Are you your own worst financial enemy? A discussion on financial self-sabotage...
How many times have you scribbled or typed out your obvious expenses, then assigned a portion (or the remaining portion) for the fun stuff...shopping, a concert, a trip? Do you stick with that plan...or did you overspend and find yourself scrambling the next month? What causes you to get off course? And do you just give up with one mistake? A monthly spending plan can be easily thrown off if we are not aware of certain negative behaviors.
This week, we’re going to outline Seven Types of Financial Self-Sabotage and How To Avoid Them. We invite you to follow along, answer the questions posed in each section, and consider how to move forward in your debt elimination and savings. We all have the potential to be our own worst financial enemy...and we are here to help you identify and adjust your spending behaviors so that you can...you guessed it...live more abundantly!
1. Impulse buying
We have all been tempted while shopping. There’s the BOGO trap...where we only intended on buying one pair of shoes, but end up with two because the second one was 50% off. There’s the clearance sale sandpit, where hard-earned money is transformed into clothing that still has the bright-red price tags on them months later. And a favorite...the end-cap displays! Two for $5 for items that we must have, even when they were not on the list!
It happens. But when it becomes a pattern, instead of a random occurrence, it will have a negative impact on your financial transformation, especially if household expenses are being sacrificed. Once you recognize the behavior, and it’s impact, there are ways to avoid impulse buying in the short- and long-term. Become familiar with your triggers. If sales are a trigger for you, then unsubscribe from your favorite newsletters, emails, notifications, and magazines. Remove the visual temptation so it’s out of sight, out of mind.
Another method that relies on accountability is the W.A.I.T. method.
Weigh your options. (Are there better deals elsewhere?)
Assess your financial situation. (Does this purchase allow you to stick with your budget/spending plan?)
Inventory your needs. (Do you need it...or it is a slightly different version of something you already have?)
Trust Delayed Gratification...and Him! (No questions...just trust that God has already worked out what you need.)
2. Additional income used for lifestyle increase
When you receive a bonus or additional income, how do you use these funds? Often times, we get so excited about a windfall that we end up consuming more...instead of applying the increase to debt elimination or savings. And without clear goals, increasing lifestyle could take precedence over financial success . Now, we aren’t saying not to treat yourself! You earned it! But think about it this way...if you were living and thriving comfortably prior to the increase, why not use the increase to be a catalyst for future increase? Allot a portion for the “Fun Fund”, but also invest your financial health so that living abundantly becomes your reality! Pay off an old debt. Bless your savings account or increase your emergency fund. Invest wisely and with guidance for the greatest yield. The best way to utilize additional income and avoid this behavior is knowledge, discipline, and accountability.
3. Get-Rich-Quick Schemes
You’re in a financial bind. You’re up late one night. And a loud-talking person on the television convinces you that spending a small amount of money will provide a large amount in return in a small amount of time. You may be sleepy, but you heard right! Can you even afford the initial investment? And if so, why not just apply it towards the bind you’re in?
We’ve all seen the payday/short-term loans lures. You may receive money immediately to get out of that bind, but now you’re in another. Now you have these payments with ridiculous interest rates that were previously not in your budget. And the penalties for missing a payment will only keep you from your goals.
Avoid this “MONEY NOW” pitfall by...well, avoiding them. Adding debt is not the way to handle an expense. Having a clear savings plan and an emergency fund is the best prevention. But if it exceeds your savings, it’s best to address the expense/debt, and figure out a way to handle it without putting yourself further behind. If a loan is truly needed, do it through a bank or a financial institution with reasonable rates. And as always, be aware and honest with your financial reality so you don’t create additional debt unnecessarily.
4. Keeping Up with the Joneses
What is important to you? A car that serves your needs, or a car that matches your neighbors? Our financial decisions should come from the needs and wants of ourselves and our families. They should not be predicated on what you believe someone else thinks you should have, nor from what someone else has. We have to be a peace with our financial reality. And we have to be confident that the actions we are taking to eliminate debt and increase our savings will eventually allow for indulgence and luxury.
Avoid this inclination by keeping your own goals in the forefront, and remembering that you don’t know why someone has what they have. Maybe those Manolos were gifted. Perhaps that Gucci bag was on sale. Maybe they budgeted and saved to buy these items. Or maybe their spending has led to a situation where they are upside-down on their house that you envy. The point is you don’t know, and that's okay because focusing on our own financial reality is always best for us.
This behavior is probably the most difficult to overcome, whether it’s with finances, healthy eating/living, homework, housework, calling a friend back. We put off for tomorrow what can be accomplished today, and spend all of today anxious about what tomorrow will bring. With finances specifically, it appears in the forms of not opening a bill. Or not answering the telephone. Or not making arrangements to pay a debt before it’s charged-off.
However it occurs, procrastination costs you more in the end. It could increase interest, penalties, or be reported and affect your credit. Health-wise, procrastination adds to stress, which affects everyone in different ways. Headaches, stomachaches, insomnia. And all the while, the issue still isn’t handle.
You have to be informed in order to handle expenses and debt. Avoiding it only exacerbates it and the feelings around it. How do you avoid procrastination? Be brave, identify and address the problem, and pray! Seek guidance, and don’t feel like a slip-up is a catastrophe. Living abundantly is the goal, and you can’t achieve that if there’s shame and blame.
6. Being susceptible to risk
We cannot avoid or predict something happening to car, home, or health. You can safeguard by driving safely, installing fire alarms, and exercising daily, etc...but accidents and illness happen. And oftentimes, they have a heavy toll on our finances. Especially if we don’t have anything absorbing the risk and it’s associated costs.
Yes, we’re talking about insurance. Home/Rental, Auto, Health, Life, Casualty, Business...all of these forms of insurance are designed to transfer the cost of a potential loss in exchange for a fee (premium). And it’s our responsibility to ensure that we can afford the associated fees.
Automobile and Health insurance, for example, charge a premium based on coverage provided, out-of-pocket fees, and deductibles. If you are not able to handle a large deductible for services rendered, you may have to select a plan with a slightly higher premium so you can decrease the deductible. Reducing your risk susceptibility requires research and being honest about your financial reality. Check out some insurance basics here: Learn Why You Need Insurance.
7. Needless debt
Needless debt is defined as debt incurred without a true need and incurred for something other than for assets. Borrowing for a house, or your car, or anything needed that you cannot pay in cash is one thing. But opening up a department store credit card for an extra 20% off your current purchase is another thing. Do you need that credit card? Do you even want the extra inquiry on your credit report for a card you never even considered before the pitch?
Avoiding needless debt is as simple as being mindful of your needs vs. your wants. Much like avoiding impulse buying, just W.A.I.T.
As mentioned above, we encourage you to take some time, and identify these and similar behaviors in your money management. Share some of your experiences, and how you’ve overcome them. And we invite you to contact Trinity Financial Coaching for a free 30-minute consultation to begin your journey of managing your money confidently and living abundantly!
Have a blessed week! And stay tuned for testimonial blogs on this very topic!