When you think of your spending, does it sometimes feel like you’re on autopilot? Most people have spent a lifetime creating good and not-so-good spending habits that are ingrained by repetition. Bad spending habits and behaviours can be difficult to catch and hard to change. But if you can determine the “why” behind your own money management, you can create new, more beneficial habits.
Each person develops their spending habits from the examples modelled for them (in their family, at school, on TV, in books or music), and from the money behaviours they prefer because of their own unique personality.
Role models like parents, older siblings, extended family, peers and schoolteachers can have a lasting impact on your spending and saving behaviour. Your primary caregivers, especially, can have a significant influence on your spending habits. If you were raised by more risk-averse folks, you might be less likely to overspend or take investments risks. On the other hand, if you regularly saw them offer gifts of money or dabble in the stock market, you might do the same.
Just like a lot of songs and stories that center around a love interest, you’ll often find a money angle, too. Rags to riches, big spenders, lottery winners, fairy godmother-types, music, movies and TV shows all model spending and saving behaviour.
The spending norms of cultures, regions and religions form individual habits that align with those expectations. You may be encouraged to live frugally and humbly without excessive spending, make donations to your church, support your ageing family members or host large cultural and family celebrations.
No two people are exactly alike. Even raised in the same family or environment, people tend to manage their money differently. Your sibling might be a free spender, while you squirrel your money away for future purchases. How people deal with stress and emotions on a personal level impacts spending, too. Hitting “add to cart” can be an emotional release in stressful situations. Celebrating milestones and achievements with purchases can become a way of life. Emotion-based overspending can often lead to financial problems.
Unhealthy financial habits can be frustrating because they detract from short- and long-term financial goals. Even when you realize your behaviour is working against you and your goals, it can be difficult to break the habit.
It takes a conscious effort to change your spending habits. If it helps, try to think about it as forming a new, healthy habit rather than breaking a bad habit. Here are five ways to transform unhealthy habits to help you gain control over your finances.
You’ll only know where you’re overspending (and under-saving) if you track it. At the end of each month, are you surprised that your money is gone, and confused about where it went so quickly? Pay attention to how it feels. You probably feel unsettled and frustrated by what seems like a lack of control.
Use a tracking method that works best for you to spend wisely: a money management app, pen and paper, a simple spreadsheet, a visual spending board, a photo of your receipt or a screen shot of your online purchase all work. Reviewing when and where you tend to spend and what you spend your money on makes it easier to make spending decisions in the future.
Choosing upgrades like delivery over pick–up, expedited shipping and name brands over store brands almost always come at a higher cost. If you’re tracking your purchases, you can easily see where and how much you’re spending on convenience. You may experience a bit of extra joy from the luxury of those little extras, but that can be a fleeting emotion. And your long-term goals will stay out of reach if you’re overspending on non-essentials that could be downsized or eliminated altogether.
Make a list of your long-term goals and review them regularly. Label a new savings account to reflect a big goal, like an emergency fund, a vehicle, your retirement or a home renovation. If giving up a convenience leaves you feeling disappointed, consider transferring the amount you would have spent on that “extra” directly to your savings account. It might be a small impact, but it all adds up.
Most people would admit they’ve made a purchase to either avoid negative situations or stress, or to celebrate the good. The immediate act or impulse of buying something new can activate those feel-good hormones like dopamine. Companies and marketing firms spend a lot of money and time finding ways to engage customers by triggering those responses in consumers. But the eventual stress of too much debt or too little savings decreases happiness and increases stress and guilt.
Emotional spending can also serve as a coping mechanism for surviving challenging times. Try creating a list of healthy coping mechanisms that won’t negatively impact your finances, like exercise, connecting with friends or family, pursuing a hobby or pitching in to help someone in need.
A budget can be eye-opening. Necessary expenses like a mortgage, utilities, transportation, food, a cell phone and loan payments can demand a large portion of your monthly income. A budget helps to ensure you can pay for your essential needs and reveals what’s left for financial goals and non-essentials.
Would you like to purchase a home in five years? Boost your emergency savings? Save for your kids’ post-secondary tuition? Help your aging parents? Short- and long-term goals require a plan. So do your day-to-day comforts and non-essentials, like subscriptions, personal care appointments and specialty coffees. Make as many budget lines as you want and prioritize however it suits your financial goals.
There’s one guarantee when it comes to finances: debt will not take care of itself. It can be tempting to make only minimum payments on credit cards or lines of credit, or to skip a payment altogether so that you have money to spend elsewhere. Unfortunately, over time your credit score will be negatively impacted, and it will take you much longer to pay off your debts. The longer you hold onto debt, the more you’ll pay in interest charges. Check out this debt calculator to understand how long it will take you to get out of debt.
Try to habitually charge only what you can pay off in full in one to two payments. Setting up auto payments or creating a schedule with reminders to make your payments on time can help.
Everyone has spending habits. Some of them are less helpful than others, but you can create positive financial habits that will help knock out the ones that aren’t benefiting your financial health or future goals. If you aren’t sure where to start, and need advice on budgeting or debt repayment — or if you’re overwhelmed by your current debt and want to learn more about your debt relief options – reach out to a Licensed Insolvency Trustee (LIT) for a free consultation. Make today the day you begin to create good spending habits.
If you want to transform your bad spending habits into good ones, meet with a Licensed Insolvency Trustee today to create a plan.