Take the time to give an honest answer to this question: "Are you mismanaging your money?"
Though your first reaction may be to say "no," upon more reflection you might have to reply "yes," especially if your spending continues to outpace your earnings.
To avoid making the same mistakes over and over, try to identify your bad money habits and eliminate or at least curtail them. Consider these six common problems:
1. You let emotions rule. Do you shop to relieve stress, escape boredom, or entertain yourself? Do you experience anxiety, guilt, or remorse after shopping? You could be an emotional shopper, genetically programmed to spend excessively. The trick is to keep emotions from getting in the way so that you buy only what you need. One option is to give yourself a cooling off period of a couple of days before making a major purchase to determine whether it’s really worthwhile.
2. You feel entitled. Maybe you feel you deserve more than you have regardless of how much you earn or what you own. Why should you be deprived of a top-of-the-line car or your dream house? But smart money-managers train themselves to shy away from such notions and buy only what they can afford.
3. You crave instant gratification. If you need to get things right away—the latest electronic gadget or designer clothes—you may pay a premium, plus interest on any amount you need to borrow. That’s a sure-fire way to sink deeper into debt. If you resolve to pay cash for all your purchases you may be able to hold back and consider the big picture.
4. Your self-worth is defined by possessions. Advertising pitches are designed to make you believe you’ll be happier if you buy particular products. But you’re much more than what you own, and if you can remind yourself of that, you may be able to look at prospective purchases in terms of whether they answer actual needs.
5. You’ve become complacent. Many people have the tendency to accept the status quo, even if that means continuing to pile up debts. Complacency is a dangerous emotional state because it lets you disassociate the pleasure you get from buying from the pain you’ll feel when the credit card bill arrives. Realizing that you need to change is the first step toward making it happen.
6. You don’t have a plan. Those with bad money habits tend to look at what they earn, spend, and save as separate things rather than acknowledging that they’re all tied together. Creating a budget and a retirement savings plan, and sticking to it, are essential. Otherwise, mounting debt becomes a self-fulfilling prophecy.
One way to teach yourself better money habits is to try to run your personal affairs like a business. Set aside reserves for emergencies and allot funds for retirement saving on a monthly basis. Make a few important changes and you’ll see the difference very soon.
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