As everybody does, we all live within our means in order to accomplish our financial goals. Doing so requires spending less than we earn and then investing our “savings” intelligently (unless you plan on winning the lottery or receiving a large inheritance). Sounds easy, right? But the rest of us often forget [or act as if we forget] that to put ourselves in a position that allows us to start saving, we would need take a close look at our spending habits. Many folks earn just enough to make ends meet. And some can’t even do that; they simply spend more than they make. The result of such spending habits is, of course, an accumulation of debt.
Most of the influences in society encourage us to spend. Think about it: More often than not, we’re referred to as a consumer in the media and in the hallowed halls of every government on the planet. We’re not referred to as a person, a citizen, or a human being. Here are 5 adversaries we’re up against as we attempt to control our spending. Read on…
Habit-1. Spending To Outside Agendas
You go out with some friends to dinner, a ballgame, or a show. Try to remember the last time one of you said, “Let’s go someplace (or do something) cheaper. I can’t afford to spend this much”. On the one hand, you don’t want to be a stick in the mud. But on the other hand, some of your friends have more money than you do — and the ones who don’t may be running up debt fast.
Some people just have to see the latest hit movie, wear the latest designer clothes, or get the newest handheld personal digital assistant. They don’t want to feel left out or behind the times.
When was the last time you heard someone say that she decided to forego a purchase because she was saving for retirement or a home purchase? It doesn’t happen often, does it? Just dealing with the here-and-now and forgetting your long-term needs and goals is tempting. This mindset leads people to toil away for too many years in jobs they dislike.
Living for today has its virtues: “Tomorrow may not come”
Will you still feel the same way about today’s spending decisions tomorrow? Or will you feel guilty that you again failed to stick to your goals? Your spending habits should be driven by your desires and plans, not those of others.
Habit-2. Spending To “Feel Good”
Life is full of stress, obligations, and demands. “I work hard” you say, “and darn it, I deserve to indulge!” Especially after your boss took the credit for your last great idea or blamed you for her last major screw-up.
So you buy something expensive or go to a fancy restaurant. Feel better? You won’t when the bill arrives. And the more you spend, the less you save, and the longer you’ll be stuck working for jerks like your boss!
Just as people can become addicted to alcohol, tobacco, television, and the Internet, some people also become addicted to the high they get from spending. Researchers can identify a number of psychological causes for spending addiction, with some relating to how your parents handled money and spending when you’re still a kid.
The next 3 are even more dangerous, so I would urge you to continue reading….
Habit-3. Having Access To Credit
Spending money is easy. Thanks to innovations like ATMs and credit cards, your money is always available, 24/7. Larger retailers pitch their own credit cards, and so does the gas station across the street. Sometimes it may seem as though lenders are trying to give away money by making credit so easily available, but…
But, this free money is a dangerous illusion!
Credit is most dangerous when you make consumption purchases you can’t afford in the first place. When it comes to consumer debt (credit cards, auto loans, and the like), lenders aren’t giving away anything except the opportunity for you to get in over your head, rack up high interest charges, and delay your progress toward your financial and personal goals.
Habit-4. Misusing Credit Cards
The credit industry has been booming along with the boomers ever since. If you pay your bill in full every month, credit cards offer a convenient way to buy things with an interest-free, short-term loan. But if you carry your debt over from month to month at high interest rates, credit cards encourage you to live beyond your means.
Credit cards make it easy and tempting to spend money that you don’t have.
You’ll never pay off your credit card debt if you keep charging on your card and make only the minimum monthly payments. Interest continues to pile up on your outstanding debt. Paying only the minimum monthly payment can lead to your carrying high-interest debt on your card for decades (not just months or years)!
FYI: Some credit cards are now trying to sell card holders “insurance” at a cost of 10 percent annually to pay the minimum payments due on credit card balances for those months that the debtor is unable to pay because of some life transition event (such as a job layoff). One such card normally charges a 13-percent annual interest rate on credit card balances, so with the insurance charges, the annual interest rate is 23 percent!
If you have a knack for charging up a storm and spending more than you should with those little pieces of plastic, only one solution exists:
Get rid of your credit cards. Put scissors to the plastic. Go cold turkey. You can function without them!.
Habit-5. Taking Out Car Loans
Suppose you’re tired of driving around in your old clunker. The car is battle-scarred and boring, and you don’t like being seen in it. Plus, the car is likely to need more repairs in the months ahead. So off you go to your friendly local car dealer.
You start looking around at all the shiny, new cars, and then — like the feeling you experience when spotting a water fountain on a scorching hot day — there it is:
Your new car
It is sleek and clean, and has air conditioning, a stereo, and power everything [not only the ‘steering’]. Before you can read the fine print on the sticker page on the side window, the salesperson moseys on up next to you. He gets you talking about how nice the car is, the weather, or anything but the sticker price of that car.
“How” you begin to think to yourself, “can this guy afford to spend time with me without knowing if I can afford this thing?”
After a test drive and more talk about the car, the weather, and your love life (or lack thereof) comes your moment of truth. The salesperson, it seems, doesn’t care about how much money you have. Whether you have lots of money or very little doesn’t matter. The car is only $399 a month!
“That price isn’t bad” you think. Heck, you were expecting to hear that the car would cost you at least 25 grand. Before you know it, the dealer runs a credit report on you and has you sign a few papers, and minutes later you’re driving home with your new car.
Walking onto a car lot and going home with a new car that you could never afford if you had to pay cash is easy. The dealer gets you thinking in terms of monthly payments that sound small when compared to what that four-wheeler is really gonna cost you. Auto loans are easy for just about anyone to get.
The dealer wants you to think in terms of monthly payments because the cost sounds so cheap: $399 for a car!
But, of course, that’s $399 per month, every month, for many, many months. You’re gonna be payin’ forever — after all, you just bought a car that cost a huge chunk (perhaps 100 percent or more) of your yearly take-home income!
But it gets worse. What does the total sticker price come to when interest charges are added in? (Even if interest charges are low, you may still be buying a car with a sticker price you can’t afford.) And what about the cost of insurance, registration, and maintenance over the seven or so years that you’ll own the car? Now you’re probably up to more than a year’s worth of your income. Ouch!