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Spending Tips That Will Save Your Money

Updated: Sep 7, 2021


The first building block for reaching your dreams is to look at what you currently earn and spend. This is a good step for all of us, regardless of income. Did you know that many people with salaries above $100,000 feel broke much of the time? A person can earn a lot and still feel financially insecure. On the other hand, many people who earn $30,000 or less feel that they’re doing well financially. Financial security doesn’t depend on how much you earn. Instead, financial security is determined by how much you accumulate after covering income taxes and living expenses — and how you manage what you keep.

This first section will give you a clear picture of what motivates your spending, how to make intentional spending decisions, and how to manage your borrowing. Being intentional about spending doesn’t mean putting yourself on a strict financial diet. Of course, you need to spend money, and it’s perfectly all right to buy some of the little extras that make life more pleasant. The key to money management is finding balance between what you earn and what you spend.

Many people have no idea where their money goes. As a result, they struggle to set goals for the future. By knowing your spending habits and your motivations to spend, you can make better choices. These better spending choices will help you free up money to save and use toward your goals.

What Motivates Your Spending?

If you have tried over and over to cut your spending, but you haven’t been too successful, it may be helpful to consider your motivation for buying things. You may have some confused feelings about money.

Separate Spending Needs from Spending Wants

Before buying something — especially something costly — ask yourself some tough questions, such as:

  • Why am I spending money on this item?

  • Why do I want this item?

  • What is the purpose behind this purchase?

  • Is this purchase trying to make up for some area of my life that is lacking?

  • Is there a cheaper alternative to what I want to buy?

  • If so, why am I not willing to buy the cheaper alternative?

Don’t cheat yourself with quick answers like, “I just want it.” Careless spending may be a symptom of a deeper problem. For example, maybe you buy expensive gifts to try to impress someone or gain friendship. Perhaps you buy things to make up for the fact that you don’t believe you’ll ever get what you really want, such as a better education or a nice home.

If your spending habits are a result of unhealthy triggers, you may want to reflect on your motivations alone or with a counselor. Careless spending will not take away personal pain, and in some cases it can lead to serious financial problems that only add stress.

Spending and Financial Well-Being

Financial security — the feeling of having enough to cover financial needs — is unique to each person. In 2015, the Consumer Financial Protection Bureau (CFPB) published a report defining financial well-being as “a state of being wherein you:

  • Have control over day-to-day, month-to-month finances;

  • Have the capacity to absorb a financial shock;

  • Are on track to meet your financial goals; and

  • Have the financial freedom to make the choices that allow you to enjoy life.”

Focusing on financial well-being keeps the spotlight on you and your financial needs rather than material possessions.


Consider the suggestions in the “My New Agreements with Money” statements below. Check the agreements you want to achieve, personalize them, and add to them. Read your money agreements often, especially when you’re at risk of falling back into old, negative spending habits.

My New Agreements with Money

  • I will use my money so my family and I can live in decent housing in a safe neighborhood.

  • I will use my money to promote the physical health and emotional well-being of my family and myself.

  • I will use my money to help further the educational and personal growth of my family and myself.

  • I will use my money to provide for a secure future.

  • I will use my money to help charities of my choice.

  • Other:

  • Other:

When you have made your new agreements with money and are working toward your goals, you can make better spending decisions.

Where Does The Money Go?

Have you ever looked in your wallet and asked, “Where is the cash I had yesterday?” Sometimes, it’s hard to remember how we’ve spent our money. Try the following activity to keep track. You may be surprised what you learn.


1. Create an anticipated spending list of how you think you spend your money in a typical month. Jot down everything you think you spend money on (bills, rent, gas, food) and their approximate costs. Some things you may buy each day, other things only occasionally.

2. For the next month, keep an actual spending list of your expenditures. (If you have an infrequent or unusual expense that month, such as a car insurance bill you pay every six months, determine the cost for a single month.) If you haven’t tracked expenses before, the easiest way is to keep a small spiral notebook or note-taking app with you at all times.

a. Each day, list everything you buy and how much you pay for it.

b. Include all your purchases, whether you paid for them with cash, electronic payment, check, debit card or credit card.

c. Don’t forget to include even small purchases such as a snacks or drinks. Over time, these small items really add up.

