With the economy continuing to rebound, the stock market holding strong and the unemployment rate down, we appear to be further down the road of recovery. With the latest economic crisis, however, have we learned any lessons when it came to overspending?
In the past few weeks, Apple saw a “record number” of pre-orders for its newest iPhone, with the model sold out and shipping dates pushed back by several weeks. According to auto sales trackers J.D. Power and LMC Automotive, when 2014 is done, consumers will have spent a near-record $39 billion on new automobiles, especially SUVs and cross-overs. Thee top U.S. airlines earned a net profit of $3.8 billion during the first half of this year – up from $1.6 billion during the same period last year.
Do you ever look at your bank account and wonder, “Where did it all go?”
The 1996 best-selling book, The Millionaire Next Door, squashed the perception of the millionaire lifestyle, when it revealed most millionaires live frugal lives. These very wealthy people feel no need to let the world know they can afford to live much better than their neighbors.
On the other hand, millions of Americans have a different relationship with spending: overspending. There are probably as many reasons why people overspend as there are reasons why they shouldn’t.
“It’s amazing how often we spend money without thinking about it,” says Canadian financial expert Gail Vaz-Oxlade. “Every time we spend money unconsciously, we are stealing money from our future.”
How can you break the cycle of overspending? First, you have to recognize you are overspending. Think about the daily coffee at your favorite coffee shop or the magazine subscription you buy. Next, you have to recognize the triggers and consciously confront them when tempted to give in to them. This is not an easy task. If you really want to overcome overspending in the long run, it’s also important to examine the more deep-seated reasons of why you do it. It may behoove you to make an appointment with a counselor to help discover the underlying reasons.
In the meantime, here are some tips to help you break the cycle of overspending:
Create a monthly budget and stick to it! It’s not about eliminating fun and not enjoying life. It’s about understanding that every time you spend money, you know why you are doing it, and you are getting the maximum enjoyment out of it. Most Americans don’t stop and ask themselves “Is this a want or a need?” They just buy because they want it, and they want it, now.
To create a budget, make a list of all your income. Then, create a list of your fixed (rent, electricity, car payment) and variable entertainment monthly expenses. You’ll need to determine a monthly average of your variable expenses for budgeting purposes. For example, concerning electricity: Total the amount of your past six months’ electricity bills, then divide by six. That’s the amount you should budget each month for electricity. (If you prefer, total the bills for the past 12 months, then divide by 12).
Next, total your fixed and variable monthly expenses, then subtract the combined total expenses from your total monthly income. See where you can trim or stop non-essentials which you really don’t need. Review your budget every few months or, better yet, every month to stay on track. Need more help? You can find a number of budget planners are available for free.
Use only cash. Once you have a budget in place, get in the habit of using only cash – no credit cards, no debit cards. Save all your receipts and record all your monthly purchases in a notebook or journal – the pack of gum; the coffee and donut; the magazine or newspaper; the unplanned lunch you had with your co-workers. At the end of the month, you will get a clear picture of how you spent your money and where you can further stop overspending.
Stop living a Champagne lifestyle on a beer budget. If you’ve lived a certain way for a while and suddenly encounter a financial hardship or additional expense, it’s often hard to give up the lifestyle you’ve been accustomed to or to cut back, even if staying the course means racking up more debt.
As Americans, we grow up expecting our earnings and our lifestyle to continue to improve throughout our lives, but it’s not often the case. Expenses and earnings can fluctuate throughout our lives as the economy does.
Find a mentor. Didn’t have a good financial role model as a kid? Seek them out now. There are plenty of books available, at the library, from successful financial advisors and real people who can help you. Tune into the financial shows on TV and cable.
Shake it up with your friends. Spending too much when out with friends? If the people you hang out with make you feel bad because you cannot afford to eat, shop, and vacation where they do, are they really worth going into debt? Even well-intentioned friends can have a bad influence on you if they have bad money habits themselves (sometimes without you even being aware of it). Instead, make plans which don’t have a big price tag. Meet for coffee or a drink, instead of a meal. Go for a bike ride or a run in the park. Invite friends over for a potluck dinner. Surround yourself with friends who will support you as you work toward your financial goals. It seems obvious, but many of us don’t think about it.
Learn to say “no.” Happiness researchers have found that spending money on others makes us feel good. There’s a difference, however, between giving to a cause we believe in, or surprising a friend with flowers and over-indulging those we care about. Once you learn to say “no,” you will feel empowered.
Establish priorities with your partner. You and your spouse/partner need to be on the same page when it comes to financial priorities. Work together to create short, mid, and long-term financial goals. You both need to take responsibility, so you are both aware of where the money is going. Work together on a monthly budget and plan the bigger purchases.
Buy fewer, but better, things. Do you walk into Target or Wal-mart and see $5 T-shirts and buy in every color without thinking about it? Stop! The retail industry’s own statistics suggests a shift in consumer-spending habits is starting to take root. While Americans are spending more, each year, on clothes than ever before, the quantity has leveled off since the 2005 peak, according to statistics from the American Apparel & Footwear Association. A number of retailers are now encouraging shoppers to build simpler, smaller, and longer-lasting wardrobes. Bottom line: watch for sales at stores like J Crew, Macy’s, Nordstrom’s, and others.
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