Life is so complicated at times that adding finance and savings into the mix can be overwhelming.  I strive to continually simplify my life so that I can do things that I enjoy.  Even though I work in finance, budgeting is not something I enjoy doing or living with.  To deal with that mind block, I applied four simple basic business principles to my personal spending habits.

Keep in mind that spending and money is emotional so the goal is not to take away emotions but to push it far enough away that you can think clearly and change your emotion.

One of the mainstay of being a profitable business is that I always look at ROI (Return on Investment) but I do it in a different way.   I consider the benefits and the goals equally.   I ask myself these four questions when I want to spend money either for the business or personally.

1)    What do I want out of it? The goal.   This is the most important question because it determines whether you feel cheated or happy after you spend money.   So ask yourself, what do you want from buying this product or service?   Is it something you need? or just something you want randomly.   If you need it, what do you expect it to do?  What am I going to do with the benefits?  Be clear.    If you just want it, then note that you have no goal and move on to the next question.

2)   What do I get?   Benefits. Ask yourself, what is in it for me?  Do you know exactly what you’re going to get out of this service or product?  Is it clear?  Do you think it’s good?  Do you think it really helps you?  Does it apply to you?  What are the results that you expect from the benefits?

3)    Am I willing to pay what it costs?  Cost. What is the true cost of the product or service?  Have I factored in everything?  If so, in comparing the benefits, goal and cost, is it worth it?   If yes, go for it.  If no, go for the next question.

4)    Do I have enough crazy money?   Budget. This is where you save yourself.  Everyone needs an outlet for spending.   It’s just human nature.  We also need a reward to offset our work.   There are different ways to get yourself to save money and everyone has their own method but you have to have a crazy fund or just discretionary money that you can spend however you want without judgment.   If you have enough to spend on that “I want to buy it just because” thing, then do it.  If not, delay your spending until you have enough in the crazy fund to do it.

Let me share how I saved myself $7,000 last month by doing this.

I recently started blogging and I researched a lot to make sure that I’m doing it well to justify the time cost.  I had found out about a blogging conference in New York called Blogher.   It was well organized and would have hundreds of women bloggers attending as well as large corporate sponsors.   My first inclination was that it was a great thing to attend and invest in.   I even bought tickets to the conference before I ran through my four questions.  Here’s my process and the final decision.

1)  What do I want out of it?  I don’t know.   Yes, it’s great to meet other women bloggers but I had no plans or goals with what to do after that. The conference is not something that I need to continue blogging.  I already have a business plan that I’m working through.

2)  What do I get out of it?  I get to meet hundreds of people and learn a bit more about blogging from the seminars.  This does nothing for me personally.

I’m not a card collector by habit.  I work closely with the people in my network.   Why am I paying to meet hundreds of people that I may never talk to again.  Let’s be real.  How many of us actually stay in touch with the thousands of people that we’ve met over the years, especially at a conference.    We don’t.  We only stay in touch with a handful who we connect with.

As to blogging information, I can get the same information with research through other sources including going directly to the speakers’ sites.

3)   Costs.   The tickets were expensive.    We got two tickets for $700 via resale.   Add in airfare for two from Southern California of $1,400.  Next came the 7 days hotel costs in New York City at $350/day = $2800 incl tax and expenses.   Food for 2 for 7 days = $500.   Transportation to the conference for 2 = $125.  The cost just for the conference was about $5,500.

When I tried to squeeze in seeing friends in New York and Boston by renting a car and adding in a few more days, the cost went up to $7,000.

After the euphoria of saying oooh I want to go to Blogher was over, I looked at the cost of $7,000.  I recognized that I had no plans for how I would benefit from the conference, had no people that I wanted to meet specifically, no relationships to solidify and no valid steps of how this will benefit my blogging.   It became pretty clear that I had made a mistake in planning for the conference.

I resold the tickets and called my friends.  It turned out that most of them had plans to visit California within the next 12 months so I still will get to meet up with them.

I had no regrets about the decision and three weeks later, it was vindicated when my group health insurance premium got increased from $225/per person to $684/ per person in some cases.  The money that we budgeted for the conference was used to cover the increase in our health insurance until we close down the plan and get everyone into individual coverage.

Those four questions has served me well over the years in keeping me on the right path for financial security and dictated my spending habits.

What techniques do you use to control your spending?

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photo credit: Jeremy Rock