Spending and consumption

Needs and wants

You have enough clothes in your wardrobe, but when you go shopping, you still buy that T-shirt and that new pair of shoes. Your fridge is full, but you still want to eat out tonight. You might ask yourself: Are these expenses really necessary? Do I not have enough things at home? And yet the desire to buy new clothes and eat out is stronger.

Needs and wants are important concepts when it comes to consumption (spending) as they influence what people need, want and ultimately buy. Needs arise when people feel that they lack something, causing a desire to get what they do not have. Therefore, needs give rise to wants that lead to the consumption of products and services.   

Needs can, among other things, be categorized according to their nature and urgency. Satisfying some needs, like the need to eat and drink, is necessary for survival. They are called basic needs. Satisfying other needs, such as going to a concert or reading a book, is also important to us, but it is not necessary for survival. Many needs can be satisfied with products and services that businesses offer. However, there are also needs that cannot be satisfied with money. One example is the need to have good friends.   

Consumption (habits)

Consumption involves using (up) goods. Everything that people buy and use up is therefore part of their consumption. When we buy clothes, go to the hairdresser or buy groceries, we engage in consumption. Everyone has their own consumption behavior and habits that are shaped by their lifestyle, preferences, tastes, social environment and other factors. 
The following factors can determine consumer behavior and habits:
 

• Income: Disposable income places a limit on consumption.
• Purchasing behavior: A consumer’s usual behavior throughout the shopping process (Are their purchases thought through or spontaneous? Do they buy the same things repeatedly? etc.)
• Purpose of consumption: What need does the purchase intend to satisfy?
• Urgency of the purchase
• Preferences and experiences: Preferences for certain products and services or brands (brand loyalty), past experience
• Information at your disposal: The ability to make rational purchasing decisions (rational consumption) depends in part on the availability of information on companies, products and services
• Social influence: Opinions of family members, friends, co-workers and, increasingly, of influencers; people often consume (or do not consume) certain products to show that they belong to a group or have a certain social status (conspicuous consumption)
• Compensation: Sometimes people engage in consumption to distract themselves from their problems even though they do not actually need the goods or services (compensatory consumption)
• Reward: Sometimes people also engage in consumption to reward themselves, for example for passing an exam or completing a project
• Technological progress: For example, the digital transformation is creating new products and services that can be consumed
• Sales techniques/marketing: Marketing, especially advertising, creates needs and desires for certain products and services
• Sustainability: Some consumers pay particular attention to purchasing environmentally and socially sustainable goods, for example second-hand products and products that are particularly durable

Tips on how to plan your spending   

It is important to pay attention to how much you spend on which products and services  and to reduce certain expenses if necessary. This way, you can ensure that you do not spend more than you earn and that there is enough money left for necessary expenses. Additionally, spending plans can also help you save money and pay off your debts faster. Consider the following tips for spending plans in order to avoid or reduce financial strain:

Create a budget and stick to it 

Creating a budget will help you set financial limits for certain spending categories and stick to them. By doing this, you can save money and use it for other (more important) expenses.

Set priorities

You should prioritize your expenses by their necessity. First, you should pay for basic needs such as food, rent, energy and education. Only if you have enough money left, you can buy other things that are not absolutely necessary. Prioritizing expenses is particularly important if you are on a tight budget. 

Avoid impulse purchases and compare prices 

You should avoid spontaneous and ill-considered purchases. Therefore, you should make sure to take enough time to consider whether you really need the product or service and whether you can afford it. In addition, you should compare different offers to find the right product or service at the best price (value for money). If you buy things that are relatively expensive, it is a good idea to take some time to think about it. It can also help to think about what better and more important things you may be able to afford in the future if you can avoid an unnecessary purchase.

Avoid “Buy Now, Pay Later”

With Buy Now, Pay Later-Offers, you can get products immediately and pay for them later, sometimes in installments (see below). However, this payment method can tempt you to spend more money than you can actually afford at the moment. It is therefore important to consider whether you will be able to make the payments that are due at a later date. Otherwise, you will face additional costs such as  reminder fees or default interest, increasing your expenses.

Avoid installment purchases 

Installment purchases can also tempt you to spend more money as they allow you to buy high-priced products like TV sets and cars immediately and pay in monthly installments over an extended period of time. Again, you should think about whether you will be able to afford the monthly installments on time and in full to avoid additional costs. In addition, paying in installments is usually more expensive than buying outright.

Read contracts carefully

Long-term contracts and subscriptions entail long-term financial obligations. As a general rule, you should keep your monthly fixed costs as low as possible, for example by buying outright rather than paying in monthly installments. For example, many gyms give you the option to make a lump-sum upfront payment, and that is often the less expensive option to buy a membership. With streaming services, you do not have that option, which is why it is even more important to read the contract carefully. Pay attention to hidden fees, return policies, notice periods and other costs. When you compare offers, you should always consider the total costs rather than just the monthly fees. 

Reduce “small” expenses in everyday life 

Small everyday items that you buy regularly or almost daily (like take-away coffee or breakfast from a bakery) can add up and significantly increase your monthly expenses. It is a good idea to cut back on these “small” expenses.

Sustainable consumption 

Sustainable and conscious consumption can also help you save money. Re-using and repairing items as well as buying long-lasting products are effective ways to minimize the environmental impact and save money in the long run. Buying refurbished products, especially electronic devices, can be a sustainable alternative to new products and help reduce electronic waste. Buying second-hand products can reduce your expenses and selling second-hand products can generate additional income. You can also make your food consumption more sustainable and save money at the same time. In many cases, seasonal products have lower prices. Another option is to buy food that is in perfect condition but would need to be thrown away due to various rules. Some companies sell such products at lower prices, and buying them helps reduce food waste too.

Use support services 

Groceries are a major cost, but there are things you can do to reduce your monthly groceries bill. One option to save money is to consume more sustainably, as mentioned above. People on low incomes can make use of support services. Recipients of minimum income benefit, unemployed people, retirees and low-income families can also buy food at low prices at soup kitchens, food pantries and stores selling food at below-market prices, such as those run by Caritas or SOMA.

Buying furniture or clothing can also be expensive. The Carla second-hand stores offer such products at affordable prices. 

Take advantage of discounts and special offers 

Although discounts and special offers often intend to tempt us to make unnecessary purchases, it is a good idea to wait for discounts and promotions if you plan to buy things, especially big-ticket items. In addition, certain demographics (university students, apprentices, families and their children, senior citizens, people who receive minimum income benefit) can get discounts on many products and – especially – services. This could also allow you to reduce your spending.

Online shopping risks 

Online shopping is convenient but there are a few things you should keep in mind. Online shopping opens up more opportunities for fraud, compared to stationary retail. As you cannot check in advance what you have ordered, there is a risk that you might get counterfeit or substandard goods or, in more extreme cases, nothing at all. You should therefore always shop at trustworthy stores whose name and reputation are known. In addition, you should access online stores directly and not through links. When shopping online, there are a number of payment methods you can choose from. You should use secure payment methods such as credit cards. Also, you should not disclose personal (financial) information on unsafe and unknown websites. 

Build an emergency fund

If at all possible, individuals and households should have sufficient financial resources to deal with emergencies. An emergency fund can help you cover urgent expenses (medical costs, repairs, etc.) at short notice. Otherwise, you would have to make use of other financing options such as loans that would result in additional costs. Even small amounts can make a difference, so every euro counts.