3. At the end of the month, compare your anticipated spending list to your actual spending list.

4. Now use your actual spending list to fill in the spending leaks chart on the next page and get more clarity on where your money goes.

Plug Spending Leaks

When you tracked your expenses, you probably found areas where money seems to disappear with nothing to show for it. These are called spending leaks. The chart on the next page shows how minor purchases add up over the course of a year. Spending leaks mean there’s less money available for saving toward your dreams.


Use your actual spending list to identify spending leaks and begin exploring ways to plug them. That might mean giving up a costly habit or making different choices. For example, if you cut back to buying lunch once a week rather than twice a week, you could save hundreds of dollars a year — money you could instead put toward your goals.

Spending Time and Spending Money:

Are They Really So Different?

Every time you buy something, you pay for it with your time as well as money. For example, how many hours would you have to work to pay for a $200 suit?



Maybe you like the suit. You need it for your work, it fits you well and you will wear it for several years, so you are confident this purchase will have long-lasting value. But consider some of the other things you might have bought with that $200. Every purchase has an opportunity cost — if you spend your money on one item, it means you don’t have money to spend on another item.

Mindful Spending

Cutting back spending can be very hard if you haven’t considered your motivation for buying things in the first place.

Think about a “want” purchase that is expensive or that you consider a luxury. This could be something you already have bought, something you’re planning to buy, or something you really want to buy but don’t think you can afford just yet.

Before making the purchase, use these questions to be more intentional about your spending:

What is my reasoning for buying this particular thing? For example:

• I need to keep up with trends, otherwise I’ll be embarrassed.

• I deserve to splurge once in a while, and this will feel like a reward for all my hard work.

• This was a necessary upgrade — even though my old one still works, someday I’ll have to buy a new one, so it might as well be today

How do I think this purchase might make up for something in my life that is lacking? Examples:

• If I had something nice to wear, then I would get asked out more.

• If I had a bigger TV, then my kids would want to come over.

• If I had a better computer, I would be motivated to work on side projects.

What might be an alternative to this purchase? For example:

• I could research generic brands rather than brand names.

• I could monitor the deals online and make the purchase at a time when I would get a discount.

• I already have researched and compared options, and I am confident that this is the best value for the best deal.

Create a Spending Plan

It’s estimated that the average family wastes 30 percent of its money (30 cents out of every dollar) through unexamined spending habits. To avoid this waste — which is like giving yourself a 30 percent pay increase — you need to create a spending plan.

A spending plan (budget) is simply a tool for taking control of your financial future — a way to meet your goals. There are four steps to making a spending plan:

1. Identify your income.

2. List your expenses.

3. Compare income and expenses.

4. Set priorities and make changes.

The worksheets that follow will help you get started on the first three steps. Consider making several copies so you will have them ready to use throughout the year.

Keep in mind that for a spending plan to work, it must be accurate. Don’t forget about bills that come due every few months or so, such as car insurance. For those cases, list an average amount you must pay each month on your monthly expense sheet. For example, if you pay $450 for car insurance every six months, you must save $75 each month to pay the bill ($450 ÷ 6 = $75).


When completing this worksheet, don’t overestimate your income. Look back at check stubs and savings or investment statements to get the following information.


To get started, you will need:

• Your list of actual spending from tracking your monthly expenses

• Your checking, savings and investment account statements for three months

• Your credit card statements for three months



Did you have money left over at the end of the month? If so, great! Your income and your expenses are balanced. If you put the money left over at the end of the month into your savings, you’re well on your way to controlling your money and getting what you want out of life.

But what if your expenses were more than your income? This can happen to anyone occasionally. But if it happens often, you have a negative cash flow and your budget is out of balance.

There are three ways to balance your spending: Cut back on your expenses, increase your income, or do both. Earlier, we talked about ways to find out where your money is going and how to plug spending leaks. This would be a good time to review that work and brainstorm even more ways to cut spending.

Some possible ways to increase income include:

  • Look for a better job.

  • Ask if you can work overtime.

  • Take on a second job or do freelance work.

  • Turn a hobby into extra income. Sell unwanted items.

You also may consider using investments to increase your income. We will look at that option later in Part Two.

