Personal Finance

Conscious vs. unconscious spending

“Every day brings more choices.” – Martha Beck

Each week, I try to find an “aha-moment”. The aha-moment is a lightbulb moment; something that makes you think and opens your mind to a new perspective or a new way of doing things. Sometimes my aha-moment is connected to fitness, sometimes to personal growth, sometimes to finances. I find that looking for these moments keeps me in a learning state of mind and stops me from falling into the rut of doing things because I’ve always done them rather than because they make the most sense.

This week, my aha-moment came while I was watching a video blog created by Rachel Cruze. Rachel is the daughter of the well-known personal finance expert, Dave Ramsay and she has obviously absorbed a lot of her dad’s teachings about credit and money management. In her video blog entry, Rachel was sharing some of the reasons why she doesn’t like credit cards and, while I didn’t agree with all of her arguments, one point that she made got me thinking.

Rachel commented that often people argue that, because they charge all of their monthly purchases to their credit cards and then pay off the balance in full every month, having a credit card isn’t a bad thing. Their strategy doesn’t cost them any interest, it allows them to easily track their spending, and often lets them earn reward points which can be redeemed for a wide variety of things including travel, groceries, and cashback.

Related article: A simple approach to track your spending

Rachel’s perspective on this was that the danger in charging everything to our credit card and paying it off the credit card each month is that, in doing so, we’re essentially undermining our budget. She argues that people tend to budget for their credit card bill rather than for the individual items that they’re charging to the card and so they’re less aware of what they’re spending in individual categories (groceries, utilities, etc.). Knowing that there’s plenty of credit available and that we have enough coming in to pay off the bill in full, means that we don’t always pay close attention to what we’re charging to the card on a daily basis and consequently, we spend more than we intended to.

She points out that, once the bill arrives, it’s too late to undo the purchases that we’ve made and so we end up just paying whatever the balance is. This means that we’re always using our current paycheque to pay for items we’ve already purchased/used/consumed rather than directing it towards our future expense and so we are always looking backward rather than looking forward when it comes to managing our money.

Related article: Creating money management systems

I think that Rachel has a valid point but I don’t think that credit cards are the root of the problem. Stepping outside of our budget and spending more than we intended to, is a result of unconscious spending and it can happen just as easily when you’re paying with cash or using debit as it can when using a credit card. Every payment method, whether it’s cash, debit or credit, is simply a tool that allows us to obtain the goods and services we need to live our lives. If we use those tools consciously, then we can keep our spending under control but if we don’t pay enough attention then we risk spending more than we intended and compromising our financial goals.

Related article: A Disciplined spending plan

That might sound dramatic but if you stop and think about it for a minute when you apply the power of compound interest, it’s amazing how those small amounts add up over time. For a 23-year-old, investing $100 twice a month and earning 5% a year puts $250,000 in their pocket at age 60. The exact same math says that, if 23-year-old lets $50 a week drift out of their pocket, they’re depriving themselves of the opportunity to create $250,000. It’s not hard to spend $50 a week on things you didn’t plan to buy and when that $50 a week becomes $100 a week or $150 a week, the amount that you’re holding back from your future self becomes even more significant.

At the heart of good money management are three very simple principles: pay yourself first, spend less than you earn and track your spending. Looking after your money doesn’t have to take up a lot of time and it doesn’t have to be complicated but, like so many other things in life, if you want to do it well, you need to make a conscious effort.


  1. Brenda

    Know what are constant expenses make sure you cover them first. After that make sure that you buy what you need not what you want. Always ask yourself the question do I need this or do I want this. If you need it then it is justifiable but if you just want it more questions have to be asked to justify the purchase.

  2. Heather

    Rachel’s advice would work if you budget every dollar, but I don’t. I know my regular expenses, and I check on them frequently to find ways to decrease them. I automate savings and pay myself first. And the several hundred dollars I earn from credit card rewards points is bonus money that it put towards whatever my current financial goal is!

  3. Kurt

    Well said Sarah. The Ramsey clan has surely done loads of good in boosting personal finance awareness, but I quibble with a few of its prescriptions too. I like your reduction of good money management to three simple principles: pay yourself first, spend less than you earn, and track your spending. Meeting one’s financial goals isn’t complicated, is it? 🙂

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