5 Ways to Know You Are Spending Too Much Money
I've recently increased my income substantially, and after living being forced to live very frugally for several years, I quickly picked up the spending bug with that increase. Some purchases were important and planned, but others were made simply because I could make them. I told myself I was rewarding myself for hard work too often, and I started having episodes of buyer's remorse and bank ledger surprises. Here are five signs it's time to put on the brakes, stop spending too much money, and start saving.
You aren't tracking your spending
One of the worst financial mistakes anyone can make is to not pay attention. Keep track of your spending to stay on top of your finances. If you're in a spending mindset, it's very important to track what you are spending, and it's never been easier.
Mobile apps like Expenditure, Mint, and Moneywise make it easy to log expenses and see where they're heavy. Tracking your spending can help you give yourself the reality check needed to get into a better mindset. You have to know that you spend too much money before you can develop good habits.
You're not in saving mode
A saving mindset is a way of life. It's about planning for the future and setting goals. It's knowing that "someday" isn't going to come by itself, and that real action steps need to be taken to reach goals. If your savings account has been neglected, or worse, if you don't have one at all, start taking beefy savings measures and give yourself new rules. If you have a goal in mind, such as a vacation, then do the math to figure out what you need to save for that goal.
When temptation to spend strikes, think about your long-term goals and how great it will feel to achieve them on time or early. Force yourself to save an equal amount for every unbudgeted, unplanned purchase.
Or increase your savings every month by 10 percent or more. Whatever steps you take, be sure to use direct deposit so that the money goes straight into savings before you have a chance to think about how to spend it. New rules will help you form a new mindset.
You're not sticking to a budget
Tracking your spending is only helpful if you know what you can safely spend and save each month while also paying the crucial bills, or if you don't meet those obligations first. Take stock of all of your bills due each month and throughout the year. What will it take to meet a big property tax, school tuition, or other bill in three months, six months, or next year? Take a long-term approach to saving to get ahead of those bills, and funnel the money into a separate savings account straight from your paycheck.
If you're routinely giving the credit cards a workout, it's time to step back and evaluate your habits. Whether you're letting small charges pile up, or are regularly making lavish purchases on your credit cards, if you're letting your balance grow, you're wasting money. Leave the credit cards at home when you know you'll be tempted to spend. If you give yourself some time and distance between a potential impulse buy, there is a good chance you'll lose the urge to buy it at all.
Listening to the inner devil
If you find that you are making too many impulse buys or regularly allowing yourself to go on shopping sprees, are you talking yourself into thinking it's OK? If you are telling yourself it's just fine or finding some means to rationalize each purchase, it's time to start having new conversations with yourself.
Likewise, if you aren't weighing the reasons to make a purchase or move along, you need to develop an inner dialog before you spend. The conversation should start with "Do I really need this?" and progress through questions about the potential benefits and consequences, including how it will impact your savings and future goals. A better question might be "Can I live without this?" as the answer will likely be yes.