You would think overspending is obvious, but there’s more to it than meets the eye. Going broke is one extreme that people experience, but it by no means defines the bad habit of giving more money away than you earn. Overspending can be subtle, but it gradually undermines you over time, and you might not realize how unhelpful your money habits are until you find yourself in a tight spot with no savings to count on.
To help you get to the bottom of your budget, ask yourself these five questions about your spending habits and see where the answers take you. We’ll not only address the warning signs of a bad budget, we’ll also look into how you can start turning things around, saving more each month and gaining true financial security.
How Do I Handle My Debt?
Do you only make the minimum payments every month and sometimes even find those difficult to cover? Relying solely on minimum payment keeps you stuck in a cycle that can eventually reach an infinite loop thanks to something known in the accounting world as negative amortization. This means your owed interest has exceeded the regular loan payment, leaving you constantly behind because you never pay enough to eliminate the interest tacked onto your principal amount.
Minimum payments ultimately keep you from defaulting, but they don’t tend to put you closer toward actually paying off what you owe. To get out of this cycle, start thinking about where you could cut corners and how you could pay off your debts faster. With student loans, you can refinance them from this site here to trade in your current loans with a larger one that results in lower monthly payments. Freeing up room in one area of your life affords you the ability to invest wisely in others.
How Much of My Stuff Do I Actually Use?
If you frequently come across things you forgot you owned, then you might be buying too many. Those impulse online shopping buys are fun for a moment, but they provide you no long-term value. Start assessing what you put in your cart, and practice delaying gratification.
If you turn off your laptop and leave for an hour, you are likely to forget half of the things you thought you absolutely had to have. For items that have become clutter in your home, think about reselling them or giving them to a charity. High-quality clothes and homeware are hard for many people to afford, so making them accessible through a good organization prevents waste and does some good in the world.
Do I Know How Much Money I Have in the Bank Right Now?
If you tend to rely on credit cards more than your actual bank card, trouble is likely brewing in your budget. Hoping a card doesn’t get rejected at the register isn’t a safe way to go through life, let alone generate savings and avoid debt.
Start using cash as often as possible, and set up budget alerts to let you know how much you really have. Deduct your living expenses, debt payments and other essentials from your paycheck every month to figure out whether you really can afford the lifestyle you’re leading.
Does Shopping Make Me Feel Better?
A little retail therapy is good for the soul now and again, but keep it small. A $5 coffee drink with extra whipped cream isn’t going to do as much damage as a $250 shopping spree at your favorite store. If you frequently find yourself turning to shopping as a pick-me-up, look for free alternatives you could try.
Physical exercise might be the last thing you want to do when you’re feeling low, but it can provide similar endorphin and dopamine kicks without costing you a dime. Don’t feel guilty about the habit, but instead, recognize when it’s becoming a problem in your life and think about whether you could benefit more from a little self-care. If you find that you’re unable to give up the habit easily, it may be a good idea to talk to a trusted friend or therapist.
Do I Have Savings?
Many people have a good enough income but don’t save money. They feel comfortable enough with their salary that they never realize it could disappear in an instant. People get laid off and fired all the time, and while you may get a severance pay, there’s no guarantee it will last you long enough to make ends meet until you find another job. If you know that you couldn’t reasonably afford to cover at least three months of rent/mortgage, bills and groceries with your current savings, then it’s time to look at where your money is being spent and figure out ways to cut back.
What would happen if you suddenly had a medical emergency and needed to pay your entire insurance deductible? How would you afford leaving the state in the event of a natural disaster evacuation? All the impossible things you don’t expect to happen can, and you need to be prepared if they do.
Turning Your Budget Around
While you might not be able to curb your overspending overnight, you can take small steps toward improving your budget. For example, consider whether you could price match anything you plan on purchasing with a contribution to your savings. If you can’t afford to give $25 to yourself, then you shouldn’t be giving it to a store.
You should also try to keep your savings separate from your disposable income. For some, it’s easy enough to keep things in a single bank account, but others will see any leftover money as an excuse to spend. Out of sight, out of mind is the motto, and it also adds an extra layer of security in the event your account is breached or someone steals your card information. Find ways to motivate yourself to say more, too. Rather than just seeing it as an unavoidable part of life, consider it being an investment toward something you want to do. Planning a trip in conjunction with an emergency fund can help you stay on track.