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The act of spending money you don’t have is a financial practice we’ve become accustomed to over the years. Our mortgages, car payments and tuition, are generally paid in installments. No matter your tax bracket, these types of loans are a standard way of life. For most of us, having a line of credit attached to our name is no longer a luxury, but is deemed a necessity.
I have said numerous times that if you plan to pay off the balance at the end of the month, using credit cards to manage your cash flow can be a wise practice. But when you start using credit as a means to finance your lifestyle, the actual cost can be much more than you realized.
Think back to when you got your first credit card, didn’t it feel good having purchasing power at your finger tips which extended beyond your checking account. Now think about the first time you said, “I know it’s a lot, but I’ll pay it off at the end of the month”, even though you knew you probably wouldn’t. It was at that moment when you began financing your lifestyle; when you use credit to purchase something you couldn’t afford at the time, yet you bought it anyways.
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Every month you carry a balance on your credit card, you are charged interest, which isn’t news to you. Consider all those items you bought on sale because they were “such a great deal”, the longer you carry a balance on your cards, the less impressive that deal becomes. The truth is that the “buy now, pay later” ideology is causing us to go broke.
Beyond your day to day purchases, there is more to consider in terms of how you use credit in your everyday life. Shift your mindset and look at your monthly expenditures. You may think you have your finances under control since you pay your minimum balance or more each month. Just because you’re paying your bills on time, doesn’t mean you aren’t living beyond your means.
When you start financing your life, it becomes a habit. You no longer look at what you have in the bank as a measure of what you can afford; you look at your available credit. This habit can quickly swirl into a bad financial situation. Instead of saving money each month, you are paying Visa, MasterCard, and Discover. Depending on your rate it may be an upward of 18-20% interest, on money you clearly don’t have.
The good news is there is light at the end of the tunnel if you start changing your purchasing habits now. Here are some tips to help get you on the right track:
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Start using your Debit Card as way to spend your cash
This step will force you to spend only the money you currently have and will make you be more mindful of your purchases
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Take your credit cards out of your wallet
By leaving them at home you will be less tempted to make impulsive buys, which can really add up at the end the month.
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Reduce your Spending
Ask yourself “Do I Really NEED This?” as a way to keep yourself in check, cutting back without depriving yourself will promote healthier spending habits.
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Start Budgeting
Knowing your income and expenses each month, can help you plan without overspending. If you need help starting a budget, check out the Busy Wife’s Guide to Budgeting
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Start a Savings plan
Try the reverse, save now buy later! Put money away each month toward your big spends like vacation and home upgrades. Saving not your forte… read my post about Digit, a great auto-savings plan to help you start successfully.
Now that you have a handle on your spending, continue reading My How to Get out Debt..Today, to get rid of that credit card debt for good!
Have you been financing your life? Share any tips you have for getting your spending under control.