Smart Consumption: Spend wisely

Let’s figure out what expenses can be cut without turning into a painful miser.

Most often, rational consumption is associated with ecology and a humane attitude toward the environment: do not waste water and electricity, do not buy plastic bags, sort your garbage. But rational consumption is a careful attitude to any resources, including finances.

Mindful consumption is one of the main modern trends. In 2017, the American Richard Thaler won the Nobel Prize in Economics for his research on behavioral economics. It is the science of how people spend money, what makes them save or give away large sums of money, and why some are stronger and others weaker at responding to marketing tricks. Behavioral economics helps people learn to spend money more consciously and wisely.

Central banks in many countries have also begun to protect people from the marketing ploys of financial institutions and unnecessary spending. The Bank of Russia, for example, initiates laws which will help people control their spending more carefully. For example, in the nearest future banks will have to notify a client in case of each credit card transaction both about their credit limit and total debt, so that people will monitor not only how much they can spend, but also how much they owe the bank. The main thing is that saving should be reasonable and not turn into unhealthy stinginess. So what can you save on without sacrificing quality of life?

Impulse Buying

The main enemy of sensible consumption. Most purchases we make spontaneously: we liked something right here and now or were attracted by the discounted price. If you control yourself, you can protect yourself from such expenses.

– Use the “postpone” option. Choose in the store, touch it, try it on, and go home or to work for a few hours or a day. After a while it will become clear whether such a purchase is actually needed or not.

– Make lists. It helps to buy as much as you need and, for example, not to throw away spoiled products later.

Also, you can save every day for small things – say, not to buy plastic bags in stores, and carry a cloth bag. Or pour water with itself in a once-bought bottle and not spend 30-60 rubles a day on it.

There is a theory that a person does not need more than 100 things. American Dave Bruno lived for a year with only 100 personal things. The main idea of his 100 Things Challenge method – do not let yourself have more than a hundred things, and sell, give away or throw away the rest. Maybe 100 things is too hard a limit, the point is rather to reconsider your financial behavior and stop spending money on things you don’t need, not to save unnecessary things.

2. Everyday Spending

Marketers and merchandisers use a variety of tricks to literally force visitors to stores and websites to buy more products. It is important to be aware of these tricks in order to counter them.

– Read the price tags carefully. Red labels near prices make customers think they’re discounts, although that’s not always the case. Sometimes they write the wholesale discounted price, excluding VAT, in large numbers on the price tags, and the real retail value in small numbers.

– Look at the bottom and top shelves. Goods, the sale of which is most profitable for the supermarket, are located in the “golden zone” – about the level of an adult’s chest, at a height of about one and a half meters. Here this product is most visible and easy to take. It is likely that on other shelves you will find a product of no worse quality, but at a lower price.

– Put only what you need in the basket. The milk, bread, and meat sections of large stores are at different ends of the room, so that customers can move around and pick up something they didn’t even plan to buy.

– Check the weight or volume of the product. Often cereals and sugar are packaged by 900 grams instead of 1 kg, chocolate – by 90 grams instead of 100 grams, vegetable oil – by 930 ml instead of 1 liter. A lower price does not always mean savings. A similar product may have a slightly higher price, but it has more mass.

– Compare prices. Discount cards to specific stores with a cumulative discount seem to promise a benefit. But it’s possible that in the supermarket where you got the card and saved up discount points, the goods are much more expensive than in other stores, even taking into account the discount.

– Soberly and critically evaluate marketing promotions. Bonuses for purchases, which can then be exchanged for a fee, or “every eighth purchase as a gift” – it’s just a way to make you in the pursuit of gifts (sometimes completely useless) to buy more than you need.

3. Transportation

A working person cannot give up transportation costs – you have to at least get to and from work. But in today’s world, having your own car is not always the most economical option.

– For big cities with traffic jams and decent distances, public transportation is a reasonable alternative to owning your own car. Passes and special cards cover several modes of transport and rarely cost more than 2,000 rubles per month.

– If you don’t need a car every day, cabs are likely to be a better option. Gasoline, maintenance, taxes, insurance, parking and car washing can cost you a considerable amount. You can compare the prices of different cab operators in maps and geoservices applications and decide whether it’s worth getting your own car.

– There is another economical alternative to owning a personal car. If you need it only occasionally, for example, to go out of town or to the remote store, you can use the services of carsharing. They allow you to take the car for the time you need and leave it in convenient places. However, in Russia, this possibility is still only available in large cities.

If you cannot do without your own car, it makes sense to buy one which suits your income. It is reasonable to spend no more than an annual salary on a car, and it is better to spend less. If you accumulate knowledgeably, you can avoid taking large loans and quickly restore your budget after a major expenditure.

4. Housing

Renting an apartment, especially in large cities, can be more profitable than taking out a mortgage. For example, a family rents an apartment in the center of St. Petersburg for 30 thousand rubles: it is conveniently located, there is a school and kindergarten nearby, parents walk to work. A similar apartment in the same area costs at least 6 million rubles, and it is likely to be worse than their rental. If the family will take a mortgage for 25 years, the payment will be about 50 thousand per month. And they also need somewhere to get a down payment of a million.

Suppose they continue to rent the same apartment for 30 thousand, and 20 thousand (the difference between rent and mortgage per month) will put it on a deposit with interest capitalization, or use other financial instruments. Then in 25 years, even allowing for inflation and rising housing prices, the deposit will exceed the value of their apartment. Of course, this speculative scenario doesn’t provide for many unexpected things – for example, if real estate prices soar, an apartment would be a better investment. Or vice versa.

If the bank will not approve a mortgage for such an amount, they can buy an apartment in the Leningrad region for 4 million rubles – then the payment will be just about 30 thousand a month. But the cost of travel will greatly increase, they will have to change school and kindergarten, possibly need a car. Time that could previously be spent with the family, will have to be spent in traffic jams. All of this affects the quality of life. And there is much to think about, making a choice between renting and buying.

However, for many people an apartment is not just a wall, it is a psychological comfort, the certainty that you have a home and will bequeath something to children. Registration at the place of residence gives additional opportunities. Plus a certain fixation of expenses on the apartment for 25 years in advance, because mortgage payments can not change (unless, of course, you have not chosen a differential payment – read more about this in the text “Mortgage Loan”). And people are sometimes willing to overpay for a guarantee of stability, even at the expense of comfort.

For others, mobility and accessibility of infrastructure are more important, and it does not matter that the apartment does not belong to them – it is important that it is comfortable to live in. Besides, in case of financial problems, you can simply move out of the rented apartment, and with a mortgage it is much more complicated, you can even lose it.

5. Loans

Credit is a convenient and popular financial instrument. But it should be used cautiously and not to make unrealistic commitments. Especially if a loan is needed to buy the latest model of an expensive phone or other items far from the first necessity, when money for buckwheat is barely enough. Remember, the level of credit load on a person should not exceed 30% of monthly income. Otherwise, there is a risk of not coping with the payments and getting into debt. A balanced approach to credit is another important marker of sensible consumption.