Understanding Expenditure Patterns

Understanding Expenditure Patterns

Many times, I’ve had people come to me trying to understand why they do what they do, why they spend what they spend and why they are unable to manage their finances the way they want to. Now, I have always known that as human beings, we are creations of habit with enormous influence from friends and peers. Sometimes, when you dig deep, you will realize that what influences our expenditure patterns have little to do with what is obvious. Understanding why we think and act the way we do is a critical first step to financial wellness.

As a business developer in the 90s. I was part of a research team to establish why a particular beverage drink was very popular in a particular region in Nigeria. Our initial perception was that it had something to do with the taste or quality of the product. You see, we desperately wanted to give ourselves credit that it was because of our hard work that the product was selling and increasing revenue. The results were shocking. While the quality of the product was not in doubt, it was surprising that the number one driver of sales for the product in that particular region was the colour of the cap. Unfortunately, this fact did not match the top decision maker’s idea of “re-branding”, so they paid little attention to it all to the detriment of the brand. (I will share more about this in a different post about market intelligence). In other to change anything, you need to understand it first.

There are certain factors that impact and influence our expenditure pattern and hence our personal finance. I will attempt to list some of them.

1.     Lifestyle choicesThis is perhaps the biggest and most significant factor influencing expenditure.


-        Choice of residence - Where you live, impacts your income and expenditure. If you decide to live in the outskirts of town, rent will obviously be cheaper than if you decide to live within the metropolis. Ultimately, it boils down to the quality of residential living that you desire.

-        Quality of Education for your Children—The quality of education you desire for your children will also impact your pocketbook. Private school education will always be more expensive than public school and even private schools have grades. The higher the grade the higher the cost. If you are the type that places a premium on the quality of education, then you won’t mind paying more to educate your children.

-        Choice of Automobile—When I was much younger and I was asked the question, ‘what kind of car would you like to drive?’ I recalled I always answered by saying ‘any car that can take me from here to there’. As I grew older and income increased, that answer began to get more defined. Our choices of the automobile we wished to drive can influence our expenditure pattern.

-        Getting Married – Getting married has the implication of changing your lifestyle. The one-room apartment is no longer enough, you need a 2 bedroom. Married couples are likely to have children and having children changes everything. I always say whenever you see children, just put a dollar sign beside their image in your mind. Because as adorable as they are, they are expensive.

-        Self-Actualization – We are all familiar with Maslow’s hierarchy of needs. The highest is self-actualization. At a point, a person's needs shift from physical to more psychological ones. For instance, a social elevation, e.g. a chieftaincy title, a professional fellowship or a political appointment can impact your choice of where to live, the cars to drive and even where you vacation.


2.     Personality: Believe it or not, our different personality profiles play a role in our expenditure patterns. For instance, if you are a phlegmatic like me, you are likely to want to take things easy. You will probably avoid stress and will make choices that will give you less stress. I remember when we were house hunting many years ago. My wife is the choleric type. She has loads of energy and was ready to check out different houses and locations anywhere in town. For me, it was much simpler. We already had a budget, we had identified our preferred location and we had provided the agent with the specs we needed. My expectation is that we should only be invited to inspect if they found anything that matches those specs. It was never the case, because day after day, they kept taking us to different properties that were clearly over our budget or in locations that we didn’t specify. It didn’t take long for me to get tired and stressed out. I wanted everything to end. On the day we eventually settled for a place, I had told myself that day that I was basically just going to settle for whatever we saw, I couldn’t imagine doing another day of house hunting.


Our personalities play a key role in our decision-making process. Someone who is considered in local parlance a “hustler”, might not have a problem building in a “certain part of town” because he considers it a stop-gap until he is able to gather enough money to build his dream home in the metropolis. The mistake anyone with a rather tepid personality will make is to think that he can do the same and find satisfaction. We are all wired differently.


3.     Visioning: In my book “Honey, is it in the budget?” I mentioned three key points in the journey to financial wellness. The last key is the ‘Value of a Common Vision”. Your vision plays a key role in influencing your expenditure pattern. If you envision yourself in a particular space, chances are that you will gravitate towards actualizing that vision. The idea of a dream car, a dream house, a dream job and even a dream vacation brings this more into relevance than we would admit.


4.     Sacrifice: The extent to which we are willing to sacrifice usually impacts our expenditure pattern. I know a couple who sold their only house just so that they can send their kids to study abroad. All the kids went to top schools abroad (John Hopkins, Imperial College, etc.) at the cost of the parents selling their house to go live in a rented apartment. Some might say this is extreme, but who are you to judge the level of their sacrifice in order to achieve what they prioritise?


The point is this. There is no right or wrong vision or right or wrong sacrifice. The choice of lifestyle of people is personal to them as well. The guy who sacrificed at great cost to live in a particular area should not be seen as stupid by another person just because he was able to use the same amount of money to buy a property in a “cheaper” part of town. What is important to you might not be important to me. And because I am willing to pay a premium to have what is important to me doesn’t make me a bad financial manager. It is all about perspective.

Sometimes, in our attempt to preach financial wellness, we make people feel guilty for the decisions they have made. What we must always emphasize is personal responsibility and effective management of financial resources. We must never judge people unfairly by the decisions they have made. If you are not wearing their shoes, you cannot know where it pinches. Don’t compare yourself to another. Run your own race and fight your battles. At the end, everybody dies and leaves everything behind. The point is to make the best of every situation you find yourself in per time. We all have different values driving us. What is important to me might not be important to you. So don't judge another person by who you are, judge them by who they are.