Be a savvy consumer and make the right financial choices

Becoming a savvy consumer

This is not our parents' (or grandparents') financial marketplace. Only a few decades ago, we were faced with far fewer financial decisions than today. Savings were still invested in passbook accounts and U.S. Savings Bonds, mortgage rates were fixed, most goods and services were purchased with cash or checks, a college education was affordable, Social Security and Medicare were taken for granted, and employers provided health benefits and retirement funds in return for years of loyal employment. All of these combined required little financial decision making from most of us.

Today, there are many available options, and the trend is toward more personal involvement and responsibility for payment. We must take charge and actively manage the decisions we encounter on a daily basis. There is no room for passivity. Instead, the key is to become accountable for, and actively engaged in, our own financial success. The theory of personal accountability extends to all things financial, not just investing and saving for retirement. It extends to how we shop, what we buy, how we vote, how we educate ourselves and our children, and how we manage our health and well-being. As if that were not enough, along with the many financial decisions we now must make comes the necessity to protect ourselves from such things as scams and identity theft.

We seem to have less money left over and more financial demands than our parents and grandparents, and it is easy to become overwhelmed with all the responsibilities we are expected to shoulder. How in the world can we educate our kids, help our parents through their later years, and help ourselves save and plan for a healthful and secure retirement? Difficult as it may initially seem, it is only by seizing and maintaining control over our choices that we can get back to the basics and finally accept the fact that navigating our financial life in good times or bad always starts with one simple concept.Yes, we know, you have heard it many times before. But just as eating fewer calories to lose weight is true, so is the recognition that we must always spend less than our income if we want to realize our financial goals. Your first, and perhaps greatest, challenge is to get control of your spending. Like Kathy and Ed in the following account, we must all become savvy consumers:

Kathy and Ed describe themselves as solidly middle class. They have steady income from stable employment that allows them to provide for their two teenage girls. Their combined income is average, but Kathy has figured out how to stretch the money they make. With the mortgage paid off, she and Ed recently took out a home-improvement loan to increase their living space, upgrade their home and maximize its value. They shop wisely and try to get the best deals on clothes, food, vehicles, and other items. They read Consumer Reports before committing to big expenditures. They are conscientious about the quality of the goods and services they purchase, their health habits, and their political choices. They are savvy consumers - and savvy is what it takes to survive in today's financial environment.

Choosing to Spend Wisely

Being a consumer involves more than going on a shopping spree at the local mall on a Saturday afternoon. We are consumers every day, and the choices we make are more complex than spending versus not spending.We also make choices about where we spend our money, how we feed and clothe our family, where and how we educate our children, what we do for entertainment, and if and where we go on vacation. These are choices that we make regularly. In addition, there is something we call "spending creepage" that comes into play in our routine spending choices - choices that impact every facet of our daily lives.

Let's follow Joe as he goes through a normal day. He could be your neighbor, your colleague, or he could even be you. He is married to his childhood sweetheart and has two teenage daughters. Joe is an engineer, and his wife teaches second grade. Like many Americans, they live paycheck-to-paycheck and have little or no savings besides the 401(k) plans to which they contribute as little as possible. Every weekday morning, Joe leaves his suburban home and drives 45 minutes to his city job. He parks at a nearby garage, stops on his way to the office for coffee and a donut, and picks up a salad at the corner deli for lunch. Pretty routine stuff. But already, just a couple of hours into his day, Joe made three spending choices based on convenience and by cruising on autopilot.

Joe has a high P (Personal Values) score. Even on the way to work, he is focused on his job, which brings him great satisfaction. Coffee, donuts, and his luncheon salad are irrelevant to his job satisfaction, so Joe does not take those purchases seriously. They are conveniences to him, so once he thinks about what is really important to him, he may be able to improve his debt-ridden personal bottom line. Let's find out. If Joe started thinking as a savvy consumer, he might make different choices by exploring his actions from a financial perspective. He could look first at his commute: He now pays for fuel and to park, but since he has regular hours, he could carpool or take public transportation if it is available. He could think differently about his coffee-and-donut habit: That $3.50 expenditure may not seem like a big deal, but as you may have guessed by now, it can add up over time. In fact, it costs Joe over $900 a year. Coffee and a breakfast bar at home would cost only a fraction of that amount and be a more healthy alternative as well. Finally, by not stopping for his daily gourmet salad, Joe would avoid his other miscellaneous purchases and perhaps learn to brown bag it for lunch - at least part of the time.

