To build wealth and reach financial independence, you simply need to spend less than you earn. It’s an easy concept to understand, but why is it so difficult to put into practice? To answer this question, you need to examine the roots of overspending. When you know what’s driving your spending, you can fight back and save money so that you can spend less than you earn.
Getting to the root of the problem – A few reasons for overspending..
Easy access to credit cards
Using a credit card can feel like the best choice in making purchases, but when swiping becomes the norm (or is over-used), your debt can easily spiral out of control. With interest rates on most credit card debt at approximately 21%, a credit card can be very expensive debt which is very difficult to fix. Always use it wisely or avoid them altogether.
Monthly payments make it more accessible
It used to be that if you wanted something, you had to save up and pay cash. These days, you can buy on a monthly payment plan for anything from a car to a couch to household appliances. But, with monthly payment plans, you end up paying much more than the product is actually worth, all because of the interest charged.
Spending to feel good
Some people have an addiction to spending money and buying things, it makes them feel good. But the high always wears off and they need to move on to the next purchase.
Giving in to temptation
It’s very easy to go out and have a good time, but do you have the money to pay for it? You can put it on the credit card but if you can’t pay it off then it could cost you in the long term.
Not focusing on long term goals
We overspend because we’re distracted when it comes to daily purchases. We should rather be focusing on our long-term savings and retirement goals.
If you relate to any or all of the above points, then here are a few ways you can get a grip on your finances:
Look at your spending
Give yourself a wake-up call and track your spending. Knowing where you are overspending is half the battle.
Set up a budget
The next step is to set up a budget. If, for example, you struggle with spending in your dining-out category, set a limit of how much you can spend on that every month, and don’t go over!
Start living below your means
While it may sound like a simple concept to live below your means, it is sometimes easier said than done. The reality is, if you’re serious about saving and living debt-free; you’ll have to start living on less than you make.
Get your debt under control
Once you’re living below your means and all debt is paid off, you can start saving and investing and start living!