We all have our bad habits when it comes to finances. For some of us, it’s eating out too often and for others it’s charging everything to a credit card. Over time, these bad habits can put us in real financial distress if not handled appropriately.
Overspending is one of the world’s biggest challenges, especially with credit cards making it so easy to do so. Adam Juda of TapRun Consulting has a few practical tips for minimizing overspending:
“First, don’t think in terms of dollars when making a purchase,” according to RISE. “Think in terms of hours of work: A $50 trip to a restaurant may not sound like much, until you realize it takes three hours of work to pay for it.”
They continue, “Next, get rid of your credit cards and use cash instead. Constant trips to the ATM should make your spending rate more obvious to you. Also, write down how much you charged and what you purchased in a notebook. Read the list every day to remind yourself of how much you’re spending. You can also consider lowering your credit limit. You can’t overspend if your limit is relatively low. Lastly, always ask yourself ‘Is it worth it?’ before making a purchase.”
- Charging Everything to Your Credit Card
Credit cards are not free money, but people tend to treat them that way. With this bad habit, you’ll quickly develop a large negative balance that will be hard to pay off.
To combat this issue, treat your credit cards like debit cards. Every time you charge something, pay it off immediately to avoid a negative balance.
If that’s not enough to keep you away from the cards, cut them up or take them out of your wallet. Only use them for emergencies.
- Ignoring Bills
It’s stressful to keep up with all your monthly payments, but ignoring them will create even more stress. Bills won’t go away just because you don’t pay them, and the consequences aren’t worth it. Not only will you accrue a large, unpaid balance, but you’ll also have late fees and interest charges.
Not paying your bills will also damage your credit score, which makes it hard to gain financial freedom. You might also face debt collectors and bankruptcy—both of which are very difficult to recover from.
Use organizational and financial apps like Prism to pay your bills. You can also set up automatic billing and Bill Pay through your financial institution to never miss another payment.
- Impulse Buying
Just because you see it doesn’t mean you need to have it. If you haven’t carefully planned a large expense, it’s better to leave it on the shelf. Small purchases can also add up very quickly, making it difficult to stay on top of all your financial obligations.
- Buying to Keep Up
It’s hard to ignore the fact that your neighbor or friend has nicer things than you do, and it’s easy to try to buy your way to their level. That’s fine to a certain extent, but don’t let it get out of hand.
“Competition is a psychological trigger that can cause spending, and keeping up with the Joneses – or competing against family members, neighbors, or friends – can lead you to overspend,” says Jacqueline Curtis of Money Crashers.
“It’s important to remember that success is hard to measure from the outside,” Curtis continues. “When you see a neighbor pull up in a shiny new car, remind yourself of your priorities and goals. No one can see your retirement account balance, but you know that you’re working to secure a comfortable future by contributing to it, instead of that new watch.”
- Living Beyond Your Means
When you get a new job that improves your financial status, your spending tends to increase. Suddenly, a can of soup and a grilled cheese sandwich doesn’t compare to a $20 plate of sushi every day for lunch.
As your spending increases, so will your desire to live beyond your means. Resist the urge to live an inflated lifestyle. Remind yourself that not much has changed, and try to keep your spending at a manageable level.
- Limiting Your Earning Potential
One of the biggest mistakes people make, especially early on, is failing to invest in their future. They have the potential to make a lot for retirement, but because they don’t plan ahead, they miss out.
According to Ann Marie Houghtailing, author of “How I Created a Dollar Out of Thin Air,” investing can start out small and yield huge dividends.
“I used to catch myself saying, ‘Investing is hard. I just don’t understand it.’ This gave me permission to avoid learning how to invest,” wrote Ann Marie Houghtailing, “Now I say, ‘Investing is a skill. You just have to start small.’”
- Associating Money with Happiness
Too many people believe they won’t find happiness until they achieve financial freedom. They dream about their next big purchase, and they fail to feel joy in the now.
There’s a certain satisfaction and peace that comes with making smart purchases, but it won’t be what ultimately increases your happiness. If you’re not happy now, buying something won’t change that. The sooner you can recognize this essential truth, the sooner you can break bad spending habits.
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