4 Signs You’re Spending Too Much on Luxuries
Written by
Mary Green
Edited by
Molly Sullivan
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Most of us enjoy indulging ourselves in little luxuries, whether that means going out to a special restaurant, taking a vacation or buying a new outfit. Unfortunately, though, it’s easy to get into bad habits and start spending too much money on things you don’t need.
How can you stave off lifestyle creep and make sure you don’t waste your hard-earned cash on handbags, skin care and other luxury goods? Here are four of the most important signs you should watch out for.
You’re Not Saving Enough Money
Experts suggest that you should put 20% of every paycheck into your savings account. Ideally, financial experts say you should plan to spend half of your income on basic needs, like rent or mortgage, groceries and bills. You should spend another 30% of your paycheck on fun items, like restaurants and vacations. That leaves 20% to build up a retirement fund, save for your kids’ educations and create an emergency cushion in case of an emergency.
What happens when you overspend on luxuries? Little by little, you start to reduce the amount you put in your savings account. If you start going on spending sprees every weekend, you’ll probably notice that you don’t have anything left at the end of the month.
You can fix this problem by automating your savings. Set up a monthly transfer into your savings account so that you won’t be able to fritter it away on luxuries.
Your Credit Score Has Taken a Hit
If you ratchet up your spending, your credit score might drop, even if you’re making regular payments on your credit card. That’s because your credit score depends, in part, on your credit utilization rate. Your credit utilization rate is the percentage of your credit limit you actually use.
The Consumer Financial Protection Bureau, or CFPB, recommends that you stay well below your credit limit in order to keep your credit score steady. If you overuse your credit, you could see your credit score drop. In fact, even one or two big credit card purchases could impact your credit score.
According to Experian, if you’re using 30% or more of your available credit in a month, you’ll start to see big hits to your credit score. Fortunately, you can address this issue pretty easily. Make it a habit to check your credit score and credit utilization rate. Build a plan to keep your spending down, or if you really have to make a big purchase, pay it off early.
You’ve Stopped Tracking Your Spending
If you recently got a raise, you might be tempted to throw away your budget and stop tracking your spending. Sure, it’s fun to feel carefree instead of fretting about every dollar. But over time, experts say that monitoring your spending is the best way to keep your finances healthy.
Tracking your spending lets you see exactly where your dollars are going. It’s a great way to stay on the straight and narrow and avoid getting into bad habits when it comes to luxuries. If you’re writing down every purchase you make, you’ll be much less likely to fall prey to lifestyle creep.
You’re Carrying a Big Balance on Your Credit Card
If you’re routinely splurging on luxury goods, you’re probably building up a big balance on your credit cards. Not only is that stressful, but it can make a dent in your wallet by saddling you with hefty interest charges every month.
A big credit card balance can also impact your future, making it harder to get a bank loan, take out a mortgage on a new home or buy a new car. High credit card balances can reduce your credit score. They can also increase your debt-to-income ratio, which hurts your chances of qualifying for credit later on.
How to solve this problem? Try to discipline yourself by paying for your luxuries with cash or a debit card. As much as possible, avoid spending money that you don’t have, especially when it comes to “fun” purchases like jewelry, designer clothing and luxury home goods.
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