How to control your spending habits

How do you control your spending habits, and why should it be your number one financial priority?

Most of us struggle to manage our spending at some point in our lives. For financial writer and consultant Jason Butler, learning to control that spending is the single most important financial skill anyone can develop, and it does not require a high IQ or a complicated budget.

In this video, Jason Butler explains why spending intentionally matters more than how much you earn. Rather than reaching for a budget, he suggests telling your money where to go before it leaves your account, splitting it across three simple priorities: the "basic you" (your core living costs), the "future you" (debt repayment, savings and pensions), and the "fun you" (the things that make life enjoyable now, not just in retirement). Without mastering this, he argues, you will never build wealth, no matter how much money comes through the door.

You'll learn a powerful technique for big-ticket purchases: before buying something, work out how many hours you would need to work to pay for it. A £150 jacket, on a £10 hourly wage, is not really £150; it is 15 hours of your life. Jason Butler also explains why your house, car and clothes should not define your self-worth, and why the people who look richest, with the fancy watches and the enviable holidays online, are often the least financially secure.

The takeaway: real wealth is about having choices, purpose and perspective, not about appearances. Once you have enough that money is no longer a source of misery, more of it does not necessarily make you happier. So think honestly about what wealth really means to you. The answers may surprise you.

Chapters / Key points

• Why controlling your spending should be everyone's financial priority
• Why budgets miss the point, and what to do instead
• The three-way split: the "basic you," "future you" and "fun you"
• Why spending intentionally matters more than how much you earn
• The big-ticket rule: measuring purchases in hours of work
• Why your possessions should not define your self-worth
• Why people who look rich are often anything but
• What real wealth (choices, purpose and perspective) actually looks like

Transcript

How to control your spending habits

Robin Powell: Most of us, at some point in our lives, have difficulty managing our spending. For financial writer and consultant Jason Butler, learning to control our spending should be everyone's financial priority.

Jason Butler: The number one thing you must learn and understand, and it does not require a high IQ, is to learn how to control your spending. Do not worry about budgets. Budgets are for accountants. Learning to spend your money wisely is about you telling your money where you want it to go before it goes out the door.

That's how much money I spend on the basic you (that's my core living costs), how much will I spend on the future you (that's my debt repayment and building savings and pensions), and how much will I spend, and this is the bit I love, the fun you. The things that make life interesting now. Not when we're old and falling apart.

But you make those decisions in a much more intentional way; and, if you haven't got enough money coming in because your job's not paying enough, you can't afford your job. Go and get another job or find a way of increasing the income. But most people don't think about where the money's going to go until after the event, and they wonder where the money's gone. And if you don't master that, it doesn't matter how much you earn, it doesn't matter how much money comes in the door, you will never build wealth, and also you will never be intentional about the money in helping you live a fulfilling, joyful, and enjoyable life.

Robin Powell: Yes, all those little purchases add up, but it's the big-ticket items that you really need to focus on. A useful tip, before you make a large purchase, is to calculate how long you'll have to work for to pay for it.

Jason Butler: So I recently bought a car. The principle was: I thought to myself, how many hours is it going to take me to earn the money to replace the money out of my savings that I'm going to use to buy that car? Is that worth it to me? So, if you're buying a £150 jacket and you only earn £10 an hour, that jacket is not £150. It's 15 hours of work.

Robin Powell: Remember, as well, that your house, your car, your clothes should not define your self-worth. And appearances can be deceptive. People who look rich may be anything but.

Jason Butler: The people who look like they've got the most money, they've all the fancy watches, and all the la-de-da holidays on Facebook, and what have you. They probably are poor as church mice.

Rich people are people who have choices. They are people who do what matters to them in life, they're the people who've got things in perspective, people who get purpose from work as well as money. So, remember money needs to be in context. You need enough so that you're not miserable, but having loads and loads of money isn't going to make you loads and loads happier.

Robin Powell: So, think about what money really means for you. What, for you, does wealth actually look like? Think about it honestly, and the answers may surprise you.