Debt is all the same, in the sense that we borrow money now and pay it off later. What sets good debt apart from bad debt are the positive or negative consequences that arise from the particular type of debt that is taken out.
22 May 2014
Do you find that you are in the red every month but don’t know how you got there? You may not know it but your spending habits could be why your finances are a mess. Angelique Ruzicka surveys four spending habits that you could be following that is making you poorer every month.
1. Shopping without a plan or a budget
Quick trips to the shop without a shopping list or budget can lead to chaos and result in you coming back with armfuls of stuff bought on an impulse. If all you are going to do is ‘window shopping’, when you don’t have any money, the best thing to do is to avoid going to the shops in the first place.
“Unless there is a very specific thing that you need and it is written down, don’t venture into a store,” says Eunice Sibiya, head of consumer education at FNB. “And if you tend to spend your weekends at malls, try finding another option that is healthier for your wallet and your family, like a picnic in the park or visiting friends. Try pay for your store card through an electronic transfer, which will stop the temptation of unplanned buying.”
This also applies to online purchases. Online shopping is becoming very common and does have good benefits, such as convenience and sometimes lower prices. However, this convenience can easily lead to overspending, as it is available all the time, and purchasing is so simple.
2. Small purchases that make big differences
You may think that your everyday coffee purchase doesn’t impact on your wallet, but if you do this every day it will. “A take-away cappuccino and lunch every day might not seem like a big expense as a once off, costing around R50,” says Sibiya. “But, what is most people’s undoing is in its regularity. These small daily purchases quickly accumulate.”
An average working month has 22 working days, so R50 for each of these days will amount to R1 100, without you even realising it.
3. Not knowing what your are spending on your debt
Do you know the current interest rate on each of the cards in your wallet? The answer is most likely not. “If you don’t know how much you are paying to borrow money, how can you be expected to keep control of it?” says Sibiya.
She suggests that you spend some time going through all the debt you have, from store cards, to credit cards, short term loan repayments, car repayments or your bond and find out exactly what you are paying on each loan.
“Once you understand how much your debt is costing you, you can start working towards paying off some of these debts faster. Once one card is paid off, don’t be tempted to spend on it again,” warns Sibiya.
4. Lazy spending
If you are not reviewing what you are spending your money on regularly then you are classed as a lazy spender. “Spending wisely and saving is not unachievable, but what it does require is time and patience,” says Sibiya. “Most people end up making bad spending choices, just because they haven’t taken the time to consider an alternative.”
Almost everything that you spend on has an alternative that may be more cost effective and just as good. Everything from discounts on school fees if you have more than one child in school, to reviewing insurance policies, to common household items you purchase each week.
“When last did you review your insurance policies or when did you last look at the banking fees you are accruing to find out how much that is costing you?” says Sibiya.
There are many alternatives but if you want to benefit from them you need to take the time to conduct some research and look at your options. “Lazy spending is one of the worst habits to get into, and if not curbed, it may lead to debt spiral. Instead, be financially smart, take action and start spending sensibly,” concludes Sibiya.
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