What are your ideas for cutting back expenses, spending mindfully and/or increasing your income?


Not all debt is created equal. Some types of debt are better than others. For example, a mortgage usually is one of the better forms of debt because most homes increase in value over time. Also, the interest paid on a home loan may be tax-deductible

Student loans can be another type of better debt because there usually is a long-term financial payoff (higher wages) for those who earn a degree, and the interest rate tends to be lower than other types of loans.

The least beneficial type of debt is called consumer debt, which is money you borrow (from a bank, credit card or other source) to buy items that do not increase in value over time. This includes balances on credit cards and car loans. The interest paid on consumer debt is likely to be high and not tax-deductible. Managing consumer debt begins by knowing how much debt you can maintain without tipping your spending plan out of balance.

Why Use Credit?

Credit is a tool. It’s part of the way you conduct your financial life to get the things you need, such as cars, homes, technology, furniture and appliances. And, of course, credit can be a necessary cushion in emergencies.

Understanding Interest, Fees and Finance Charges

The cost to you of using a credit card includes interest, fees and penalties. Interest and fees added together are a finance charge. The finance charge also is expressed as an annual percentage rate (APR). The company offering you credit is legally obligated to disclose the APR. Be sure to compare the APR charged by several companies before choosing a card.

Use this worksheet to compare credit card options. You can find the information you need from credit card offers sent to you in the mail, internet searches or through a financial institution where you already have another account.


Interest is the price paid for the use of someone else’s money.


Establishing Creditworthiness:

Your Credit Report

Your power to borrow depends on your reputation for repaying your debts. A credit report is a record of how you have repaid your credit card debt and other loans over time. In addition to your personal information (name, address, birthday, Social Security number) and employment information, a credit report shows:

  • How much debt you have

  • If you have made payments on time

  • If you have not paid back some loans at all

  • How long you’ve used credit

  • The amount of credit you have available

  • The amount of credit you’re using on all your credit accounts

  • Whether any of your accounts have gone to collections

  • If you’ve declared bankruptcy within the last seven to 10 years

  • If you have any liens against you

  • If you have any unpaid bills, such as utility or medical bills

  • Credit inquiries by others (such as landlords and lenders with whom you have applied for credit)

Credit reports do not show information about your race, religion, medical history, personal lifestyle, political preferences, specific purchases, criminal record or any other information unrelated to credit.

Creditors rely on your credit information to see how you’ve handled your loans in the past and decide how likely you are to repay a new loan. When you apply for a credit card or a loan, you give the creditor permission to order your credit report from a credit reporting agency.

Order a Credit Report

The best way to know what is on your credit report is to order one for yourself and review it carefully. You have the right to pull your own free credit report once a year from each of the three nationwide credit reporting bureaus: Equifax, Experian and TransUnion. Because you can request up to three per year (one from each of the three major bureaus), it is recommended that you request your report from a different bureau every four months to keep continuous track of your record.


Order your credit report once a year to make sure there are no errors.

When you order your report, have ready your Social Security number, date of birth, current and previous addresses for the past five years, and maiden name, if applicable. If you have been turned down for credit, you are entitled to a free credit report. However, you must ask the agency that produced the credit report for a copy of it within a specified period, usually 60 days, after being turned down.

Establishing Creditworthiness:

How to Correct Errors on Your Credit Report

About 20 percent of credit reports contain inaccurate information. Errors or outdated information on your credit report may result in a low credit score that can jeopardize your chances of being approved for a loan or credit card.

The good news is that you have the right to correct the mistakes on your credit report at no charge to you. The bad news is that the process of correcting an error requires patience and persistence. Here’s how to get started:

1. The credit report itself may include information on how to correct errors. Follow the instructions that you get with the credit report to tell the credit reporting agency about the mistake. Most credit bureaus offer an online dispute form on their websites.

2. You may be able to take care of the problem with a simple phone call, but always follow up with written documentation such as an email or letter.

3. If more information is needed to correct the error, the credit reporting agency will tell you what to send. For example, the agency may ask for copies of canceled checks or other payment information. If you have kept good records of this information, it will be much easier to show where a mistake occurred.

