Monday, January 25, 2016

7 Tips to Avoid Overspending

Among the reasons why people run into debt problems, overspending is probably the most common. A 2012 survey showed that 52% of Americans are spending more than they earn, 21% of whom have recurring monthly expenses that exceed their income.

Now it might be easy to think that getting into debt because of overspending only applies to spending on big-ticket items, like expensive appliances and cars. But that is not the case. Many people go into debt because of small, unnecessary items that pile up and wound up on their credit card bills.

Here we give you 7 tips to avoid overspending the next time you shop.

Stick to a list

We never get tired of reiterating this in our posts. Having a list helps defend your budget from the voices in your head that are egging on you to “buy this, buy that“.  It keeps you focused on your goal: going to the shop and picking up what you intended to buy. Make sure, however, that what you are buying are more of needs than wants.

Separate wants from needs

Moderation is key to having a healthy financial life. While we recommend prioritizing needs, we don’t want you to deprive yourselves. Fulfilling our wants is also a source of joy, so we recommend separating wants from needs, and having a budget for each. Besides, when you feel deprived, you will only tend to compensate with a spending spree sooner or later.

Use cash instead of credit or debit card

Using cash makes it easy to see money leaving your wallet. That’s not the case when you use credit cards, debit cards, or some form of electronic cash. When using “intangible” cash, you do not readily feel your hard-earned money leave your bank account, so you tend to shop some more.

Beware of up-selling tactics

Salesmen are trained in up-selling tactics. Order a burger and you’ll be asked if you want to up-size your drinks. Buy a laptop and your salesman will ask if you want an extended warranty or a bigger memory instead. The key is to know what you need and stick to it come buying time.

Avoid emotional spending

Many people fall into the trap of emotional spending or “retail therapy“, i.e., spending to make themselves feel better especially when they’re unhappy. Spending when you’re unhappy may make you feel better for a moment but it doesn’t really solve the problem that’s causing you unhappiness. When the good feeling that came after retail therapy wears off, the feeling of unhappiness comes back. You haven’t solved the problem… and look you got a doodad to pay for in the next few months.

Budget (There’s an app for that!)

Bought a new high-end phone? Might as well use it to organize your finances. Nowadays, there are lots of free applications or “Apps” for budgeting. Ahorro, for example, is a beautiful, free iOS app that lets you enter your daily expenses, your budget, and your income. A summary report will let you see where you overspent, and whether you already exceeded on your allotted budget.

Got a raise? Don’t upgrade your lifestyle yet

More income means more expenses. A lot of people think that income equals wealth, so that when they get a salary raise, they feel richer than before and then upgrade their lifestyle to match their new income level. Get a 20% salary raise, then move to a bigger apartment that costs 20% more than before. That’s preposterous. Just because a roof over our head is a necessity doesn’t mean it’s okay to overspend on rent.
Aside from being a cause of bad debt, overspending can hamper your ability to save money, or set you back on your financial goals as you try to dip into your savings. When asked why you’re not getting wealthy, you should take an honest look at your spending habits, not just your income.

-- from http://financialrescuellc.com/

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