Every person has the ability to earn money.
Every dollar we make gives us the choice in the future to be rich, poor, or middle-class. It’s just a matter of how we spend it.
In the words of Robert Kiyosaki, best-selling author of Rich Dad, Poor Dad, “Our spending habits reflect who we are. Poor people simply have poor spending habits…. All of us have choices. I just choose to be rich, and I make that choice every day.”
You need to make the choice every day of whether you want to be rich or poor.
Here are common spending mistakes that most people don’t even know they’re making:
You know that you can’t spend $10,000.00, when you only make $8000.00, without ending up in $2000.00 debt, don’t you? When you do the math, this makes sense. However, there are so many ways for you to fall into this trap, such as when you dip into your savings, when you borrow from others, and more commonly, when you use your credit card. There are times when you overspend for a few weeks without knowing it, until the bill arrives. Soon enough, your savings are non-existent, you’ve maxed out your credit card, and people won’t lend you money anymore. Then what? Don’t spend what you make. Spend way below what you make each month. If you’re already in debt, reduce your spending by about 10-20%, and use the extra income to pay off your existing debts.
When you don’t make your savings the top priority in your budget, you’ll end up not saving anything at all. Set aside 5-20% of your income each month, before you even budget for your expenses. This way, you’re sure to have money stored away for a rainy day. Gail Cunningham, spokesperson for The National Foundation of Credit Counselling, shares this: “People tell me they can’t afford to save. I tell them they can’t afford not to.”
You should always use cash, or available cash in your debit card account, to make everyday purchase like groceries, gas, clothes and entertainment. The appeal of the credit card is the ability to pay later for items you buy now. The downside of this is that you’re less motivated to pay your credit card bill for items you’ve already consumed. You might say that you simply want to earn reward points for using your credit card. Then only charge items you pay off right away, possibly in the same day. Online banking options allow you to do this. If you don’t have the discipline to do this, then the reward points aren’t worth aiming for.
Using cash on hand has an emotional connection to it. It’s harder to make a purchase when you pay in cash, than when you pay with your credit card. When you pay in cash, you actually think long and hard about your purchase, don’t you? You may be thinking, I’ll use my credit card so I’ll be liquid with my cash. This is a bad habit. When you have used your credit card, and you see that there’s still cash in your wallet, you’ll think there’s still cash to spend. A lot of us get into this habit. We’re not satisfied if there’s still cash to spend. As long as there’s still cash, you’ll keep on buying. Since you’re using your credit card, you’ll see that you still have cash to spend. The truth of the matter is, if you don’t (can’t) pay for your purchase today, then you probably won’t be able to pay for them when the bill arrives.
If you don’t have money to pay off debt, wait until you have money to pay off your debt. When you’re using credit cards to pay off other cards or loans, you’re not really paying off everything. It just gives you satisfaction, as if you are. Don’t deceive yourself in this way. You’re just shuffling your debt around, incurring more debt in the process. However, using debt to pay off other debts can be beneficial, if you transfer the balance from a high interest rate credit card to one with a lower interest rate. Before you do this, factor in the transfer rate to the lower interest rate, to see if it really makes a difference.