When was the last time you’ve asked yourself why you were purchasing a pair of shoes, or a laptop? Chances are that if you were like me, you probably don’t remember.
This is not a rant of me telling you how you should spend your money, but we should all become aware with our spending habits. This will allow us to gain more control with our spending, and help us build financial security. Here are 5 common reasons why we spend our hard earned cash, and how you can avoid overspending to pay off your debt faster.
We all love a good sale from time to time. The problem arises when we spend more money within our means. This occurs mainly because of the sense of urgency advertisements create. You might see commercials using phrases such as “limited time only”, “holiday deals”, and many more. Because you don’t want to miss a certain sale, you might decide to purchase many items without realizing that it’s not within your means.
Only because you can afford something doesn’t mean it’s within your means. What’s within our means? This type of budget varies for everyone, so a good rule of thumb is to stick with the 50,20,30 budget technique. Stick to your budget, and hold off in purchasing any items you want until it’s within your means.
2. Friends Influencing Us
It becomes easier to spend money when you have company. When you’re out with friends you naturally want to spend more money, or you become influenced to do so. It’s kind of hard to deny purchasing that new apple watch, when 2 of your buddies are searching for one at the apple store.
I personally became influenced to purchase an apple watch just because one of my friends convinced me to. If I would have known what I know today, I would have waited on this purchase. Set your budget before you go out with friends, and stay committed. This way you are less likely to become influenced into purchasing items you don’t necessarily need.
3. Competing with others
Are you trying to keep up with others? Many times we find ourselves purchasing items for the main purpose to impress others. Maybe you saw someone at school, or work with a watch you’ve been wanting for the past few months. Eventually, you decide that you’ll get one for yourself as well.
Ask yourself the following question:
Will it be worth paying this item for the next month(s)?
How much will this item be worth in the next 3 years?
Answering these questions will help you filter out items that don’t provide enough benefit for you.
4. You’re bored
You may have excess cash flow that you don’t know where to invest it in, or you’re just bored on a Friday night. So what you do you? You go out with friends and easily spend $50+ on a single night. You may even argue that you don’t spend a lot daily, but the numbers add up.
It’s not common to say “I’ll invest this extra cash”. Have a purpose for each dollar you earn, and you’ll be more inclined to invest it towards building your financial security.
5. You feel like you’ve earned it
You’ve been hustling extremely hard for the past month, so you deserve a new IPhone? This is very common, and it’s easy to overspend your money. Just because you’ve been working hard doesn’t mean you should let that hard work go to waste. It may feel good buying new pair of shoes, but the excitement only lasts for a few days at most.
You have to create small, and big financial goals for yourself. Otherwise, any little distraction can jeopardize building your financial security.
I have also become victim to this mentality. There have been weeks that I felt because I have worked hard I deserved new to buy a new Amazon item. Today, most of these items that I’ve purchased in the past are in the shelf collecting dust. (not cool)
How to avoid it
It’s good to know what impulses cause you to spend your money the most, but it’s useless without any action. It’s challenging to avoid most of these impulses. If you were train yourself to not have them, it would take the joy out of spending your money. After all the problem isn’t with what you feel, but what happens when you feel this way.
A great tactic that I’ve personally had success with has been leaving my credit card at home. With today’s online capabilities there’s really no reason to worry about being low in cash. For example, I have multiple checking accounts that I use for bills, and daily allowances. If I ever run out of cash from my daily allowance account, I can easily transfer funds in a matter of seconds.
One of the main reasons I used to carry a credit card was for unexpected emergencies. However, the only emergencies I’ve come across the most was deciding if I should buy a new watch, or pair of shoes. Having a credit card gives you more opportunities to purchase unnecessary items, so have it out of sight.
If applicable open a second checking account where you can easily transfer funds to cover truly unexpected emergencies. I wouldn’t recommend carrying large balances in both checking accounts because then you’ll easily end up depleting all of your money from both accounts. Instead, try using this account to pay all your bills, and keep an extra $50-$100 for emergencies. If you truly need more funds, you can use your savings account to cover you. The goal here is to commit to your budget, and avoid overspending your money with unnecessary items.
Set short-term goals
Let’s face it, if you have no goals there’s nothing to look forward to. Plus, you’ll also won’t know if you’re overspending or underspending your money. You can start off with simple goals, such as building a “rainy day” funds account. This is the account you may have learned about when you were younger, but never got around to building.
Tip: Choose to build 3-6 months of your salary into this account. You can even set it up to transfer automatically from your checking account to your savings account after each paycheck. This will ensure that you build consistency
Last Pieces of Advice
You’re now more conscious with some of the top reasons you impulsively spend your cash. My advice is for you to practice some of the techniques described above. A simple way to start paying down your debt quicker is to spend less. You can start today by simply taking out your wallet, and removing all of your credit cards. Don’t become overwhelmed with how much work it will take, or if you’ll be able to pay off all your debt. Every success story begins with small actions, and a few bumps along the way.
Setting short/long term financial goals is great, but it’s so much more than that. You have to have a bigger “why” behind your goals. What separates successful people from everyone else is persistence. Find out your “why”, and stay strong along the way.
I truly believe that you can accomplish paying off all of your debt, and anything else you want in life. You just break down your goals into daily actionable steps.
All the best in your journey!
Questions for you:
What does financial freedom mean to you?
For what do you use your credit cards the most?