We must live within our means in order to accomplish our financial goals. Doing so requires spending less than we earn and then investing our “savings” intelligently (unless we plan on winning the lottery or receiving a large inheritance). To put ourselves in a position that allows us to start saving, we need to take a close look at our spending habits.
Many folks earn just enough to make ends meet. And some can’t even do that; they simply spend more than they make. The result of such spending habits is, of course, an accumulation of debt.
Most of the influences in society encourage us to spend. More often than not, we are referred to as a consumer in the media and not referred to as a person, a citizen, or a human being. Here are some of the adversaries we are up against as we attempt to control our spending.
Having access to credit
We already know that spending money is easy. Thanks to innovations like ATMs and credit cards, our money is always available, 24/7. Larger retailers pitch their own credit cards, and so does the gas station across the street.
Sometimes it may seem as though lenders are trying to give away money by making credit so easily available. But this free money is a dangerous illusion. Credit is most dangerous when we make consumption purchases we can’t afford in the first place. When it comes to consumer debt (credit cards, auto loans, and the like), lenders aren’t giving away anything except the opportunity for us to get in over our head, rack up high interest charges, and delay our progress toward our financial and personal goals.
Misusing credit cards
The credit industry has been booming. If we pay our bill in full every month, credit cards offer a convenient way to buy things with an interest-free, short-term loan. But if we carry our debt over from month to month at high interest rates, credit cards encourage us to live beyond our means. Credit cards make it easy and tempting to spend money that we don’t have. We’ll never pay off our credit card debt if we keep charging on our card and make only the minimum monthly payments. Interest continues to pile up on our outstanding debt. Paying only the minimum monthly payment can lead to our carrying high-interest debt on our card for decades (not just months or years)! If we have a flair for charging up a storm and spending more than we should with those little pieces of plastic, only one solution exists: Get rid of our credit cards. Put scissors to the plastic. Go cold turkey. We can function without them.
Taking Car loans
Walking onto a car lot and going home with a new car that you could never afford if you had to pay cash is easy. The dealer gets you thinking in terms of monthly payments that sound small when compared to what that four-wheeler is really gonna cost you. Auto loans are easy for just about anyone to get.
The dealer wants you to think in terms of monthly payments because the cost sounds so cheap: Rs. 6000 for a car. But, of course, that’s Rs. 6000 per month, every month, for many, many months. You are going to pay — after all, you just bought a car that cost a huge chunk (perhaps 100 percent or more) of your yearly take-home income! But it gets worse. What does the total sticker price come to when interest charges are added in? (Even if interest charges are low, you may still be buying a car with a sticker price you can’t afford.) And what about the cost of insurance, registration, and maintenance over the seven or so years that you’ll own the car? Now you’re probably up to more than a year’s worth of your income.
Bending to outside influences and agendas
You go out with some friends to dinner, a ballgame, or a show. Try to remember the last time one of you said, “Let’s go someplace (or do something) cheaper. I can’t afford to spend this much.” On the one hand, you don’t want to be a stick in the mud. But on the other hand, some of your friends have more money than you do — and the ones who don’t may be running up debt fast.
Some people just have to see the latest hit movie, wear the latest designer clothes, or get the newest smart phone being launched. They don’t want to feel left out behind the times.
When was the last time you heard someone say that she decided to forego a purchase because she was saving for retirement or a home purchase? It doesn’t happen often, does it? Just dealing with the here-and-now and forgetting your long-term needs and goals is tempting. This mindset leads people to toil away for too many years in jobs they dislike.
Living for today has its virtues: Tomorrow may not come. But odds are good that it will. Will you still feel the same way about today’s spending decisions tomorrow? Or will you feel guilty that you again failed to stick to your goals?
Your spending habits should be driven by your desires and plans, not those of others. If you haven’t set any goals yet, you may not know how much you should be saving.
Spending to feel good
Life is full of stress, obligations, and demands. “I work hard,” you say, “and darn it, I deserve to indulge!” Especially after your boss took the credit for your last great idea or blamed you for her last major screw-up. So you buy something expensive or go to a fancy restaurant. Feel better? You won’t when the bill arrives. And the more you spend, the less you save, and the longer you’ll be stuck working for jerks like your boss!
Just as people can become addicted to alcohol, tobacco, television, and the Internet, some people also become addicted to the high they get from spending. Researchers can identify a number of psychological causes for spending addiction, with some relating to how your parents handled money and spending. (And you thought you’d identified all the problems you can blame on Mom and Dad!)
We should analyze our spending and debt problems and figure out whether it’s chronic, or even if we’d simply like to be a better consumer and saver.