A BETTER APPROACH TO IMPACT YOUR SPENDING HABIT.

Everyone can relate to the fact that we have limited resources, this is not overrated. Personally, I need more than I presently have. However, the question is, how can we maximize our current financial situation for the highest value?

Effective management of our income, are in the daily money decisions we make as well as activities we tend indulge in.

A better approach is to spend more strategically, applying a principle corporately referred to as the “cost-benefit analysis”.

A literal description of this principal is that, a Cost-benefit analysis (CBA) is a method of clearly outlining the cost and the benefits of a financial decision and weighing them against each other.

This, in other words, is comparing the price and value of products or service in terms of your use, before making a decision. It is a tool that can be used by everyone, including but not limited to business owners and managers, to analyze everything, from short-term purchases to long-term business decisions.

This method enables businesses make spending decisions by considering both financial and non-financial factors. By financial factors, I mean the cost of a product or service and by non-financial factors, I mean the quality, value and availability of a product or service.

A good illustration of this principle can be seen in Google’s famous cafeteria benefits. Google provides free, high-quality food to employees round the clock. This policy looks like a huge cost until you consider the benefit: firstly, by providing breakfast, lunch, dinner, and snacks, the company is encouraging employees to be at work as much as possible. This on the surface might be considered unwise, but the cost is offset by the increase in productivity and team cohesion, which is very significant increases the organization’s income…

It is an approach that can be easily applied to our household spending and budgeting, to help us make the better personal financial decisions. As it is simply just like making a typical pros-and-cons list.

How do I mean? Most times, our purchasing behavior stems from how attractive an ad looks or a how much a marketer manipulates our emotions to create an attachment to a product. Weighing in the financial and non — financial factors to such purchase, the principle of a cost benefit analysis acts as a framework for making more rational decisions with your money. This can go a great deal to reclaim financial independence against some impulsive spending e.g items on sales or with a percentage discount. Lol!

What are the benefits of applying the cost-benefit principle to your spending culture?

1. Take better charge of your purchasing behavior — Spending on a whim can be very satisfying — when you think to have some excess or lose cash around. Where it had to do with an emotional manipulation by some marketer, evaluating your cost and benefit helps you get over such impulse especially when they don’t fit into your financial plan or budget or it helps you realize that such expense has no satisfaction or qualitative benefit after an hour later or that project(expense) may not really be as urgent as it seemed.

2. You can align your spending to your financial goals and objective — As Stephen Covey suggests in The 7 Habits of Highly Successful People, “begin with the end in mind.” Asking yourself: What is the goal, while using this analysis would help reframe that financial goal and as a result, this would put your spending behavior in a better perspective, aligning it with your financial goal.

3. It gives you an insight on the right financial plan: A good cost-benefit strategy will allow you to find the right financial plan to get as much profits as you can.

4. You make educated guesses on the right investment plans: Using a cost-benefit strategy should allow you to make a more informed investment decision for your money goals.

5. Weighing different career or job options: In this case, you might factor in any costs associated with getting the required training, the amount you’ll expect to earn, the location, the commute, the wardrobe, the hours, the employee benefits, and so on.

Having briefly discussed about spending wisely using the principle of Cost — Benefit analysis, it is important to note that using this analysis is not always easy, because situations may have other important elements which are hard to quantify. Although, whenever this is the case, I think it makes the situation much more difficult to make an objective financial decision.

Also, I should highlight that, this is not a perfect money model. However, if you consistently employ this cost-benefit thought process, it would help you come closer to maximizing the value that you can obtain for your money. It can be applied in basic instances like; when thinking about your cellphone/ cable bill, or whether you should hire someone to fix a leaky sink versus tackling the job yourself and many more.

Even if you can’t quantify all the factors involved in a decision, you can still include them on a list, that would help you come up with a final decision.

As you become more experienced at employing cost-benefit analysis, you may find a lot more money left in your wallet without even noticing a decline in your standard of living.