In a perfect world, we would all live within our means, save responsibly, pay cash for everything except our home, support worthwhile charities, invest wisely, and carry sufficient insurance. We seldom, do, though. Many of us have some bad spending habits that can be hard to break.
An honest assessment of your own habits should start to paint a picture of your money management capabilities. It doesn’t mean anyone else gets to decide your priorities — if you’d rather eat out every night than have a new car every couple of years, that’s entirely up to you. But if you’ve can’t afford both but have both anyway, or if you’ve budgeted for $250 a week for dining out and are spending more than $1,000, you have developed some very bad habits.
Have a good, hard look at your spending patterns. Do you buy when you’re upset or to alleviate boredom? Do you have no clue exactly what your income is, or how much you spend? Do you live in overdraft or put necessities like gas and groceries on a card, and then not pay it off at the end of the month?
Start keeping a money journal. Track not only what you spend and on what, but also how you felt at the time and any extenuating circumstances that led to the bad spending behaviour. Had you just gotten off the phone with your mother when you spend $100 you didn’t really have on eBay? Pay particular attention to little amounts that add up to a lot but bring nothing of value to your life, like late fees, bank charges, and interest on your debts. When you really, really realize that you’re spending $250/month on nothing, you will absolutely hate doing so.
Here are some examples of bad spending habits:
– Paying for necessities on credit
– Paying for premium brands when other brands will do
– Pay for storage; if you can’t fit all your stuff in your home, you have too much stuff
– If you occasionally come home from a shopping trip only to discover you already own the book/movie/cardigan you just bought, you may need not only better spending habits, but a professional organizer besides.
– You keep buying even when the money’s gone. If you have a certain budget for clothes, once the money’s gone, no more clothes. If that means you have to turn down days out with friends, get in the habit of turning them down.
– Robbing Peter to pay Paul. If you’re using revolving credit to make credit card payments, you’re in trouble.
– Spending what you don’t have for luxuries. Never buy vacations, clothes, jewelry, spa visits, theatre tickets or anything else you know deep down you can live without while you still have debts.
– Spending more than you make. If you are going into the hole even by $20 or $50 every month, find a way to curb some spending to make up the shortfall. Small amounts add up to big debts.
To rehabilitate your spending behavior is not an easy task. As with dieting, you can’t live on willpower alone — white-knuckle budgeting seldom works, at least in the long run. “Make more” and “spend less” are oversimplifications. To really change your bad habits takes replacing them with new, better habits.
– Have only the amount you intend to spend with you, and leave the credit cards at home. If you go out intending to spend $80 on a pair of new summer shoes, take $80 with you when you go shopping.
– If you’re prone to impulse purchases, make yourself leave the store, go home, and then go back the next day if you can’t live without it. Ask yourself: Do I need it? Do I already own something like it? Do I have a place to put it?
– Avoid temptation whenever possible. If you can’t handle a trip to the mall without coming home with three new books, a few highlights in your hair, and a three-course meal in your belly, don’t go to the mall.
– Make a list of your financial goals, including amassing six months in emergency savings, and display it prominently in your den or kitchen. Don’t give up what you want for want you right now — what would you rather have? A new car, a swimming pool or a trip to Spain, or a $4 espresso on the way to work every day?
– Be mindful of the real cost of what you’re buying in the most limited currency we have — time. It’s harder to spend money foolishly when you connect it to how hard-won money really is. Even if you make $100/hour or more, you’re still exchanging your life for material goods. Before you order the surf & turf, ask yourself if the steak and lobster dinner is worth an hour of your life. If it is, go ahead and enjoy it. If the idea of trading an hour of your life for a meal that won’t even take that long to eat makes you a little queasy, don’t do it. If you spend $100/month on gourmet coffee and make $20/hour, ask yourself if it’s worth five hours of your life every month to drink fancy lattes.
– Leave your credit cards at home. If you want to keep an emergency card with you, knock the credit limit back to about $500. At least then if you do get yourself in trouble with it, it won’t amount to much.
The biggest favor you can do yourself when it comes to spending is to become mindful. When you realize what things really cost — once you factor in the time you spent earning the money and the interest you’re going to pay to charge it — you’ll think twice before you buy.