The idea of saving and spending is rapidly changing in the world we live in today. Our banking and our shopping have been at the forefront of this online transition ever since the early 2000s. Budgeting at its very core is understanding and having knowledge of recurring predictable expenses. For example, this can be a phone bill, electricity bill, water bill, car insurance, mortgage payments, and rent payments. These are all classified as predictable expenses that we can monitor by using a simple and easy-to-understand budgeting method.
Shankar Vedantam, the host of the Hidden Brain Money 2.0 podcast discussed “Why We Bust Our Budgets.” On the podcast, he brought associate professor of marketing Abigail Sussman, Ph.D. in which they discussed in detail why many of us who save and spend money aren’t prepared for our unpredictable expenses. Dr. Sussman explained the importance of planning for unpredictable expenses, “the idea is that even though it's going to be hard to predict what the specific unpredictable expense is going to be, we might still be able to predict that there will be an unpredictable expense.”
For example, we may have a friend or relative birthday coming up and need to buy them a gift. Or we may need to replace the tires on our car. Unlike food expenses that we regularly think about and plan for, these types of unexpected expenses tend to slip our minds when we are planning our budgets. The very nature of their being unpredictable makes us think they don’t come along very often so we don’t need to budget for them. Sussman shares we are likely to overspend when things are unpredictable because we assume it’s a one-time expense. Actually, we have a lot of these “one-time” expected expenses that are easy to overspend on. And in reality, birthdays, holidays, and car repairs actually come along on a regular basis and we can plan for them ahead of time, instead of being blindsided by them unexpectedly.
Understanding company motives when it involves our spending behavior is important. It helps us understand why we are spending so much. We can then combat the tendencies by becoming aware of these tactics before we make purchases.
Identifying the ways we are being tricked into spending more money, as well as making the effort to budget and allocate money for both predictable and unpredictable expenses are important strategies to increase our financial wellness.
If you also want to learn more about how to save more during an inflation period, please click here! If you also want to learn how to budget efficiently, refer to our last blog here for more information.
Here to help,
Your Financially Fit Me Team