4. You also may wish to explain the problem in a brief letter. The credit reporting agency must investigate your complaint within 30 days and respond with its results. As part of its investigation, the agency will check with the creditor whose information you are questioning. If the agency finds that the information in the credit report is inaccurate, the creditor must notify the other major credit reporting agencies of the error so they can correct their information too.

If the credit reporting agency does not find an error, but you still believe your credit report is inaccurate, you can contact the creditor directly to try to straighten out the problem. When you resolve the dispute, ask the creditor to send a copy of the correction notice to the credit reporting agency and to you.

How To Use A Credit Card Wisely

If you take a look at Sal’s story and the chart below, you can see that paying interest on credit card debt is not cheap. In addition, using a credit card makes it easy to get into burdensome debt. Then why use a credit card at all?

Credit cards are a convenience and are much safer than carrying cash. If your card is lost or stolen, you are responsible for no more than $50 of unauthorized charges — if you call the card company as soon as you realize the card is missing.

Some types of purchases, such as airline tickets, car rentals, hotel reservations and items bought online, may require you to use a credit or debit card. A credit card also helps you cover emergencies — such as car repairs — that may cost more than you have in your checking account.

You may want to use a credit card to establish your creditworthiness as well. You have to borrow to prove you can borrow responsibly. If you apply for a credit card, use it for purchases that you can afford and promptly pay back what you owe. You will begin building a credit history that will show up on your credit report. This topic will be discussed further in the following pages.

So if — and only if — you have the income to pay back what you borrow, you may want to consider applying for a credit card. Be sure to shop around for the best credit terms. Interest rates vary greatly and even one or two percentage points can make a big difference.

Remember Sal’s story? Look how much Sal could have saved in interest charges on his $1,000 purchase if he had shopped around for a card with a lower rate. Also, consider how much he could have saved if he had paid more than the minimum amount every month or saved up enough to buy the flat-screen TV with cash.

Credit Card Tips

  • Use only one or two cards and consider their purpose. For example, you might use one card for convenience that you always pay off immediately and one with a low interest rate for when you must carry over a balance.

  • If you are just starting out, consider using a secured credit card, which requires you to deposit money into your account in advance. These cards carry little risk and they help you build good credit by showing your ability to use a card responsibly.

  • Keep track of credit card charges just as you would with a checking account. You won’t be shocked when your credit card bill arrives.

  • Use credit cards only for essential needs or charges that you can repay the following month before you are charged interest.

  • Save for big-ticket items instead of putting them on a card. If you must borrow for those items, less expensive loans from banks and credit unions may be available. Shop around.

  • Pay credit card bills as soon as they arrive. This lowers the average daily balance on which interest is charged and avoids late payment fees. Pay off the entire balance each month. If you choose not to pay the entire balance, always pay more than the minimum balance due.

  • If the balance begins to increase beyond what you can pay each month, quit using the card. Leave the card at home to avoid temptation to use it.

  • If the balance still continues to increase, call the credit card company and request to have your credit limit lowered. (Note that lowering your credit limit can affect your credit score and you may incur over-the-limit fees if you exceed the new limit.)

  • Use a card with a low interest rate and a low or no annual fee. Shop around on the internet or through offers sent to you in the mail. Rates vary widely. (Credit cards issued by department stores tend to charge the highest interest rates.) Use the Credit Comparison Worksheet on page 15 to compare interest rates and fees from at least three lenders.

  • Be wary of cards that offer extremely low interest rates or zero interest “for a limited time.” All too soon that time ends, and the new interest rate charged may be well above average interest rates.

  • Pay attention to the minimum payment disclosures on your credit card statements. These disclosures tell you how long it will take and how much money you will spend to pay off your credit card balance if you pay only the minimum amount due.

How Much Consumer Debt Can I Manage?

Many financial advisors suggest that your total consumer debt load (not including housing debt) should be less than 20 percent of your annual net (after-tax) income

When looking at your debt, remember to consider the amount you borrowed along with the interest on the debt. Even while you’re paying down debts, you are being charged interest on the remaining balance.

When making your debt-to-income ratio calculations, don’t forget to include debts that you are repaying to friends and family members or for child support. Even though debts like these don’t show up on a credit report, they still are part of your monthly debt responsibilities.


