If you’re afflicted with bad spending habits, and you’re not keen on changing them, you can always earn more money, right?
Well, yes. And no. One important lesson the pandemic has taught us is that our income sources are not as secure as we thought they were. Restaurants, bars, breweries, and wineries have been hit hard. The service industry has had a rough go of things.
Even physicians have seen pay cuts, voluntary, and involuntary layoffs. Elective surgeries were put on hold. Patients who might normally come into the E.R. or schedule an appointment with their primary care doctor stayed home instead.
Freelance writer Jori Hamilton chimes in with her take on bad spending habits and what to do about them.
The Danger of Assuming You Can Out-Earn Your Bad Spending Habits
We all have spending habits, good or bad that significantly impact our financial future. Many of us find ourselves on the hedonic treadmill, chasing one “best thing” after another. Unfortunately, this results in many consumers adopting the mindset that they can out-earn their bad spending habits.
But we’re finding that if you want to reach a significant level of wealth, you need to control how you spend and form healthy financial habits that prompt your life’s growth. No matter how wealthy you are, your money will always fall victim to your bad spending habits if you don’t address them.
Why a Large Income is not a Reason to Spend Irrationally
Spending irrationally should not be justified by a large income. If the right spending habits aren’t in place, you’ll justify spending your entire income on things you don’t need or that don’t provide you with long term value.
When you put money in the bank, the goal should be for it to stay there and multiply. It cannot do this if you’re spending whenever on whatever. The key to becoming wealthy is knowing how to make your money work for you and keep your money with you.
Spending money just because you have money will not provide you with long term wealth.
It will provide you with many “things,” but not the peace of mind that comes with being financially free and knowing you can cover unexpected expenses as they arise.
Spending Habits that Lead to a Loss of Wealth
If you haven’t already been faced with this nightmare, I’ll be the first to tell you that you don’t want to wake up one day and face an empty bank account due to your irresponsible spending habits. You’ll be able to avoid this by first recognizing spending habits that lead to a loss of financial freedom and wealth. Here are 6 spending habits that can lead to loss of wealth:
Using credit cards irresponsibly
According to Money Crashers, overall credit card debt in 2020 was $820 billion.
Most credit card users cannot pay off their balance in full at the end of the month and rack up even more debt due to interest rates. Consumers are using credit cards irresponsibly by buying things they can’t afford with them and neglecting to pay the bill responsibly, if at all. This puts you in a cycle of debt that ultimately leads to your wealth loss because your money is going toward these hefty payments.
Impulse buys and/or “retail therapy”
Many of us have been prompted to make a purchase based on impulse. Consumers are also using “retail therapy” as an excuse to go out and buy whatever their heart desires to make them feel good on the inside. Purchasing on a whim is destructive to your future financial goals and erodes your bank account no matter how much money you have.
Spending too much money on wants vs. needs
We all want things we simply cannot afford right now. Not being able to afford something isn’t stopping many consumers from making purchases on wants and neglecting their needs. Always spending on what you want leaves little to spend on what you actually need to thrive in your life. Wealth only makes this worse if you’re not a responsible spender.
Spending on luxury brands, designer labels, and other brand names just because
Just because you have the money to spend on luxury brands and designer labels doesn’t mean you can actually afford the purchase. It would be best if you weren’t buying luxury brands and designer labels to impress other people. Consumers are going broke trying to keep up with an image.
Signing up for unnecessary subscriptions
Those subscription and service fees automatically deducted from our accounts are often an afterthought of spending. Because most of the fees are not huge, noticeable amounts, consumers are tricked into believing that the expense isn’t really a factor in depleting their wealth.
Being way too good at justifying bad spending habits
Most people know which of their spending habits are negatively impacting their finances. Still, they’re incredibly good at justifying bad spending habits and framing the purchase as useful and necessary. You decide on spending in your mind first, so consumers that constantly justify terrible spending habits set themselves up for declining wealth.
How to Correct Poor Spending Habits
As you begin to recognize your own poor spending habits, the next step is to correct them and continue the correcting behavior until you develop good spending habits. In reference to the six poor spending habits mentioned above, here are practical tips you can implement right now to correct these spending habits in six easy steps.
1. Don’t Carry Consumer Debt
Pay off the balance on your credit cards and only use them up to the amount you can pay off each month. Don’t max them out. Please don’t use them for wants. If you can’t use them responsibly, don’t use them at all.
2. Avoid Impulse Buys
Stop buying things you don’t need!
“If you will live like no one else, later you can live like no one else.”―
[Editors Note] Some of the best financial advice ever given to me by a colleague is encompassed in these four words: “Live like a resident.”
When you are a resident, don’t live like an attending, and when you become an attending, don’t upgrade to the lifestyle of an attending.
After putting in hours of hard work and years of sacrifice it can be tempting to reward yourself with the occasional or possibly even too frequent impulse purchase.
If you see something you think you absolutely can’t live without, take a day to think about the purchase and come back to it tomorrow with a renewed mindset. You’ll more than likely find you don’t need the thing you swore you couldn’t live without.
Also, get away from the thought that spending money is a form of therapy. It would serve you better to spend money on an actual therapist or counselor and work through the issues that are causing you to think buying things is a solution to the issues you’re facing.
3. Put Your Needs Before Wants
Your needs should always come before your wants. Take care of your financial needs first, and then think about spending a few dollars on your wants. Spend money on things that bring value to your life, increase your wealth, and add assets to your financial portfolio. For example, instead of that new 70inch TV, spend money on other home improvements that add actual value to your home, like a new paint job or remodeled kitchen.
4. Prioritize Experiences Over Things
Living a rich lifestyle before you’re actually rich is detrimental to your financial success. Instead of spending on luxury brands, designer labels, and other brand names to keep up with the Joneses, substitute your spending with bargain brands and affordable labels. You can supplement lower-cost purchases with a few staple pieces from your favorite designers or labels. But only if your finances permit it after you’ve taken care of your needs and essential expenses.
5. Avoid Small Recurring Expenses that Accumulate Over time
All of us are guilty of one or two unnecessary subscriptions like television packages, gaming and streaming services, or subscription boxes. Eliminate these unnecessary expenses if you can and reinvest that monthly amount into something that adds long term value to your life.
6. Change Your Money Mindset
Your spending habits start in your mind. Having a mindset like “I’ll just make more money to cover this purchase, no big deal” leads to irresponsible spending. Before making your next purchase, create a series of questions you’ll ask before making a purchase or a framework for buying that requires you to think before you spend.
It’s dangerous to assume you can out-earn your bad spending habits because it gives you a false sense of financial security. You’re essentially rewarding your bad habits or not addressing them at all.
Bad spending habits prevent you from moving to the next level of success in your life. Focus on successfully managing what you have now and bringing good spending habits into the next phase of your life and financial progress.
Have you recovered from bad spending habits of your own? Have you managed to out-earn them instead?