Most of us have made poor financial choices at one point or another. Maybe you have fallen victim to the lure of free shipping if you order a certain amount, or perhaps you just can’t resist the latest celebrity line at Target. In some cases, poor purchases can have a bigger impact on your life, leaving you in debt for years on end. Either way, you may be looking at your bank statement at the end of the month, wondering where your money has gone.
The good news is that there are red flags you can spot to alert you that you are about to make an unwise financial choice. By heeding the warnings, you can avoid common pitfalls that leave people living broke and unable to reach their savings goals. Here are six key signs you’re about to make a bad money decision.
You Have To Put It on a Credit Card
If you cannot afford to pay for the item with cash or money that is currently in your bank account, then you should probably think twice about buying it. Credit cards have made it far too easy for the average person to live the lifestyle of the rich and famous — at least in the moment.
Unfortunately, the unfettered spending will catch up to you, and the crash will be devastating. Before long, you will have racked up thousands of dollars in unsecured debt that you will be paying off for decades.
The best way to avoid this is to get into the habit of paying for things with cash. Do not rely on your credit cards. If you want to use credit cards for benefits like cash back or airline rewards, just be sure you can pay them off each month.
You Don’t Need It
It can be challenging to differentiate between a want and a need, particularly if you have never had to live on a budget. But, if you are trying to save money, you will have to determine what is essential spending and what is discretionary spending.
To avoid impulse buying, you can use the 24-hour rule. If you see something that you really want to buy, wait 24 hours. If you still really think you need it, then you can purchase it. If you are still overbuying, extend the waiting period to a week. You’ll realize that a lot of things lose their luster the longer you sit on them.
You Haven’t Budgeted for It
Making sound financial decisions begins with establishing a solid budget. If you do not have a budget, you probably don’t know where your money is going each month. You may be surprised when you finally put pen to paper to find out just how much you are overspending.
Once you have made the commitment to start saving money, write down all of your income and expenses. Go point by point through your credit card and bank statements to determine where you spend money. Mark each expense as essential or non-essential. Your essential spending is money that must be spent each month, but your non-essentials are more fluid. It may be things like eating out or buying a new outfit.
If something is outside of your discretionary spending budget, then think twice about buying it. Stick to your budget, and you will start to achieve your financial goals.
You Feel Pressured To Buy It
Advertisers are smart. Really, really smart. They use terms like “limited-time offer” or “deal of the day” to try to pressure you into buying stuff. Not wanting to miss the sale, you might go ahead and purchase the (likely) non-essential item. Don’t fall for the gimmicks. Limited-time offers will usually come back around and may not be that good of a deal to begin with.
You Are in Debt
One of the biggest signs that you are about to make a bad financial decision is if you are already in debt. If you have large amounts of credit card or other unsecured debt, you should probably rein in your spending.
Do not buy things unless you need them, and focus on paying down your debt first. Credit card debt, in particular, can be frustrating because you will end up paying huge amounts of interest if you carry a balance each month.
You Have To Lie About It
If you need to hide your purchase, it probably isn’t worth it. Maybe you promised your husband you wouldn’t buy any more Halloween decorations, or you borrowed money from a friend last month and are afraid to show up with a new purse. Having to lie about what you buy is a good indication that it was a bad choice in the first place.
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