3 SPENDING TRAPS TO AVOID

Trap #1:
"All my friends have it!"

Trap #2:
"I want to be like my favourite celebrity!"

Trap #3:
"It's just THE.COOLEST.BRAND!"

All of us have fallen into these traps at one time or another. It's only normal to want to fit in with our friends, or possess the latest or coolest or best things.

But why just hand over your power to make decisions to your friends, your idol or the brand?

If all your friends are buying the latest mobile phone with lots of features like camera, WiFi and MP3 player, BUT you really don't like taking pictures, prefer to surf the net using your laptop which has a screen and keyboard which you find way more comfortable, and you already have a very good MP3 player which you find very convenient to use. Should you also just blindly spend $500 on that mobile phone when you can probably get a great mobile phone for $100 which fits your needs better?

So what if your hero is endorsing a particular type of sneakers? He or she is being paid to wear the thing. You decide for yourself whether it's for YOU.

As for brands, yes, some brands do offer great value even if they are really expensive. Their products are the result of great craftsmanship, creativity/uniqueness and innovativeness. And it's right that we should pay for such a great product, if we can afford it. But, nowadays, just as many brands slap their name on a rather generic product, and you end up paying a lot just for the addition of their name. For example, if you need a basic white tee, look for a good-quality non-branded one. Nobody will be able to tell the difference. Another danger when basing purchasing decision on the brand is that you run a high risk of buying something fugly just because a 'cool' brand tells that's the in thing this season.

That's not to say that you shouldn't look for cues from your friends, from celebrities, or from top brands. For example, if Clay Aiken tells you that "Kite Runner" is a great book, look it up on the internet. What are the reviews like? Does the book sound like something you'd like to read? What do other readers think about it?

In other words, ask the right questions so that what you buy suits the unique person that you are. It's your money. Only YOU get to decide how you spend it. Why let outside forces dictate and control what you buy?

So ask yourself:
1. Can I or my family afford it?
2. Is it within my budget?
3. Is there a similar item available that offers more value for money?
4. Does it suit my personality, personal style and taste?
5. Does it suit your lifestyle?
6. Does it fit my unique needs?

THE BABY-STEP SPENDING PLAN

In this post, I'm going to talk about creating a spending plan.

We'll start with a very rudimentary plan, created by following the 4 steps outlined below. Remember, it's more important to have a plan you can easily follow than to rush into making the perfect spending plan. After all, the goal is to develop habits which will last you a lifetime.

STEP 1: Find out what you currently spend your money on.

Before you start planning how to spend your money, it's important to know your current spending pattern. So note down everything you buy over a typical week.

STEP 2: Identify what you really need.

Take your records from Step 1, and divide the items into two lists:

a) Basics List
Put the items which are absolutely necessary on this list. Be honest when making the list -- make sure you don't sneak in items that should count as luxuries. For most young people, the list may include food, drinks, commuting costs (petrol or bus/train fares), and other expenses related to school.

b) Luxuries List
This may include items like CDs, magazines, snacks.

STEP 3: Work out your budget.

This part is just simple arithmetic. Total up everything on your Basics List, and use that amount as a guide to start your first simple budget.

For example,
If your Basics add up to $35 every week, and you have $45 every week in your Spend Box, that means that your Spending Plan should look like this - $35 for Basics every week, and $10 for Luxuries.

Step 4: Stay within that budget.

Now that you've worked out your how much you can spend on what, just do this one thing. Use the simple plan you worked out in Step 3, and keep track of what you spend on Luxuries and make sure you never spend more than what you've budgeted.

There's of course much more to great money management than this, and we'll deal with those in later blog posts. The important thing is to make a 'baby step' and make sure you that you keep on walking. If you do fall, pick yourself up and start again.

As you master this one thing -- putting a cap on your spending on Luxuries -- you'll be more prepared to learn how to make the larger steps we'll be discussing later.

THE 3S: SAVE, SHARE, SPEND

Have you tried sticking to a budget and failed?

Then you may be using a method which is too complicated to follow. Some budgets ask you to note down all your expenses every day. Others advise you to spend as little as possible, which makes it as palatable as a diet!

But budgeting need not be hard or torturous. Once you get the hang of it, I bet you'll even enjoy taking charge of your money. What you need to do is take control in a way that's comfortable for you.

We'll start with a method I've found very useful. Some people call this the 3S Plan. All the plan asks you to do is divide up your income into SAVE, SHARE and SPEND boxes.

Step 1: SAVE
This should be your first priority. Take your income -- your allowance plus any other money you get on a regular basis -- and put part of it into your SAVE "box". Decide on the amount before you get your allowance each week or month. This way, you won't be tempted to put less into your SAVE box once you get the money in your hands.

Start with an amount that's comfortable for you. For example, if you get $50 every week, you may want to start by setting aside 5% or $2.50 per week into your SAVE box. You may want to work up to 10 or 15% or more as time goes on.

Step 2: SHARE
If you have an income, setting aside even a small amount every month can go quite a way towards helping people who really need it. Again, start by putting an amount into your SHARE box that's comfortable for you, and work up as you adjust your spending.

Step 3: SPEND
Put the rest of your income into your SPEND box.


EXAMPLE:
If you get $50 every week,
and decide to save 5% and share 5%,
this is what your three boxes will have
at the beginning of each week:
SAVE: $2.50 per week
SHARE: $2.50 per week
SPEND: $45.00

In my next blogs, I will discuss what you can do with the money in each of the three boxes.

So, look out for the next part where I will talk about the SPEND box and how you can make sure that you have enough money for everything that you need.

WHY AN ALLOWANCE IS IMPORTANT

An ALLOWANCE, a fixed amount of money given to you every month, helps you to learn money management skills.

An allowance is like an "income" that that an adult gets, except that you don't have to go out to work to earn it. You should be mindful, however, that you're getting the money because you're part of the family, so you should fulfill your responsibilities around the home -- chores, studies, etc. Getting an allowance allows you to take your first step towards managing your money like an adult.

Why limit yourself to an allowance?

Now, you're thinking... but but but my parents now give me money whenever I need it. Wouldn't it be stupid of me to change this?

Think about it. There are benefits for you as well. If you get an allowance, you get to be more independent, and have more control over how and when you spend or save your money. Even more important, when you have a steady "income", you will start learning important lessons, including:

• how to be responsible about money.
• how to save for what you want.
• how to make decisions on what to spend on.
• how to get the most value from your money
• how to make your money grow, etc.
  

You will probably make some mistakes, regret some of your decisions or choices, but you will learn from them.

Discussing it with your parents

If you do not yet have an allowance, you may want to discuss the subject with your parents. You'll probably want to discuss the following:

• why an allowance is important.
  
• the amount to be given to you weekly (or monthly).
• what you have to pay for out of that allowance.
• what your parents will still pay for.

When discussing with your parents, do keep in mind that you should respect their thoughts on how much you should get, what the money can be spent for, and what it can't be spent for.