Bad Spending Habits to Avoid

Many people unknowingly practice bad spending habits that can lead to debilitating debt. Although it’s common to carry a little debt, too much of it can result in dire outcomes. You’ll find yourself scrambling to make your monthly payments, and your credit score will go down.

Almost everyone is guilty of occasional overspending. It’s common to buy things outside of your budget from time to time. However, there are certain things that you should avoid if you want to save money and get out of debt. Learning how to control bad spending habits takes awareness, commitment, and practice, but it’s achievable. 

Let’s take a look at bad spending habits to avoid and how you can effectively manage your finances.

Accruing Credit Card Debt

Credit cards are excellent to use when emergencies arise, but regularly using them to buy staples such as groceries, entertainment, and day-to-day bills can quickly get out of control. There’s a tendency to overspend with credit cards because they’re so easy and convenient to use. You don’t feel the “pain” of cash leaving your wallet or seeing the number decrease on your debit account.

A good rule of thumb is to limit credit card purchases to what you can afford to pay at the end of the month. If you want to save money, budget how much you’ll need every week and take out that amount in cash. Limit your spending to whatever that amount is and don’t take out additional money until the week is over.

Poor Budgeting

Do you plan and budget your expenses every month? Failing to do so can result in catastrophic financial results. For example, what happens if you suddenly lose your job and don’t have enough savings to last six months? Do you know what to do if you can’t pay your taxes on time?

Set up a budget by compiling a list of all your monthly expenses and monthly income, so you’ll always know how much money is coming in and going out. An easy method is to divide the list into two columns:

• Necessary Expenses (rent or mortgage, utilities, food, phone bill, car payments, insurance, and so on).
• Discretionary Expenses (clothing, entertainment, club memberships, massage therapy, spa appointments).

Next, subtract the two amounts from your monthly income. The difference will reveal a positive or negative cash flow. Cut your discretionary costs if you discover that you’re overspending.

Creating a budget can get complicated and convoluted. Consider working with a certified Credit Counsellor from a non-profit credit counselling agency who can walk you through every detail.

Overdraft and Late Fees

Financial institutions penalize consumers when they fall into overdraft or make a late payment — and make big bucks from doing so. In 2019, banks made over $11 billion in overdraft fees from customers. If you’re not careful, those fees can rapidly drain your account.

A smart way to stay on track is to set alerts from checking and credit card accounts that notify you when minimum balances are met. Many credit card issuers and institutions offer this service for free.

Almost everyone has been guilty of overspending. However, making it a habit can lead to severe financial instability. Paying close attention to your finances provides peace of mind and an opportunity to save for the future.