We all like having money, and we all like spending them. Yet did you know that the little things that we use our hard-earned money on can spell problems for our bank account?
Our spending habits say a lot about ourselves. It shows how much we care about our bodies and welfare with the products that we buy. However, there are instances when what we purchase do not bode well for our finances. Let’s take a look at these habits and see how they negatively affect our bank account.
Giving in to impulse buying. This is one of the biggest pitfalls anyone can have when it comes to bad financial habits, regardless of whether you use cash or credit. Window shopping is a harmless enough activity, only if you truly do not have anything with you that will cause you to spend (meaning, no cash or credit cards). Maybe giving in once (once a year, maybe?) is acceptable. But if you give in to these urges every time you go out; if your closet is bulging with things you bought but don’t really have a use for, you need to curb your impulse buying.
The solution: When you go out, bring only enough money for your needs. Don’t bring a credit card especially if you’ll be going to a place where the temptation to shop is strong. For emergencies, just add an addition 10% to your budget for the day. If it doesn’t get spent, consider putting it into your savings. And if you’ve got a lot of purchases that are still in their wrappers, consider having a garage sale and adding whatever you earn from that into your savings too.
Not keeping track of your credit card expenses. Having a credit is a great thing. It gives you more buying power. The opportunities to be able to get the things you want are quite endless. The downside? Not keeping track of what you’re spending it all on creates a huge pile of debt for you. The bills rack up, not just for the cost of the item or service itself, but also for the interests and other fees. Plus, you end up shelling out more than you have to because of all these added expenses.
This includes not knowing the fees your credit card company charges you for each transaction, for each late payment, or for every time you go beyond your credit limit.
The solution: Collate all your bills, outstanding or otherwise, and see how much you owe. Next, hold off all other spending until you’ve paid off your existing balance. Find a method or system to pay off your debt that will work best for you. One such system is the “debt snowball”. Starting with your smallest bill, think of an amount you can easily add to the minimum amount due. Pay off the bill and move to the next. Add the amount you used with the previous bill to this bill until you pay it off. Keep doing this until all your bills are paid. Note that you have to stop using your credit card for the duration.
Trying to keep up with the Joneses. In this day and age, it’s hard not to be envious of the cool things other people are buying or doing. You see your coworker with a spiffy new mobile, and you want one too. Your neighbor went on a vacation to the Bahamas, you’d like to go out of town too. The thing is, trying to keep up with what everyone is buying or doing will create problems with your bank account. Sure, you can charge them, but once those bills pile up, you’ll wish you didn’t give in to envy at all.
The solution? Evaluate your envy. Do you want the same thing they have, or are you all right with a more affordable but equally satisfying alternative? Once you know the answer to that, you’ll be able to curb your expenses and work your way to getting what you want. Who knows? They might end up envying you for what you have.
Spending more than you can afford. This is a trap we all get in to so very easily. It’s closely related to the previous habit of keeping up with the trends and other people’s spending habits. The tendency to shell out more than what we can afford is what buries us deep in debt.
The solution: Set up a small fund where you can stash some money. Call it your “splurge savings”. Think of how much of your monthly budget can you set aside for these savings. Make a goal, either a certain amount or an item you want to purchase, and build towards the amount. Once you have enough, use it to get what you want. It make take some time, but on the upside one, you got what you wanted and two, you’re not in debt.
Buying what you don’t need. Again, it’s closely related to the previous items and it’s another habit that can create problems for your finances. So maybe you’re not an impulse buyer. Maybe you don’t really keep up with what the neighbors are doing or you’re buying things that are within your budget. The question is, are the things you are spending your money on are things you really need? Many people are able to work well with a budget but sometimes, half of the things they buy are not necessities.
The solution: Double check your expenses for name brands against generic and less costly alternatives. Their effectiveness is just the same, and at a lower price. If you can cut these out of your expenses all together, so much the better.
Not having any financial goals. It’s simple enough to say “Oh, I’ll set aside a couple of hundred dollars each payday,” but if you have no clear purpose for that money, there’s a chance that you’ll end up spending it once you reach a substantial amount. You’ll never run out of money, but your finances will never be stable either.
The solution: Take a step back and think about what you want to accomplish with your finances. Do you want to save up for a big expense or investment, like a house or a business? Think long term. It’s one thing to save up for a splurge, it’s another thing to save up for your future.
It’s the little things that matter the most, they say. It applies to your finances as well. Watch out for the little habits that slip by unnoticed, but can create problems if left unchecked. Here’s to a healthier bank account!
Cathy is part of the team that manages http://www.australiancreditcards.com.au a complimentary loan comparison service and a personal finance blog based in Sydney, Australia. Before she joined PLF, she was a staff nurse at Clark Airbase Hospital and conducted lectures on First Aid, Bio-terrorism and Disaster Management.