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Tuesday, February 11, 2014

OVERSPENDING AND ITS EFFECTS




When I was in college, my Mom would give me money --- just enough for my bus fare to go to school and go back home. It was always budgeted.

I did not buy food for lunch because she already packed one for me 5x a week. I can remember I will only have extra money if a friend or relative paid my bus fare (which I always prayed ha ha ha ).

After graduation, I landed a job and for the first time I earned money. I felt “freedom” thinking that no need for me to budget my money because I will have a consistent salary on the 15th and 30th of each month but….that was a mistake! I kept wondering where my money goes and my salary only lasts for 5 or 7 days in my wallet and it is gone?!!!

There are probably as many reasons why we overspend as there are reasons why we should not. To build wealth and reach financial independence, you simply need to spend less than you earn. It is an easy concept to understand, but why is it so difficult for so many to comprehend? To answer this question, you need to examine the roots of overspending. When you know what factors drive your spending, you can fight back and save money so you can spend less than you earn.

Here are some reasons why we overspend and its effects on our budget…

MISUSE OF CREDIT CARDS
Credit cards are good if you use them wisely. Some say it is better to use credit cards when purchasing than cash because they can track down their spending without writing or taking notes of it.
Let us say you have a $500 credit limit and you overspend it by purchasing a nice dress and then you learn at the end of the month you can’t afford to repay the amount. Here comes the problem now. This is when the high interest rates on the card really begin to hurt you. If you continue to just pay the minimum balance on your interest, you’ll end up spending the next 20 years paying off that original purchase and spend more on interest than the cost of the original item. That is no way to build wealth.

YOUR LIFESTYLE’S BIGGER THAN YOUR BUDGET
If you were used to living a good life before then all of a sudden you encounter a financial hardship or additional expense, it is sometimes difficult for you to give up that lifestyle you have been accustomed to, even if staying the course means building up debt for you.

YOUR CHILDHOOD
Some people who grew up from a poor family may have feel the urge to overspend just to compensate for feeling deprived as a child or to make it seem like they are breaking the “lower-class” cycle (even if, in reality, they’re hurting their own finances by doing so). 

Similarly, many people who grow up in affluent families feel compelled to spend money to maintain the lifestyle they grew up with even if they don’t have the income to do it (Keeping up with the Joneses).

And regardless of class, there’s a tendency to repeat the bad money habits we observed in our parents as they’re often our only financial role models.

YOU ARE TRYING TO KEEP AN IMAGE
Some people would buy expensive things just to impress other people trying to keep an image that they are in higher class than their neighbors even though they cannot afford to buy them. This will put them into deep-debt situation.

YOU JUST CAN’T SAY “NO”
Learn how to say NO or decline an offer if a friend or a co-worker suggests a fun activity and you cannot afford it. Or say NO to your child if they want a toy in the store. Or say NO to your husband if he wants a new computer which you cannot afford to buy. Don’t squander your financial future for a few guilty pleasures today if it isn’t in your budget. If you know that you can’t afford it, don’t cave in.

To overcome overspending, you simply need to be more aware, more careful in spending. Write down a list of your everyday spending, keeping a journal, by doing so you can track down where your money goes. You will stop asking and wondering where you spent all your money.






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