Identification of bad financial habits is the first step to eradicating them. Once you have identified them, take measures to break them, one at at a time.
Bad financial habits are peculiar to those who face perpetual debt problems and never seem to get out of what is commonly called a “debt trap.” However, should you be able to identify where your weakness lies, you can surely get out of this most uncomfortable situation. For those who are in such a situation already, the following tips are suggested:
Perpetual buyers are perpetual debtors, as the saying goes. It is often seen that those perpetually in debt are constantly grabbing something or the other even if it was unplanned and didn’t merit buying at all. This is called impulse buying and may lead you into serious danger later on. Many people buy because they just like the look of things, be it an expensive bag or a new pair of shoes. This surely is overspending and you need to ask yourself the following questions before you buy:
If the answer to any one question is “No,” don’t buy the item.
Using credit cards for unwanted purchases may ultimately lead to a situation where may not have the necessary funds to pay back. You may have to convert the amount into EMIs and pay unnecessary interest and processing fees on each EMI. This needless to say, increases your debt burden.
When you spend on impulse, you actually mess up your basic budget. This happens to the most diligent budgeters also who lose sight of their financial goals, at least for the time being. Once the actual cash reserve has been disturbed, you may need to swipe your card more. Now, that’s actually inviting trouble! Impulse buying may be done once in a blue moon, but a habit can seriously disturb your goals. Self control and professional counselling, if need be, may be necessary to curb that itch for spending without thinking. So buy only what you need and nothing else.
We often think that using credit cards randomly will earn us credit points. However, the reason why card issuing companies offer these points is to entice you to keep spending, and unnecessarily if need be. A study conducted a few years ago showed that a rewards-based credit card that actually had a return of 1% increased consumer spending by Rs. 4500 in one month as also overall card debt to around Rs. 7500 monthly! Also keep track of the heavy restrictions on cash backs offered by credit card companies. These may just be limited to groceries and gas. Thus your returns may not be as expected. Read the fine print.
Competition among peers often causes us to overspend. It is a typical psychological trigger that ultimately works to our detriment. Those with a spending habit will inevitably go for more expensive vehicles or homes, pricey vacations and expensive jewellery which is actually beyond their budget, just to compete with others. Here, your goals and priorities matter most. It is the prudent individual who looks at a comfortable retirement account rather than investing in a designer watch or clothing. As it is often said, “If you haven’t saved anything, you are either wearing it or have eaten it.”
The typical mind set of the impulsive shopper. Research shows that shopping actually releases endorphins – the feel good hormones of the body. Unfortunately, however, this can lead to a severe addiction which can have some very dire consequences. This link between buying and happiness may be almost impossible to break unless you exercise self control. So check your emotions before handing over the cash or credit card. Professional counselling may be sought to identify coping mechanisms when your endorphins go haywire.
Often perpetual debtors turn optimistic expecting windfall gains to pay back their debts. But do bear in mind that winning a lottery or a landing a lucrative job is most unlikely to happen to bail you out. You are actually losing control and emotionally removing yourself from the debt burden. Get into the habit of making stringent budgets and make timely payments of pending bills to avoid interests and penalties.
Thus, managing your money well is the ke