Let’s be real here… Overspending is a real problem. Only a handful people are good at managing their finances and actually go through a financial recession without being ravaged. But why though? Why are people do bad at managing their finances, and also why is it so hard to get over this one single bad habit?
Worse, some people don’t even know that they are overspending, and learn the harsh reality when they are left with no money in their pockets. So, before we dive into this topic at full speed, here’s the first sign: you blow away all the money before the month ends. The next is that you spend more than you per-day income. So, if you’re making $200 per day, you’re spending $250 per day.
Hence, in this post I’ll list down the 10 warning signs that you are overspending and NEED to STOP NOW!!!
(1) Living Paycheck to Paycheck
For some individuals, living paycheck to paycheck is painful, but unfortunately, for some they it’s just an usual, monthly boring event. It’s just their way of life and they are okay with it. But you know what? It’s NOT okay to live your life paycheck to paycheck.
Living on paycheck to paycheck is a small and regular dose of poison you’re giving to your future self. With every passing month you’re postponing your retirement. Because, if you don’t start saving now you won’t be able to enjoy the future. As simple as that…
But how can you find out that you’re living life like this? Funny enough, every month you get a chance for a review. If by the end of every month you see that your bank account is nearing to ZERO, and you have no savings left, then it’s an obvious sign that you’re overspending. And, if you’ve finally discovered that you’re overspending, then it’s time to hurry and start looking at your finances a little deeper.
(2) Random Miniscule Expenses
Small expenses are the real culprit in overspending. You may spend, let’s say $5 everyday on coffee, but at the end of every month you’re spending $150 and $1,800 every year on coffee alone. Yes, $1,800 a year might not seem big, but, when your budget is tight, and you’re in dire need for money, that’s when $1,800 matters the most.
Why, most payday loan apps release a $1,000 loan to someone with a poor credit score or no credit score. Now that I have mentioned about payday loans, please don’t opt for such loans, unless you’re in extreme dire situation where you NEED money at any cost.
Anyway, keep in mind that coffee is not the only minuscule spend, a $5 per month subscription that you don’t use anymore also falls under the same umbrella. Get rid of it as soon as possible if you don’t the services anymore. Trust me, in the short term you might not feel any drastic difference, but in the long run you’ll start seeing visible changes in your finances.
(3) No Budget
Please, create a budget. I have seldom met a person who follows a budget. For some reason most people are too unaware of how much they make and how much they spend. Funny enough, they sure are aware of other things that may not be important for their future.
If you don’t follow a budget, please do. Take your time and create a budget. Your budgeting does not have to be 100% perfect, but just start, and eventually you’ll know what’s best for you.
In fact, if there’s one tip I would recommend anyone who wants to improve their finances, it’s creating a strong budget. You are the only one who can create a budget. Take as much time as you have, read books, watch YouTube videos, and eventually create a budget. Budgeting is the control center of anyone’s finances, and this stands even for a business.
(4) Delayed Credit Card Payment
A delayed credit card payment is one of the basic reasons why people lose their life savings. No doubt, credit card is a great invention, and it’s often a life-saver, but when it goes against you, it really does immense damage.
So, if you’re delaying credit card payment, even if you can pay on time, please stop doing it. And, if you’re failing to pay credit card bill on time, then you should either stop using credit cards altogether, or bring down credit card expenses.
On top of everything, failure of timely credit card payment also decreases your credit score, which is an integral part of anyone’s future. If you’re scared of overspending, then rather than opting for an unsecured credit card, opt for a secured credit card. Among the many, the best secured card is from Discover. The Discover it® card can be a gamechanger for you, and can teach you the value of spending wisely.
(5) No Emergency Fund
Emergency is something that pay you a visit in the most unexpected time. It could be a medical emergency, or financial emergency, to cop up with it, you’ll need an emergency fund. Enough to sustain you for 6+ months. Dave Ramsey, the famous finance guru gives a heavy emphasis on having an emergency fund. Anyone who follow Ramsey knows that when Dave Ramsey says something you HAVE to follow it…
I have learned the value of emergency fund the hard way, and I don’t want you to experience the same horrific scenario. You won’t believe it but most people fall for scams and payday loans when they don’t have an emergency fund.
