If you’re reading this, chances are you’re already worried that your spending is out of balance. And if you’re worried, then you’re probably right. If you’re the kind of person who pulls out your credit card at the drop of a hat, or you always grab those impulse purchases without a second thought, then you probably are spending too much. This isn’t a problem if you pay your bills on time, have comfortable savings and pay off your credit card balance each month, but if you’re constantly struggling to stay on top of your finances you could be heading for trouble.
Need to take a good hard look at yourself and your spending habits? Here are a few red flags that your spending is out of control.
Five warning signs about your spending
1. Do you pay for necessities on credit?
Are you buying food and necessities every month on your credit card, because you’ve already spent all your cash? This is a bad sign as you should try to live within your means. A credit card isn’t your money – it’s a high interest loan – so you should only need it for emergencies or the occasional, well-earned treat. And you should pay off the balance every month. Otherwise the debt will quickly mount up and you’ll find it really hard to escape as your monthly payments increase.
2. Are you late paying bills and finding that they mount up?
Do you get sweaty when another bill arrives in your post box? Do you stack up unopened envelopes telling yourself you’ll deal with them later? Do you always pay your bills at the last minute because you don’t have enough funds available to pay on time? These are big warning signs. The last thing you want is to risk losing necessities, like power, phone and internet because you can’t meet your financial obligations.
Can’t pay the rent but somehow manage to have a big night out with your mates, or outlay a small fortune for that new dress? Your spending is definitely out of control.
Set up automated payments or direct debits to spread the cost of your bills throughout the month. Often you get discounts for settling your bills on time (and you certainly save on late payment fees) so it makes sense to put these ahead of your other spending.
3. Are you only making minimum repayments?
Is your credit card balance climbing up, but each month, all you can do is meet the minimum payment? Over time that card is going to cost you a small fortune as you will be paying maximum interest. You are way better off clearing the balance each month and taking advantage of the interest-free period. If you can’t manage that, at least bring it down as much as you can each month to minimise the interest. Credit cards are often the most expensive debts you can have, so it’s best to pay these off as soon as you can.
4. Are you earning good money but have no savings?
We know it can be tough to save when you don’t have much coming in. But plenty of people earn decent money and still have big debts and no savings. Often when your income starts to increase, you automatically adjust your standard of living upwards. More luxuries start creeping into your weekly spending, and you still have nothing left over.
The trouble is it’s really hard to adjust back downwards, and many people are only a pay check or two away from trouble. Stuff happens – job losses, illness, children, changed circumstances – and without a financial cushion to fall back on, you can very easily get into difficulties when life deals you a bad blow.
Try to put some money aside each pay day to build a savings cushion – even $10 or $20 a week is better than nothing.
5. Do you come home from a spending spree feeling anxious?
If you worry about how much money you’ve just spent, anxiety in this case, is your conscience giving you a kick in the pants. Maybe it’s time to listen. Think about what is really a necessity and what is just a ‘feel-good’ purchase. You might feel excited handing over your credit card in the store, but if you feel bad when you get home, or you’re hiding your purchases from your other half, you know in your heart that you’re not spending wisely.
Five risky spending behaviours
1. Trying to keep up with your mates
If you feel under pressure to have all the nice things your friends or neighbours have, this isn’t a great sign. If your friends like to live the high life, but you can’t keep up financially, continuing to spend like them when you don’t have the means is going to come back and bite you eventually. You don’t have the same income or the same commitments. Don’t compare. Just make sure you are living within your means.
2. Emotional spending
When you feel down or you’ve had a bad day, do you take yourself on a little shopping spree just to make yourself feel better? Emotional spending is a bit like emotional eating – you may feel good initially – but the guilt will set in later and you’ll go back to feeling bad, and you’ll be poorer for it.
3. Bargain hunting
Are you a sucker for sales? Do you often find yourself buying things because they seem like a bargain? Is your mantra “I saved $X by buying this?” Unfortunately you haven’t ‘saved’ anything when you spend money on something just because it was cheaper, or you buy more than you need in order to get a discount.
4. Are you a shopaholic?
Do you have a wardrobe full of clothes that still have the price tag on them? Do you own 3 lawn mowers but only use one? Do you often buy something only to find you already have one when you get home? Do you spend hours online shopping or planning your next purchase? Are you on first name terms with the parcel delivery person? Be real and honest with yourself and cut back on that spending before it gets really out of control.
5. Wasting money on non-essentials
Do you insist on buying several lattes every day, buy your lunch instead of packing your own, have a few takeaways or eat out every week and/or have a weakness for top-shelf wine? Everyone deserves small luxuries, but if you treat yourself to everything, every day, you’ll quickly overspend without really knowing where all your hard-earned money went.
You can still treat yourself, but try to offset this in other ways. For example, if you like to buy nice coffees, try cycling to work to save money. Treat yourself to lunch out on a Friday and take left-overs or a packed lunch for the rest of the week. Save drinking for the weekend and find another way to unwind mid-week that’s free, such as having a relaxing bath, or taking a long walk etc.
Are you living beyond your means?
Be honest with yourself. Do you take care of your financial commitments each month and come out with savings at the end? Or do you still have zero savings, a creeping overdraft and an increasing balance on your credit cards every month? If that’s the case, you need to fix it. Understand that hiding behind these kind of habits is just going to make your life harder and you more miserable in the long term.
If you need free advice about your spending or help setting a realistic budget, visit Sorted.
Crester Credit are responsible lenders. We aim to only lend to people who we believe can realistically afford to repay their loan. Our loans are for those times when the occasional emergency or unexpected bill surprises you, not something you need to continually rely on.