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If spending less than you earn is the golden rule of personal finance, then it would logically follow that spending money wisely is incredibly important.
I would define “wise spending” as understanding that money is finite and creatively using it as effectively as possible to yield the most benefit.
I see lots of people using money in creative ways every day to yield benefit, but it seems that very few people seem to understand that it is finite.
According to Websters – “finite” means…
1a: having definite or definable limits b: having a limited nature or existence
2: completely determinable in theory or in fact by counting, measurement, or thought
So, what I get from this is that any given moment every person has a finite amount of money in their possession. If you have $2000 in savings you can buy a $2000 couch – if you would like, but if the couch costs $2200, then you don’t have enough money.
I know you are probably getting some really deep revelation from this 
but somehow we understood this better when we were 7 years old than we do now. With the ridiculous abundance of available credit, very few actually think of money as being finite. As all the obvious indicators suggest, this is a problem.
It isn’t just about personal finance
You can surely see the effects of foolish spending in many households across the U.S., but it isn’t limited to our personal finances.
What comes to your mind when I mention “AIG”? If you are like most, you probably think of the debacle recently where they used the bailout money (our taxdollars) to pay bonuses to a lot of their top executives. Personally, I think that is a poor allocation of cash, given the circumstances, but taking a step back – why did they even need the bailout money in the first place? My guess was that it had something to do with trying to maximize profitability rather than spending wisely.
And our government? Can you imagine if they spent less than they earned each year and had a surplus? Crazy talk – I know!
It starts with the small things
But, interestingly, even though a corporation or a government is it’s own entity, decisions are still made by people. And their bad habits leak into the decision-making. You can bet the execs at AIG or Politicians in Washington just make business financial decisions like they make decisions regarding their personal finances. What if they had remembered the lessons they learned about money in 2nd grade? How different would the world be today?
How has spending wisely or foolishly affected your life?
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Comments
04.20.09
Miss Manners: What's the Best Response to Compliments on Her Looks?
Dear Miss Manners,
This is not exactly an earth-shattering problem to have, but I know there must be a better way to handle this particular situation. What should I say in response to a compliment about my looks? I'm not a super-model or anything and I don't have a great body, but I've had several people tell me I have a pretty face. A lady at church said it recently and I just went blank. Strangers even will say in passing how pretty I look.
I feel terribly awkward when this happens. I want to say thank you, but that feels wrong because I didn't do anything to look this way. Do you have a suggestion for a kind way to acknowledge the compliment in a sincere manner without sounding like I'm getting a big head?
Gentle Reader,
No, you don't want a big head, Miss Air Max 04Manners agrees. That would be unbecoming. So you want to watch out for the danger signs, and one of them is taking compliments too seriously.
That is what you are doing when you feel the need to explain that the work of art that has others enthralled is not actually of your creation. To be told that you have a pretty face is very nice, but a mere pleasantry. You need only reply, "Thank you." It is not necessary to point out that you did not make it on your potter's wheel.
04.21.09
When I was young and asked my parents for something, they would often tell me that "money doesn't grow on trees." Well, credit cards are kind of like money trees that need to be replenished (paid back). As long as credit cards and the like exist, people (not all) will spend more than they have. I'm sure that credit card companies have psychologists on board, helping to manipulate human behavior (influencing our decisions). Obviously, people shouldn't spend more than they have, but that day will never come. Also, an entire industry would disappear. No more financial counselors, software programs like Mint.com, personal finance bloggers etc.
04.22.09
My credit limit just went up today because I bought some rather pricey concert tickets. that doesn't mean i'm going to make it a personal goal to try and reach that limit every time.
If you're going to have a credit card, it's a privilege you should have to earn (I have no way of tracking this of course). But if you typically spend more than you earn, you should rethink your credit living ways.
Credit cards will always exist. You just have to be smart about whipping it out like that!
04.24.09
I like any post on personal finance and I have been reading a lot of them lately. And I loved this one. It is so simple, yet the idea that money is finite is a lens through which we forget to look at it. But it makes so much sense!
You are completely right. With credit cars, we forget that we are not supposed to buy things we cannot pay for in cash. Credit cards are LOANS people and loans are meant to smooth consumption over a period of time, not fuel it more and more each month.
But we have a whole industry which makes huge amounts of money of the fact that people cannot control their spending. And in order to stand up to that, the next generation of consumers and spenders needs to be more aware of personal finance.
Finally, I completely agree that it is a slippery slope. And yet it is the same way in the other direction. Ever since I started carefully tracking my spending, I have found that I just don't have the need to spend that much anymore. Once you develop a better understanding of money, you also learn to value it in a way that is more aligned with what you actually value in life.
10.22.09
Here is an easy way to get using your credit card under control. First get a check register, you know the old fashion kind that you actually need a pen or pencil to write in it - yes you could use your laptop but a register is easier to keep on you in most cases. Decide how much disposable income you have in a month an start with that as your beginning balance(Disposable income is money left over after all bills like rent,insurance, etc. are paid. Everytime you make a purchase with your credit card, enter it into the register and deduct it from your balance. Each time you get in line to pay for something look at your balance first - the dwindling number may get you to rethink the purchase. At the end of each week pay off the card with disposable income you have set aside. When your balance is zero you can no longer use the card until you have more disposable income. This does two things, one it makes you very aware of how often and how much your are spending and two, if you actually paying your balance back down you aren't overspending and racking up intrest.
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