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Knowing how you spend and save money can determine your success in reaching your financial goals. Are you the type of person who spends money when you have it, or will you carry around the same twenty dollar bill for weeks at a time? Do you make a lot of little purchases or do you prefer to save up for larger items?

Understanding your spending habits and where there's room for improvement, can help you formulate a money philosophy to guide you when developing a lifetime financial plan.

What Kind of Spender Are You? Looking at Different Profiles

Analyzing spending habits can be your first step toward achieving financial wellness. Some behaviors are easily categorized and others are more complex, but it helps to think about your spending choices and whether you can easily support your current lifestyle while living within your means. Spending patterns range from overspenders to diligent savers and everything in between. Here are some examples of hypothetical spending and saving patterns.

  • By the Book Saver/Spender: Are you someone who estimates your average grocery bill and sets aside an amount of money each month for this purpose? Do you save a certain amount from each paycheck for long-term goals, like a home purchase or retirement? If you like to operate under certain rules and you've found those rules to work well, you've likely established good savings and spending habits. However, when life throws changes at you, be prepared to step back and reassess your spending and savings goals in order to make the necessary changes.
  • Overanalyzer: Are you someone who overanalyzes your spending and devotes months (or years) to researching a TV or car purchase? While your highly analytical brain will help you to make the best purchases, your lengthy decision-making process may cause you to miss out on opportunities.
  • Inattentive Spender: Do you spend money when you see something you want, without really thinking about why? Is shopping enjoyable for you rather than just a means to an end? Are you surprised to see how much your daily purchases add up at the end of each month? If you spend more than you can afford, small changes may encourage you to be more mindful of how much you're spending. Following a budget may encourage you to curb your buying tendencies. Limiting the use of credit cards can also help you avoid overspending and using money you don't have.
  • Hybrid Saver/Spender: Are you someone who sticks to a budget, but still allows for some flexibility in spending and saving each month? Do you adjust your saving and spending goals as your income shifts or other lifestyle changes arise? Simply sitting down on an annual basis to adjust your spending and savings goals can help to ensure that you're still on track to reach your long-term goals and help you identify any needed adjustments in your household budget. For example, if you're not going out to eat as much, you can save the money you previously spent on restaurant meals and add it to your future down payment on a home purchase.
  • Diligent Saver: Are you interested in building wealth but not necessarily spending? Do you enjoy researching potential investments? Are you saving more than the recommended amounts for your retirement in hopes of reaching financial independence one day? Saving diligently will help you reach your financial goals. A properly balanced budget will help you understand your overall financial picture and identify how much you can comfortably spend today while saving for tomorrow.

Uncovering Clues to Your Spending Habits

If you're not sure of your exact profile, the best way to analyze your financial habits is to track your spending for a period of time and understand exactly where your money is being spent or saved. The Consumer Financial Protection Bureau provides an easy-to-use spending tracker that you can print out and fill in each week.

Changing Your Habits to Manage Your Money Through Different Life Phases

If you need to change your spending habits, either due to lifestyle changes or because you just want to save more, start with small changes. An extra 1 or 2 percent can be diverted into your 401(k) plan or long-term savings account every time you get paid. Find less expensive hobbies or commit to cutting back on restaurants or vacations. By looking at how much you actually spend and save versus your overall goals, you can decide where to make changes going forward, as needed. Changing financial habits can be a challenge, but taking small steps can often make a deep impact, especially when it comes to long-term savings.

Reaching an Optimal State of Financial Health

The optimal state of financial health may be different for everyone; you should feel comfortable spending while still meeting your long-term saving goals. For example, some diligent savers are aiming for total financial independence while others count on working for a longer time. You may also prioritize short-term goals, like a wedding or home purchase, which will cause a more dramatic, temporary shift in your savings versus spending profiles.

If you feel as though you've fallen off-track with saving and spending goals, it might be time to buckle down and really ask, "What kind of spender are you?" If you fear overspending, consider using a debit card for purchases, which limits your spending to the money in your bank account.

This information and recommendations contained herein are compiled from sources deemed reliable, but are not represented to be accurate or complete. In providing this information, neither KeyBank nor its affiliates are acting as your agent or are offering any tax, accounting, or legal advice.

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