If your credit card debt is growing larger than ever or you can’t seem to stick to a budget, it’s probably time to revamp your spending habits. Creating a realistic budget can help. But that’s really just a start.
To avoid being cash-strapped and constantly feeling broke, you also have to avoid some common spending traps that can put you in the hole economically.
Whether you’re in charge of managing your family’s finances, or you’re flying solo and just want to stop living paycheck to paycheck, there’s a lot you can do to reach your financial goals. But first you have to stop repeating the following five bad spending habits.
Bad Spending Habit #1: Spending What You Don’t Have
Are you the type of person who easily parts with money before it even comes in the door? Or do you regularly allow your monthly spending to exceed your take-home pay?
If so, it’s time to overhaul your spending habits.
Make the decision to only spend money you have and to limit your purchases to what’s reasonable based on your net income. That’s your take-home pay; not your gross pay.
It’s your net pay—i.e. your income after taxes, healthcare costs and other expenses have been deducted from paycheck—that really counts, because that’s the cash you actually have to work with and pay bills.
Also, don’t rely excessively on credit cards, credit card cash advances, payday loans, or other personal loans to get you by each month. Otherwise you can fall into the trap of spending more money than you realize, and never really live within your means.
Bad Spending Habit #2: Engaging in Emotional Spending
If you find yourself using shopping as an escape from the stresses of life, you’re probably an overspender who is more prone to being broke.
Many people enjoy the temporary “high” from a shopping spree. But when you do that way too often, it leads to out-of-control spending and bills that you can’t afford.
Break the habit of emotional spending by identifying triggering situations in your life that may lead you to shop. For instance, do you run to the mall when your boss upsets you or when you’ve had an argument with your honey?
Find healthier ways to self-regulate and manage your emotions so you aren’t fueling a shopping addiction and spending money recklessly.
Bad Spending Habit #3: Not Knowing “Why” You Spend
We all spend money for various reasons. Some things you “need” to buy. Other things you simply “want” to buy.
One way to keep your spending habits under control and make saving money a priority in your life is to figure out your “whys.” Why you spend may be very different from somebody else’s reason to spend.
For example, some people spend to impress others; some spend to make themselves feel happy; some spend to exert power or demonstrate prestige; some spend out of need; and some spend just because they can. The list goes on and on.
You need to figure out what is triggering those extra shopping trips or overspending activities, and why you might benefit from saving money instead.
Some introspection can be very helpful for overcoming any type of spending addiction or bad money habits.
Bad Spending Habit #4: Using Your Credit Cards Excessively
Credit cards are fine to use if you don’t max them out and if you can pay your balances off each month—or at least in a few months. The problem is: far too many people use credit cards as if they’re cash, and that fuels excessive spending.
Eliminate or minimize credit card spending so you have a better handle on managing money that you actually have.
Credit card dependency can create a false sense of financial security, and you may end up buying things that you can’t otherwise afford.
So set limits on credit card spending or eliminate them from your spending plans altogether.
You’ll also find it much easier to take control of your spending when you are buying things that you can afford and are working with an accurate “cash only” or a “mostly cash” budget.
Bad Spending Habit #5: Spending Money Without a Budget
Creating and sticking to a budget isn’t a “set it and forget it” process. Here are some tips on how to budget properly.
Take the time to review and update your budget regularly, and also review your ongoing expenses to make sure you’re staying within your budget each month.
Neglecting your budget can put you on the path to financial disaster in a very short period of time. On the flip side, by consistently evaluating your budget, you’ll get a more realistic sense of how much you are spending on basic expenses, and those “wants” you may be buying each month too.
By following the tips above—and avoiding these five bad spending habits—you’ll help clean up your financial act and won’t feel so broke so often.Lynnette Khalfani-Cox is a personal finance expert and co-founder of the free financial advice site, AskTheMoneyCoach.com. Follow Lynnette on Twitter @themoneycoach.