Calculate how much you can afford each month for consumer debt. Consider this example:

Net yearly income (after income taxes and payroll deductions) = $25,000

Net monthly income = $2,083 ($25,000 ÷ 12)

Recommended maximum debt level (20 percent) = $417 ($2,083 x .20 = $417)

In this example, the person probably can manage to pay up to $417 a month, including interest charges, for total consumer debt. However other living expenses would determine if this is realistic.



Net yearly income (after income taxes and payroll deductions) = $_________

Net monthly income: $_________ (net yearly income ÷ 12)

Amount of consumer debt per month that I should not exceed is:

$_________ (net monthly income x 0.20)

Each month, I should pay no more than $_________, including interest charges, for my consumer debt.

A word of caution: If your current debt level is below what you can afford to pay each month, don’t go on a spending spree. Instead, congratulate yourself for living below your means. Your lower debt level can mean more freedom to change jobs or reach your long-term goals sooner.

The 20 percent rule of thumb is a general guideline and may not apply to you. For example, if you live in an area with high housing costs, you may not be able to afford 20 percent in consumer debt because you have to use more of your money to pay your rent or mortgage.

If you find that you’re exceeding the 20 percent recommendation for consumer debt, does this mean you have a debt problem? Read on and find out.


1. You spend more than 20 percent of your net (after-tax) income to pay off car loans, credit cards or other types of consumer debt.

2. You are borrowing to pay off other debts.

3. You do not know how much money you owe.

4. You make only the minimum payment on each bill.

5. You miss payments or you pay your bills late.

6. Creditors are calling.

7. People or stores refuse to give you credit.

8. You borrow from retirement accounts or use credit cards to pay normal monthly bills.

9. You have overdrawn your checking account more than three times in the last year.

10. You must take an extra job just to keep up with paying your bills.

Warning Signs of Too Much Debt

While a limited amount of debt isn’t necessarily bad, excessive debt delays you from reaching your goals. At its worst, excessive debt could rob you of your dreams. The sense of hopelessness that often comes with excessive debt can affect your behavior, harm your physical or emotional state of well-being and upset valued relationships.

You already may know whether you have too much debt for your own comfort and well-being. Even if you’re carrying too much debt, you can reduce it over time. It will take patience, and it won’t always be easy, but you can regain control. You can achieve balance in the future.

It’ll take patience and it won’t always be easy…

How to Get Out of Debt

Reclaiming your financial future starts by taking positive steps to get out of debt. Even if you have serious problems with debt, there is hope. Consider taking at least some of the steps below:

  • Don’t wait to act. Just as investments compound over time, so do debts.

  • Create a get-out-of-debt plan. Use the Debt Recovery Worksheet on page 24 to organize your plan.

  • When one debt is paid off, keep making the same payment — just put that amount toward another debt.

  • Cut expenses. Try to find a few things you can stop buying or buy less often. Sell rarely used items.

  • Sell items yourself — avoid going to a pawnshop or using an internet broker who takes a cut of the profit.

  • Honestly assess your ability to pay for something and then take the appropriate action. Say that you bought a car and are having trouble making the payments. It may be better to trade the car for a cheaper one or use alternative transportation than to let the creditor repossess your car, which will hurt your credit record.

  • Try to increase your income. Is it possible to get a second job or get paid overtime and use the money to reduce debt? (If you have family responsibilities, first consider what effect your absence could have on the well-being of your family.)

  • Consolidate loans. Shift higher-interest loans to a single lower-rate loan and stop running up new charges.

  • Keep only one or two major credit cards. Limit overspending by cutting up your other cards, freezing them in a block of ice, locking them in a safe deposit box or giving them to a trusted family member to keep. Cancelling cards or lowering your credit limit can have negative effects on your credit score, so try these measures first to find a balance between reducing your debt and a possible reduction in your credit score.

  • To stop most credit card offers from arriving in your mail, call 1-888-5OPTOUT (1-888-567-8688). You also can visit

Check with your credit card and loan companies to see if you can set up automatic payments online. Automatic payments will eliminate late and missed payments.


1. Before you miss a payment, call your creditors to discuss your options. This may be a difficult step, but it is less embarrassing than receiving calls from creditors or debt collectors. Often you can work out terms with your creditors, and they might agree to divide payments into smaller amounts or even forgive some of your debt. Negotiate with lenders. They may suspend payments, lower payments, waive late fees or forgive part of the loan. Get any agreement in writing.