I honestly don’t want you to fall for such scams and services that charge exorbitant interest rates for a measly $500 loan. I know you can do better than that! Having an emergency fund also helps you take radical and risky decision in life because you know if something goes wrong your emergency fund is there as a safety net…
(6) Living Off Loans
You would be surprised to learn how some people are accustomed to take loans just to live a fake and flamboyant life. You’ll find this happening in the corporate and Hollywood. These people don’t have the monthly income to sustain their lifestyle, and to maintain that the go as far as applying for a huge loan.
I will suggest you to NEVER do that. Falling is debt is one of the worst decisions of anyone’s life. In fact, taking loan is only necessary and rewarding if you have something really important to invest into. For example, a business might need a huge loan for a jumpstart. But, if you’re taking loans to sustain your present day situation, then stop it right now.
Few years ago I read an article about how a person took a payday loan without knowing the exorbitant interest rates and ended-up in jail. What was the reason? He failed to pay the entire loan on time…
(7) Not Saving For Retirement
Similar to not creating an emergency fund, not saving for retirement is a bad decision as well. Unless you have a family-business that makes huge profits, you WILL need a retirement saving fund to sustain a comfortable life. Yeah, maybe you won’t bother living a luxury life, but, even if you want to live a comfortable and simple life, you’ll need money for that.
It’s a great decision to start saving for retirement if you’re below 30. The earlier you start, the better and more secure your post-work life will be. I genuinely feel sad when I see old people being homeless. Though I may never know the exact reason for their situation, but you can find many old people who failed to understand the value of retirement savings. And, unfortunately, by the time they understood, it was too late.
The earlier you start saving for your retirement, the less straining it’ll be for your daily finances. Start saving at least 40% of your monthly income into stocks, mutual funds, high-yield deposits, bonds, and dividend paying stocks. Here’s one secret: Investing money always has a compounding effect.
(8) Not Prepaying Debt
Usually, people who don’t have a good credit score don’t get a loan, but still if you have got a loan and don’t prepay it, then you’re in for a shock anytime. Credit score can impact a lot of things in life, especially if you’re a huge spender and want to buy a house in the near future.
Not prepaying you debt, worse, even delaying it can immensely harm you credit score and your overall reputation with other financial companies. To overcome this, I have set a strict rule for myself, which you can use too: Get rid of all your liabilities at first. Prepaying debt also comes under this umbrella.
Trust me, I have seen people sunk eyeballs in debt, yet spend like there’s no tomorrow. Funny enough, the very next day when it’s time to pay their debt, they fumble and fail to do it. Not prepaying your debt, and getting rid of all liabilities is a bad decision (if you’re taking it). Read The Psychology of Money. It’s a nice book with interesting stories of people who changed their lives with good decisions and also those who destroyed themselves.
(9) Maxing Out Credit Limit
Isn’t it surprising that credit card is getting so much attention in this post? Yeah, because handling a credit card is tricky. There are too many terms, which we ordinary people don’t care to read. Maxing out credit limit is considered bad for your credit score. Funny enough, many people fall for this trap and end-up hurting their credit score even without knowing.
Compared to other habits, this one is probably the easiest one! Credit card companies have this option of setting a limit of your credit card expense. You should always take the safe route and set it to 50% credit expense limit. That way, you’ll not only improve your credit score, but also save yourself from overspending. A good habit in the long run.
(10) Lifestyle Creep
When your spending increases with your monthly income, that means your life is infected with lifestyle creep. If you are rewarded with a 10% salary increase, and the very next month your expenses also increase by a 10%, that’s a classical example of lifestyle inflation/creep.
I may sound like a naggy old man, but if your monthly income increases by 10%, rather than spending the entire 10%, save at least 5%, and spend the remaining 5%. Lifestyle creep is insidious as well, if you’re not aware enough, at one time you’ll discover that no matter how much you earn, you savings aren’t going up, and you’re back to living paycheck to paycheck….