Picky, picky you might be thinking, and we do not blame you if you believe this is an inconvenient, restrictive, unrewarding way for Joe to have to live. But it isn't really, not if you look more closely at Joe's financial aspirations. For one thing, Joe really wants to send his girls to college but worries about where the money will come from. He is already in debt and finding it difficult to meet all his credit obligations. He and his wife, despite being close friends, cannot discuss retirement without fighting, so that topic is off the table for now. If, however, Joe and his family really want to accomplish college for their girls and retirement for themselves, they must all four do away with their current spending and credit card habits and start planning for what is important to them in life. It is their everyday small choices that are bleeding their resources, and they have no choice but to become savvy consumers. They have to start somewhere, and it is from the little things now that they will raise the money and reap the future rewards from affordable college educations and retirement security. Being a savvy consumer means doing this type of analysis and making smart choices in every corner of your life. It means being engaged in all of your purchasing decisions, large and small, and being willing to spend a little time and to plan ahead. Now let's meet Phil.

Phil bases his decisions on the belief that he works hard for his money and wants to keep as much of it as he can.When Phil leaves the house in the morning, he picks up the newspaper from the front porch and also sticks an energy drink in his briefcase. (Phil doesn't drink coffee and picks up his energy drinks in multi-packs at the supermarket, paying a lot less per drink.) Phil does pick up his salad at the deli on the corner because he does not have time to prepare lunch at home. But he looks for ways to fine tune and streamline his spending habits. Phil has a high M (Money Values) score and finds pleasure in managing his finances wisely. He saves the maximum he can in his 401(k), and he walks the two miles to work each day. Phil is not yet married, but he owns his home, has investments that are life-cycle appropriate, and he meets regularly with a financial planner to fine tune his personal longterm goals and planning. Phil also carefully checks the credentials and voting records of his congressional representatives and lets his consumer preferences be known. Maneuvering through the marketplace of goods and services involves more choices than decisions. We can easily make it through the decisions. Do I buy or not buy? But this is only the beginning of the process. We must make smart choices too. Here is an example:

You know you want to have lunch; that is easy enough to decide. If you stop thinking about it at that point, however, you have made a decision, but you have not explored your choices.

1. Do you make lunch at home and brown bag it?

2. Do you grab a burger at the local fast food counter?

3. Do you walk a block to the local deli and buy the lunchtime special for $5.75?

4. Do you go to the corner bistro with a friend and splurge on sparkling water and a cassolet for $20?

We make financial choices every day

Our choices involve satisfying routine daily needs, such as stopping by a convenience store or going the extra mile to the local supermarket. They include planning ahead or buying on impulse - usually without a list. Still other choices can bind us for the longer term and cause real financial harm, like making major purchases (an appliance, car, even a house) in a split second with no real forethought, investigation or planning. In contrast, the savvy consumer knows to plan for satisfying both short-and-longer-term needs and desires. Shopping excursions are planned in advance helped by a list of affordable needs and wants. They are informed by a good understanding of why a particular purchase is being made, plus knowledge about pricing and fair service and retail practices.

Kathy is one such shopper. She seems to know when major stores run sales and is there when the doors open for the early-bird specials. You may think, "I don't have time for that." But if you are not making your choices by factoring in your financial plans, you may be saving time, but at what expense? Consider this: Kathy usually has all of her Christmas shopping done in October at a savings of hundreds of dollars. So by the holidays, she has time to bake and decorate her house and is rested enough to enjoy the look on the faces of those lucky enough to open her beautiful gifts. (And, yes, she is there for the after-Christmas sales, buying her wrapping paper and other necessities for the following Christmas - at 75% off!) Kathy had an S (Social Values) score of 8 and an M (Money Values) score of 7. She has clearly recognized her need to cultivate relationships and she enjoys spending money on loved ones. However, she is also a disciplined shopper and has developed good spending habits over the years. She is savvy because she has worked to achieve balance in these two values drivers.

When you embark on a pattern of smart spending, you will not have to give up all the fun purchases you make. But you will have to make choices! And you will need to recognize and manage your particular passions. They know they must save and spend carefully to meet these goals, yet Maria really enjoys her trips to the beauty salon, and Steve loves video games, so they have set aside a certain amount from each paycheck to indulge in these passions.

What is your passion? For Maria and Steve, it is beautiful hair and video games; for others it could be books or antique markets, music CDs and concerts, new shoes, day trips, or even spa days. When you make smart choices about expenditures you are passionate about, you will plan for what you can afford. These indulgences are important and will help keep you focused on good financial management. When you look at the new leather jacket in your closet or the movie you purchased that just won an Academy Award, you can be inspired to continue to meet long-term financial goals without resentment. A well-planned splurge is like having just a taste of chocolate, not indulging in the whole cake. So pick your passion, and figure out how to indulge it so it does not break the bank.

Such advice is especially important to anyone having a very high score (9+) in Personal, Social or Tangible Values. If you are strongly committed to personal goals and self-expression or to indulging loved ones or to achieving an ideal lifestyle or standard of living, you know you can be blind to the important Money Values in your life. You may need to actively seek balance in your spending habits. Budgeting to address those strong values drivers, while reining them in, is your savvy move. Plan to have only some of what you want, some of the time because your M (Money Values) score is dangerously low.