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Published: 5 September 2023

Money management is a valuable skill for any financially independent person. It's something you're introduced to as you're growing up, from saving up pocket money to figuring out how you're going to spend your first pay packet from your weekend job.

Most people have a decent handle on the basics of money management: don't spend more than you earn, try to put away what you can and set savings goals. But what about mastering the art of when to spend your money versus when to save it?

Getting a proper understanding of what to spend money on can lead to better budgeting, better behaviours and even a better quality of life. So, where to start?

Are you a spender or a saver?

One of the best first steps is understanding whether your financial approach is more that of a spender or a saver.

The reason for this is simple. If you're more of a spender, chances are you'll want to reduce your spending to find the right balance. If you're more of a saver, then you may be able to spend a little more on things that you need or like.

Spenders and savers tend to have certain traits that make them that way.

Traits of a spender

Spenders tend to be less concerned about money worries. This means they:

  • Are comfortable with spending money, including spending for enjoyment and impulse buying.
  • Have a higher risk tolerance, for example they're more willing to take on debt or invest
  • Have a taste for nice things, for example they might prefer to buy new possessions over putting away their money.

Traits of a saver

Savers tend to be more 'money vigilant'. Being money vigilant means they:

  • Are cautious about spending money, especially when it comes to spending for enjoyment.
  • Have a lower risk tolerance, for example they're less willing to take on debt or invest.
  • Have a sense of frugality, for example, they're more interested in having a healthy bank balance than new things.

How to make a budget that finds the right balance

Creating a budget is usually the first key step on the way to good money management. A good budget will keep you on the straight and narrow in terms of not spending more than you have and managing your key cost, debt and saving areas. This is where you can implement spending and saving ratios to help you to find that all important balance.

If you're looking for a simple but established method of managing your spending, consider the 50-30-20 rule. This rule sets your spending out as follows:

  • 50% of your income on essential spending – mortgage/rent, bills, groceries and transport costs
  • 30% of your income on wants – spending on things that you enjoy like dining out, shopping, subscriptions and holidays
  • 20% of your income on savings or debt – putting money into a savings account, investments or pension or paying off debt

Of course, the 50-30-20 method is not a hard-and-fast rule for every person. Your income versus outgoings might mean that you need to shift the ratios more in favour of essential costs, or you might be able to afford more to spend more on the things that you want.

The most important part once your essentials are covered is to set a suitable savings percentage and stick to it. Creating savings goals will help you to work out how much you need to save each month to reach the targets you've made for yourself. Whether that's 10%, 20%, 30% or more, you should consider this a non-negotiable figure (where possible) in your monthly budget.

That means the most flexible figure in your budget will be your spending on wants. These, in a financially sound plan, should come third to your essentials and savings. Once you've figured out all of this, you'll be well on your way to a properly balanced budget.

What is it okay to spend money on?

What should you spend money on? That's often a challenging question, particularly during a cost of living crisis. First, you've got your essential costs, which are non-negotiables. These are things like your mortgage/rent, utilities, food and transport costs. But after that, what's it 'okay' to spend money on when you're trying to find a good balance?

Quality products that benefit you

Sometimes it makes sense to spend money on basics that can make a difference to your quality of life. This could be a good mattress to help you to sleep, clothes and shoes that will last or food or hygiene products that will help keep you in good health. Some 'luxury' purchases can be considered an investment rather than a frivolous spend – as long as you can afford them.

Your physical and mental health

Times are tough at the moment, and it's important you do what you can to keep both your body and brain in good shape. That means that it's okay to spend money on a gym membership that'll keep you fit or a hobby you're interested in.

The things that you've been saving for

It's sometimes easy to forget that you're saving money for a reason, and instead just save for the sake of saving. That's why it's important to set savings goals so that you can understand when it makes sense to spend your money. You could be saving for a house deposit, a new car, a big holiday or even putting away money for the kids. Whenever you've reached a saving goal, don't be afraid to pull the trigger on the thing you've been working towards.

The things that make you happy

We've already touched on it, but one thing that's always key to bear in mind is that life is made for living. So do the things that make you happy where you can. It might not always be possible to do what you want financially but, as long as you're sticking to those rules you set earlier, there's a good reason why your budget should feature a section for wants and not just the essential stuff.

Get your savings sorted with us

Now that we've talked spending versus saving, perhaps we can help you with the last bit?

We've been helping people to save for their future for over 140 years and, with a range of Cash ISAs, Fixed Rate Bonds and Regular Saver accounts available, we could have the perfect account for you.

Compare our full savings range today or head over to our Home and Money section where you'll find more useful articles on saving.

This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide.

Cash ISAs are available to individuals aged 18 or over who are resident in the UK for tax purposes. .

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