Do you believe in spending less or striving to make more?
Everyone has their own way of viewing and managing money. These descriptions
will help you identify your money philosophy and see the pros and cons of each
Blogger JP for 20’s Finances gave three categories of financial philosophies in a recent post. I’ve added one more to the list. Which category do you fit into?
This financial philosophy is based on no frills, only essential spending. A penny pincher buys store brand everything, collects hand-me-down clothing from siblings, and is probably that guy snatching the leftovers from friend’s dinner plates for tomorrow’s lunch.
According to 20s Finances, the Penny Pincher category can be broken down into two groups: the minimizers and the maximizers. Maximizers rely on coupons and sale shopping to maximize the power of their dollar, stretching it as far as possible to purchase as much as they can with their budget. Minimizers cut down the amount of things they need and spend their money only on the bare essentials. Forget that morning latte, minimizers just don’t have these bonus items on their list.
Penny Pinchers may make their dollar go further, but they also might lose out in the end by buying low quality items for a cheap price instead of picking a slightly more expensive item that may last longer. In addition, constantly searching for the cheapest price on everything is a time consuming and tiring process. A Penny Pincher may fall victim to an impulse buy in a moment of weakness.
Narrowing down to the essentials? Not for the Income Generator. Income Generators believe in maximizing their income to afford everything they want. They may work 70-plus hours a week, take on a second job, or invest their money to get high returns. Income generators would never skip a morning latte, they’d just make more money to pay for it.
This sounds like a great philosophy, but it can lead to unrealistic thinking. It’s not always possible to just decide to make more money. Income generators may find themselves overspending now because they believe they’ll compensate with more income later. It’s like counting your chickens before they hatch.
You prioritize your spending and work to make extra income for the things that top your list. In this category, you take the best parts of the Penny Pincher’s and Income Generator’s financial philosophies and create a blend that is personalized to your own needs. Maybe you enjoy your morning latte on the weekends and pick up part-time work to save for a down payment on a house. You solve financial problems as they arise, carefully considering the consequences of major purchases and everyday items.
This financial philosophy may be the best of the group, but it takes practice to reach the Sensible Solver level. Take a step in the right direction by documenting your spending for one week, then identifying where cuts can be made. Is there a luxury item, like your latte, that you just can’t take off the list? Find areas where you feel comfortable making cuts that won’t majorly impact your life. Should you move back home with your parents just so you can afford that tasty foamed milk-topped espresso drink every morning? Probably not. It’s all about balance.
No Plan Stan
You know you probably should watch where your dollars are going, but it’s just too much work. Making lists is boring and you don’t know where you could find extra income. You rarely check your account balance to see where your money is going. You just swipe your card and cross your fingers, hoping there’s enough for that late night pizza splurge.
Having no personal money plan at all is a surefire way to destroy your financial future. Are you confused? Lost? Busy? Don’t know where to start? Use resources like the Living Young & Free Field Guide and your local credit union staff to build your knowledge of all things personal finance. Don’t be a No Plan Stan, or you could be living at home with no lattes, or anything else at all, for a long time.
What’s your financial philosophy?