Do you spend more than you can afford?
 If
you want to accumulate wealth and achieve your financial goals,
you have to spend less than you earn. Of course that is rather
obvious but with credit so easy to get, many people spend
more than they earn, and do it year after year.
Then one day they turn around and find themselves $50,000
in debt with nothing to show for it but a leased fancy car,
stylish wardrobe and photos of all the great vacations. Worst
of all, the debt is usually on credit cards, so the interest
alone can cost $10,000 or more a year.
Why do people do this to themselves? Why do so many people
spend more than they earn? Because in our society, it takes
will power and discipline not to.
We are a consumer society, and are constantly exposed to
a barrage of messages urging us to buy. We’re under
pressure from all sides pushing us to indulge our desires.
For example, one luxury carmaker says in a recent ad: “Stop
torturing yourself. What you want is what you need.”
So what’s the solution?
If you spend more than you earn, you can solve the problem
in one of two ways: either earn more or spend less. Generally,
it’s a lot easier to spend less.
First thing to do – analyze your spending and eliminate
what isn’t really, really necessary. Simple secret to
spending less: Learn to love what you have instead of what
you don’t have. Don’t fall prey to the messages
of self-indulgence. What you want is not necessarily what
you need.
And reduce your expensive credit card debt. Get a bank loan
and pay off the cards – it could save you thousands
of dollars. And avoid using consumer credit in the future.
If you want the convenience of a credit card, no problem.
Just pay the balance before the due date each month and you’ll
pay no interest charges.
Like it or not, you may have to budget
No one likes the word, but making a budget – and sticking
to it – is the best way to really take control of your
spending. Not many businesses could survive without a budget.
You have to start thinking like a business.
There are three steps to creating a budget:
- First you have to identify how your money is currently
being spent. This will require going through your checkbook
and credit card statements over the last year or so.
- Then you have to evaluate that spending and see how it
fits or doesn’t fit into your long-term financial
plan. This is where you’ll need to create some guidelines
for future spending.
- Then you’ll have to track your ongoing spending
to make sure it stays within your guidelines. You may find
that your guidelines were too strict or too liberal and
may need to be revised.
Tip: Tracking nickels and dimes
won’t make much difference and will drive you crazy.
However, if your out-of-pocket cash spending adds up to much
more than 5% of your total spending, better take a closer
look.
Here are two important steps to help reduce your spending:
- Avoid impulse buying. Think before you
reach for your wallet and your credit card. If you had to
pay cash, would you still make this purchase?
- Comparison shop as a matter of habit. Never
buy anything – whether for cash of credit –
before you compare costs and value. Expensive brands and
designer labels are not necessarily any better quality.
There is no magic solution for everyone. Every person, every
family, every household is different. If you want to reduce
your spending, you’ll find ways to do it. And if you
can’t, there are credit counseling services available
you can turn to for help.
Important information about our financial planning services can be found at the bottom of our
homepage.
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