3 simple tips to help you become a smart spender

You can make a good argument that spending money today is easier than spending money 50 years ago.

Most people, myself included, carry nothing but plastic. I don’t even remember that last time I paid for something in cash.

Paying with credit cards – and debit cards are likely the same – is less painful psychologically than paying with cash. Because it is easier to divorce the pain of spending money from the pleasure a new purchase can bring, unsmart spending can quickly take over.

Pair this with a few other psychological quirks and it’s a wonder you ever have anything left in your bank account.

Today I’d like to share a few thoughts on being a smart spender.

I’ll explain a couple cognitive biases that can trick us into spending more than we should and then share a few tips about smart spending that have really worked for me.

Common mental money traps people fall into

Humans have the unique gift of being rational. And most of the time we convince ourselves that we’re exercising this ability. When faced with a decision, for example, we logically weigh the pros and cons, digest the information, and pick a direction based on sound reasoning.

When you put some of your decisions under a microscope, however, you might find that you’re not as logical as you think you are.

Sometimes, maybe most times, you might fall for a cognitive bias.

Cognitive biases are errors in thinking that occur as you process and interpret information in the world around you.

Falling for a cognitive bias can hurt your bank account and make you an un-smart spender.

Here are 2 in particular that can make you spend more than you want to if you’re not careful.

1) Anchoring

Anchoring is when you rely too heavily on an initial piece of information when making decisions. When you’re buying something, the initial piece of information might be the first price you saw for a particular item.

Say you’re in the market for a house. Your real estate agent takes you to the neighborhood you’re interested in and the first house they show you is $1 million.

Then they show you several houses for $750,000.

Because you saw the $1 million-dollar home first, $750 000 seems like a pretty good bargain.

Until you go home, do your research, and find out that the average house price in that neighborhood is $500 000.

If you weren’t wise and crafty, you might have believed that real estate agent, spent way over your budget and gone home feeling good about yourself because you got a good deal.

2) The Bandwagon Effect

“Hopping on the bandwagon” simply means going along with the crowd instead of making your own decisions.

We are social creatures and it is human nature to want to fit in.

Blindly going along with the crowd to fit in, however, can throw you into a financial tail spin pretty damn fast.

Buying a house, buying a car, going on vacation, family trips, dinners out, new clothes and accessories, fitness classes…

These are all tempting activities to want to get involved in as you see friends, family, and coworkers doing them.

But can you afford it? Your financial situation may be completely different than your best friends or your neighbors. Maybe they’re not making the best decisions about money. Maybe they got some kind of inheritance from a distant relative and can afford that lavish lifestyle.

In any case, you just don’t know what everyone else’s situation is. So, don’t do things just because every else is doing it.

How to be smart with money

Here are a few tips to help you be smart with money.

1) Be aware of your biases

Pretty much the only way to overcome a cognitive bias is to know it exists.

Acknowledge the fact that your brain has limitations, look out for them, and adjust accordingly when a situation arises that could make you fall for one.

2) Live below your means

This rule applies no matter how much money you have in the bank. Because excessive spending can ruin you, no matter how wealthy you are.

Living below your means doesn’t mean you have to be a complete minimalist and adopt a lifestyle of frugality.

And it doesn’t mean you can’t treat yourself.

It just means getting things only when you can afford them. This is a simple principle on the surface, but much harder in actual practice. Our brains are incredibly good at finding reasons to convince us that what we want needs to be purchased right now.

Discipline yourself.

If you want a new car but can’t afford it, set a goal and come up with a plan to get the money you need. Then buy it.

3) Learn to say no

Have you ever gone out for dinner or drinks when you knew you couldn’t afford it, just because you were afraid to say no or because your were afraid of letting people know how little money you actually have.

Saying no isn’t as socially destructive as you think it might be. It can actually be quite liberating. You reach a new level of comfort with yourself and your life when you can boldly stare reality in the face, accept it, and act in a way that is best for you and your loved ones.

Can’t afford to go out for drinks for Sarah’s birthday? “Sorry I can’t make it this time.”

“Jonny’s bachelor party is in Mexico, do you want to come for 1 week or 2?” – “Maybe next time, that’s just not in my budget right now.”

I promise you’re not going to lose your friends and your family isn’t going to disown you just because you can’t make an event here and there.

They might actually appreciate it when you don’t have to ask them for money because you blew your entire savings on a destination wedding for a third cousin last month.


Overspending can make you feel out of control, guilty, and worried. Financial stress is the worst; it can rip families apart and lead to a lot of sleepless nights.

The key to avoiding overspending and being a smart spender is knowledge. Know how your brain works and know what your situation is. Then, have the courage to face that reality and the discipline to keep yourself in check.

Sources and further reading

How to Spend Smart

10 Cognitive Biases in Your Brain That Are Costing You Money

Don’t spend, invest—and other secrets from millionaires

Dollars and Sense