Why it’s important to have a clear idea of what you will and won’t spend money on

Managing how you spend your money is a key part of long-term financial planning, both while you are working, and during your retirement.

Even the most robust and detailed financial plans can be jeopardised if you are spending too much each month. You might be accumulating excessive debt in order to fund your spending, or using your savings and investments.

Because of this, it’s important to keep control of your spending. In this regard, it can pay dividends to have a clear idea in your mind about what you will and won’t spend money on.

Controlling your spending impulses

Understanding where your money goes each month, and what you choose to spend it on, calls for an important level of self-awareness, both for yourself and your spouse or partner.

Understanding your spending habits and needs, and appreciating the reasons for your financial choices, can give you a real boost in terms of managing your money and setting you on the path to long-term financial security.

It’s important, however, not to see this as simply a call for spending restraint. Living a life of excessive self-denial and going without may to lead to frustration and sadness rather than long-term fulfilment.

The important thing is to have a clear plan of how much you should be looking to save for your future, both over the long term and for more immediate outlays such as holidays, home improvements, or a new car.

Your spending choices will be personal to you

As I often say in newsletter articles, no two people are alike, so financial plans and choices will be very much personal to you and your circumstances.

Knowing what you won’t spend money on can be just as important as identifying what you are happy to purchase.

To give you an idea of the sort of things you may want to be thinking about, here are some of my own “wills” and won’ts” when it comes to my own personal financial choices.

4 things I will money on

1. Holidays and experiences with my wife and children

This may seem obvious, but it’s good to set it down and have it as a priority.

It’s something that works on many levels, from allowing time to recharge your batteries, to the psychological effect of having something to look forward to.

Most importantly, children grow up in no time, so you don’t want to be left with regrets over things you didn’t do.

2. Making myself feel comfortable

I suppose there’s an element of vanity to this point.

Aging is inevitable, but I’m more minded to accept it if I can ensure I feel as comfortable as possible while it’s happening.

So, I’ll happily spend money on smart clothes and nice sunglasses, for example. Additionally, thanks to my wife’s influence, I follow a strict skin-care regime.

3. Keeping fit

I’m sure I don’t need to restate the benefits of staying fit here. What I would say is that I’m happy to spend money to keep fit and healthy, as it makes sense to enjoy it.

For example, I recently bought a new smart bike, and use this in my garden office connected up to the Zwift app on the wall-mounted TV.

I enjoy having my own space to do this and it means I’m not dependent on the weather or access to a local gym.

4. Spending money to save time, and money

I find it useful to hire professionals for tasks that are beyond my skills or that I prefer not to do myself.

Not only does this give me peace of mind, knowing it’ll be done properly, but it frees up my time for other activities.

While I’m not averse to putting up shelves or changing a light fitting, I’m always conscious of my DIY limitations, and will happily get an expert in to avoid a substantial cost further down the road.

4 things I won’t spend money on

As well as having certain things I will happily spend money, I’ve also got some items that I’ve always tried to avoid.

1. New cars

While there has to be an element of comfort, and the size of your vehicle needs to be commensurate with your needs, to my mind a car gets you from A to B safely.

I appreciate this is not a universal belief. I know some petrolheads and the enjoyment they get out of their vehicles, but ultimately a new car is a depreciating asset that loses value as soon as you drive it off the garage forecourt.

Of course, if you are talking about classic cars, that’s another matter entirely!

2. Expensive wine

Just to clarify, I do believe that a certain level of spending makes sense when it comes to enjoying wine.

Forcing yourself to drink a £5 bottle of wine you could put to better use clearing your drains is a false economy to my mind.

I have a comfortable level of £15 – £25 for a bottle, although I will occasionally spend more in a restaurant. Above that, I think you need to have a trained palette and be an expert to discern any appreciable difference in quality.

3. Single shares

As you’d expect, this particular financial priority stems from my role as a financial planner.

I am not authorised to give advice on single shares or stocks, and I’ll always tell clients that you are far better off owning the haystack in terms of a global equity fund, than trying to find the needle in it by picking the shares of individual companies..

According to Morningstar, only 14% of fund managers beat their benchmark last year. I don’t think my individual stock selection will be better than theirs.

4. Crypto currency

This is a relatively recent addition to my list.

Like single shares, I also do not advise on any form of crypto asset and I’ll always suggest that you should only invest in what you understand.

In some respects, the name “crypto” itself is a giveaway, as it derives from the Greek for hidden or secret. That alone is a big red flag for me.

My views may change in time if funds and transactions become more transparent, but at the moment I’ll be steering well clear, and advising clients to do the same.

Get in touch

If you would like to talk about your own financial plans, or any of the issues raised in this article, please get in touch.

You can call me on 07769 156 250.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.