Are You in a Spending Trap?

Personal finance is fiercely personal. By that I mean accepting personal responsibility is central to your financial well-being. If you exercise self- discipline and focus on things within your control, you can chart a course to financial freedom. This was the main thrust of my first blog post in 2015. In this post, I’ll like to shine more light on the subject of self-control in the area of your spending.

Exercising restraint in your spending is an anchor point for financial peace and a building block of prosperity. Conversely, indiscriminate spending could easily derail even the best laid financial plan. In his book Today Matters, John Maxwell observed, “if your outgo exceeds your income, then your upkeep will be your downfall”.

Repeated studies in the field of behavioral finance have led to a singular conclusion – human beings do not always make rational money decisions. Common knowledge hardly translates to common practice. As a result, many today are in a spending trap.

Are you in a spending trap? One indication of a spending trap is your definition of what you can afford. Take a look at this sketch by financial planner and author, Carl Richards.

Expense vs IncomeDoes this sketch represent your spending habit? If you habitually spend more than you earn, you are in a spending trap.

How do you get out of the spending trap?

  • Admit you are trapped. If you’re in a vicious cycle of overspending, own up. Avoid finger pointing or justifying why you repeatedly end up with “more month than money”.
  • Avoid easy credit. Payday loans, credit card proliferation and the countless financing options out there all lead down the debt slippery slope.
  • Live on a budget. A budget allows you to make spending decisions in advance. A budget is not limiting as some people would have you believe. It is actually liberating, freeing you from impulse buying and allowing you to direct your spending into what you truly value.
  • Learn to delay gratification. Delayed gratification is a mark of maturity. You have come of age financially when you’re able to look at yourself in the mirror and say, “I can’t afford this now”, rather than reaching for the plastic.
  • Create a prioritized wishlist and be willing to make trade-offs. Don’t merely splurge on more stuff, invest in experiences that reinforce your values.

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