Here’s the dirty truth: When you’re trying too hard to keep up with the Joneses, the Joneses can usually tell. It can be pretty obvious when someone’s lifestyle is way outside their means — as in, the amount you spend every month equals or outweighs what you earn. Not sure if that’s you? Read on.
- You have a job but your credit-card balances aren’t going down. Credit serves a purpose, and it can rescue you in a pinch. However, “a pinch” is not defined by a craving for takeout Thai food or a trip to Nordstrom if you’re close to maxing out one or more credit cards. If you’re not making a dent in your debt, it’s time to take your finances more seriously.
- You aren’t saving much, if anything. After #1, you may be tempted to pat yourself on the back for not having a dime of credit-card debt. But if you aren’t saving anything at the end of the month, the fact is that you still can’t afford your lifestyle. Save first, then spend.
- You assume the future will be much rosier than the present. This is a classic consumer-debt trap: You buy today on credit with the assumption that the money will be there to pay off your bills — someday, that is. It’s an unfortunate fast track to bankruptcy. Make purchasing choices based on your budget today, not on the presumption of a raise or a windfall in the future.
- You wonder where all your money went. When you have no idea how or when your paycheck evaporated, it’s time to start tracking your spending. Keep it simple: Budget it with cash. Pay your rent/mortgage and any loan payments first, and for everything else, make a guess of how much you spend on groceries, entertainment, clothing and personal care, utilities, gas, household goods, pet care, and anywhere else you typically spend money. Then put each amount in cash in envelopes, stored in a safe place. If you run out of cash in any envelope before month’s end, make a note of it and tweak your allotments for the following month. Pretty soon you’ll get a sense of — and a handle on — your spending pitfalls.
- You crave validation of your spending. It could be among friends or from strangers on an online forum, but if you feel the itch to hear praise on your new [home, car, living-room set, etc.], you’re playing a dangerous game. Seek self-worth elsewhere, not in possessions.
What are your favorite ways to keep spending within a happy range?