2. Go to a nonprofit credit counseling agency that can put you on a budget and help you negotiate with lenders. The U.S. Department of Justice lists (by state) approved credit counseling agencies at

3. Stay away from so-called “credit repair” companies that offer to fix your credit history for a fee. Only you can repair your bad credit by repaying your debts and paying your current bills on time. Be wary of promises like, “We can erase your bad credit — 100 percent guaranteed!” These companies often charge large fees to do the same things you could do on your own.

4. To check out a credit repair company’s reputation, contact the Better Business Bureau ( or your state’s attorney general (, and click The Attorneys General at upper left).

Reducing Your Debt: Use a Debt Recovery Worksheet

First, make several copies of the worksheet below (one per creditor). On each worksheet, list the interest rate, amount owed, and the minimum monthly payment. Put your worksheets in order, from the debt with the highest interest rate to the lowest. Pay as much as you can on the debt with the highest interest rate while still making the minimum payment on other debts — and do not add new debt. Soon, if you make steady payments, the amounts owed will go down. The debts will be reduced even faster if the amount you pay each month is more than the minimum payment due.

When one debt is eliminated, celebrate your progress — just don’t let your celebration land you in debt again. Then, take the amount paid monthly on the paid-off debt and apply it to the unpaid debt with the next highest interest rate.


Managing debt can be tricky, but following these generally accepted guidelines will give you a good start:

  • Know how long it will take to repay debts making monthly payments.

  • Make all payments on time – even if it’s only the minimum due.

  • Know the costs associated with making monthly payments, such as fees and interest.

  • Maintain a debt-to-income ratio of less than 20 percent (not including mortgage debt).

  • Maintain a credit score of 700 or more to show good credit management.


Bankruptcy should be considered a last resort for getting out of debt. It typically will not erase debts such as taxes, student loans and child support. It usually will stop collection agency calls, but it can have a serious effect on your credit for years.

Let’s look at the two major types of bankruptcy for consumers


In Chapter 7 bankruptcy, your assets are sold and the money is divided among your creditors. You may be able to keep some items, such as a car and certain personal property. Still, you easily could lose many of the things you value. A Chapter 7 bankruptcy stays on your credit record for up to 10 years and there are some debts that won’t go away even after filing. For example, you still have to pay child support, student loans, taxes and alimony.

In 2005, the federal bankruptcy laws were changed, making it tougher for most people to qualify for Chapter 7. For example, applicants must meet eligibility standards under a “means test,” as well as complete mandatory credit counseling through a government-approved program. As a result of these changes, more people are required to use a Chapter 13 filing instead.


A Chapter 13 bankruptcy is a plan to pay back your creditors. You make installment payments to the court, and a trustee forwards them to your creditors. In general, your creditors agree to accept less than the full amount you owe. As long as you make on-time payments, you get to keep your assets. A Chapter 13 bankruptcy stays on your credit record for at least seven years.

Bankruptcy FAQs

Q: I was recently turned down for a job. Later I found out that the employer looked at my credit record and saw that I had declared bankruptcy a few years ago. Can they do that?

A: Yes. Many businesses — including employers, utility companies, banks, mortgage companies and so on — can look over your credit record. Bankruptcy can follow you for years and hurt your ability to take out a loan for a home or car, get utility service or even get a job.

Q: I am still paying on my car, but I intend to file for Chapter 7 bankruptcy. Will I be able to keep the car?

A: Maybe. Your car loan probably is a “secured” loan, meaning if you do not keep making the payments, your car could be repossessed. Work with a trusted advisor to understand fully reaffirming your debt, especially if you intend to keep the property in a Chapter 7 bankruptcy.

Q: I filed Chapter 13 bankruptcy five years ago, and now I need a car. Lenders are willing to loan me the money, but they want to charge me a high interest rate. Does this seem right?

A: Interest a company charges is partially based on its risk of loaning you money. Since you filed for bankruptcy, you will be seen as a bad risk. While some places won’t offer you credit at all, others will charge you a higher interest rate for a loan. This can be expected until the bankruptcy comes off your credit record in seven years.

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