Some people dread shopping and spending money, but some of us really enjoy shopping... a lot. Some of us love to find bargains, be the first to jump onto new trends, have collections we like to grow, or just like the short-lived thrill we get when a new bauble catches our eye and we get to take it home. For those of us who really like to shop and buy new things, credit cards can provide a ticket to shopping bliss, but also lead us down the road to financial catastrophe.
How do we curb our overspending ways, especially when credit cards are available, luring us with low introductory interest rates and low payments? Here are some rules anyone who has been bitten by the spending bug should follow, and tips to stay motivated and on track to save money.
Your credit card company sets a limit on how much cardholders can be indebted to them, and savvy cardholders will put limits upon themselves and stick to them. Use an app like Mint to track spending and stick to a budget. Take a look at how much you are spending and how much you are saving. Is this sustainable figure? Get the numbers in order, and give yourself a budget for impulse purchases. When the limit is reached, no more spending for the month. Having an allowance will help temper the desires to spend.
Know the costs
What does a $500 shopping spree look like over a year when it's sitting on a credit card collecting interest? If you have a card with an interest rate of 24 percent, that $500 will cost $590 if left on the card for a year if the interest isn't compounded (and it usually is which brings the cost up). That represents a payment of about $50 per month to get rid of that one shopping spree. Is it still worth it?
Another way to save money and moderate spending is to think about the price in relation to wages. How many hours of work are needed to pay for this item or event? How much more will it cost if it is charged and not paid down right away?
Set savings goals
Set goals for saving cash to reward yourself. Instead of buying something on impulse and putting it on a credit card, save for it with cash. You might think that the thrill of owning it lasts longer because more anticipation was involved, or you might end up falling out of lust in the process. In that latter case, that's money saved that can be put toward more important things, like retirement or major purchase.
Just say no
It can be fun to go out and celebrate with friends, and rack up charges with shopping sprees, lavish lunches, happy hour splurges, and fancy dinners, but no one should ever feel obligated to keep up with friends' spending habits. Just because your friends are gorging on caviar and indulging on the newest Louis Vuitton shoes doesn't mean you need to match their purchases. Likewise, spending more and more money on unnecessary items (but at bargain prices) isn't likely going to provide more happiness or a better life, and instead, just lead to clutter and regret. Save money by avoiding these purchases. Take a breath and walk away. You won't miss it later.
Take an inventory of purchase regrets and set limits and allowances on how often these indulgences are allowed, and for how much. Set a budget and stick to it (you've heard this before), and plan on removing any overspending from the following month's budget. Now that the long-term costs are known, it should be clear that those bargain prices turn into financial anchors when the credit card balances build up.
Think every purchase through
It takes time to build up significant willpower to avoid giving into impulse spending, and it takes time to shut the impulses down. Think a purchase through before making it and ask the important questions:
- Is it needed?
- What value or improvement does the purchase provide to everyday life?
- Will the purchase be regretted?
- Will it even get used?
If the spending is more related to entertainment, think about what else that money could buy, how it could be used to pay off debt, or how many hours of working it actually takes to pay for that pleasure.
If in doubt, leave it out
Sometimes the best insurance against overspending is to leave access to the big spending tools behind. A good way to set limits on how much can be spent in one outing is to carry cash, and leave the credit and debit cards at home.
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