
- Continue applying spending smarter concepts as your life changes.
What is your favorite way to spend smarter? Feel free to share in the comments below so everyone can learn.
Lance Cothern, CPA holds a CPA license in Indiana. He’s a personal finance, debt and credit expert that writes professionally for top-tier publications including U.S. News & World Report, Forbes, Investopedia, Credit Karma, Business Insider and more.
Additionally, his expertise has been featured on Yahoo, MSN, USA Today, Reader’s Digest, The Huffington Post, Fast Company, Kiplinger, Reuters, CNBC and more.
Lance is the founder of Money Manifesto. He started writing about money and helping people solve their financial problems in 2012. You can read more about him and find links to his other work and media mentions here.