Spending decisions

HSBC BM
Financial education
Spending decisions

Five spending scenarios

Keeping track of your money can be tough, particularly when there are lots of unexpected demands on you. What would you do in each of these scenarios?

Scenario 1

You have been invited to a party and you really want to buy something new to wear. You see an outfit you really like, but it costs $300. You don’t have enough cash, and using your credit card would take you to your maximum limit. What do you do?

buy the dress on credit and deal with the consequences later
buy the dress on credit and plan to return it after the party for a full refund
shop around for something more affordable to wear

Maxing out your credit card for an impulse purchase is not a good idea. Even if the store offers full refunds, if the outfit is accidentally damaged at the party you may be unable to return it. Buy something more affordable for now, and if you really want that outfit, start saving and make a plan to buy it later!

Scenario 2

Your bike needs some repairs, but it will cost $350. You don’t have the cash right now, but you do have a credit card with a balance of $500. You need your bike to get to your Saturday job on time each morning. What do you do?

try to fix the bike yourself
pay for the repairs on your credit card
explain to your boss that you can no longer make it to your usual shift

It's probably best not to attempt to repair the bike yourself as it could be dangerous to ride without it being repaired. However, if you need your bike for work or school, this probably counts as an urgent expense.

If you don’t have an emergency fund saved up, and providing you can cover the minimum monthly repayments, a credit card could be a good option to help you in this situation.

Scenario 3

You are going out at the weekend and really want something new to wear. You see offers on an outfit – which one represents the best deal? The full price of the outfit is $100. Which offer is the best value?

save $25 when you spend $200 or more
30% off
buy one get one free

Buy one get one free offers the best value, but only if you want both outfits. Otherwise the 30% discount is also a good choice. Offers that promise savings when you spend more money usually just encourage you to spend more than you needed to.

Scenario 4

You and a friend decide to go on a boat trip. You will each need a ticket to travel out, and a ticket to return home at the end of the day.

Each ticket costs $50, but there are some discount options available. Which offer gives you the best value for money?

$80 total for a return ticket
30% off the full cost of all tickets
buy three tickets and get your fourth for half price

With a 30% discount, you will each pay $70, or $140 in total for both of you. This is the cheapest option.

Scenario 5

You’ve just had a birthday and your friend gave you a gift card for $50. You would like to buy a game that costs $80. There is a special 20% discount offer available, but only in a store that does not accept your gift card.

Which of the following will be the best option?

buy the game for full price (use the gift card and pay $30 cash)
take the special offer (spend $64 and save the gift card for another day)
wait until next month, when the game is likely to go into the summer sales

This is a needs versus wants dilemma. There is no one correct answer.

If you are happy to wait a little longer, you can save more money on the game. But if you really want to buy it today, you must balance whether you would prefer to use the gift card now, or save it for a better deal.

Things to think about

Whenever you're buying something, it's a good idea to ask yourself the following questions:

How much does it cost?

Does this seem like a reasonable price? Could you possibly find the same thing or something similar for a lower price elsewhere?

Have you got enough money?

Spending more than you can afford is never a good idea. Think about the other things you will need to pay for this week. Will you have enough disposable cash left over to cover this expense?

Do you need the item?

We all like to treat ourselves from time to time, but sometimes an impulse purchase is really just a waste of your money. Think about why you want to buy this item right now. If you really want it, could it wait for another day, after you’ve saved a little more money?

How will you pay?

Do you have enough cash or money in your bank account to cover this purchase in full? If you have a credit card, you might be tempted to use that. But borrowed money has to be repaid, and if you max out your card today, you could be paying back the cost for months. Is it really worth it?

What are the consequences?

If you make this purchase today, will it affect your ability to pay for other things you might need in the coming weeks? How long do you have to wait until your next payday? What might happen if an emergency cost comes up - do you have enough money aside to potentially cover it?

Managing your money is a balancing act, and sometimes you may have to sacrifice what you want in the moment, in order to see the bigger picture. The more you get into the habit of asking yourself these questions, the easier it will be to manage your money effectively - including the occasional treat from time to time!

Five spending scenarios

Answer scenario 1

Answer scenario 2

Answer scenario 3

Answer scenario 4

Answer scenario 5

Things to think about

How much does it cost?

Have you got enough money?

Do you need the item?

How will you pay?

What are the consequences?

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