Have you ever heard the term “opportunity cost”? The concept can help you get a handle on your spending. It means the cost of passing up the next best choice when making a decision. For example, say there’s a concert coming up by one of your favorite artists, and you’d love to go. But it’s on the same night as your homecoming dance, which you really want to attend. Part of the cost of going to one event is NOT being able to go to the other.
Every time you spend money, there’s an opportunity cost. Once you pay for something, the money is no longer available for some other purpose. So before you hand over your money, ask yourself what other – perhaps better – way you could use those funds.
Maybe you’re saving for a car, which you hope to buy within a couple years. If you suddenly got $100, would you use it to but those new shoes you just saw? Or tuck it away in your savings account for the car that’s in your future? It’s easy to spend money on the latest thing that catches your eye, and harder to think about big-ticket goals that are further away. But those distant goals – like college, a car or living on your own – may be more important to you.
Stay on Track
Here are a couple ways to keep your spending in line with what you really value:
- Decide to put a certain percentage of your money into your savings account for big, long-term goals. Then you don’t have to make the decision over and over – just follow the guideline you’ve set. If you earn a paycheck that’s directly deposited it into a checking account, you can set up automatic transfer to put part of it into your savings account.
- Keep a picture that represents what you’re saving for in your wallet so you’re reminded of your goal every time you go to buy something.
Making regular deposits to your savings account can help you save for what’s important to you.