These common spending habits can negatively affect your financial wellbeing. Here’s what to do instead
You may have found it more challenging than usual to budget over the past few years as the cost of living crisis affected the price of everyday essentials such as energy and food.
At times like this, it can be easy to assume that the only way to achieve your long-term financial goals is to increase your income. Yet experts have suggested that, when it comes to financial wellbeing, the way you manage your money is just as important – perhaps even more important –than the level of income you have.
Your spending habits in particular can mean the difference between financial stress and achieving your long-term goals. Read on to learn about three spending habits that could have a negative impact on your financial wellbeing and how you can rectify this to feel more in control of your money.
1. Letting your emotions drive spending decisions
Everyone makes snap decisions about purchases now and again based on an emotion – in fact, many of your spending decisions are driven at least in part by your emotions. For example, you might decide to treat yourself because you’ve achieved something like ticking off a big task from your list or achieving a promotion at work. Or perhaps you’re commiserating something and feel a pick-me-up could help.
Within reason, there’s nothing wrong with this, but letting your emotions run the show unchecked could mean that, over time, you start to overspend. So, it’s important to notice when you’re spending based on emotions rather than logic so that you can avoid this.
One of the ways you can avoid making unnecessary purchases based on emotions is to set yourself a “cooling off” period before buying.
When you’ve decided you’d like to buy something that isn’t an essential, decide on a period of time over which you will reflect on this before making the purchase. This could be a few days, weeks, or even months, depending on how expensive the acquisition is.
If you’re still keen to buy the item after the cooling off period, this indicates that it is a worthwhile purchase. If not, you’ve saved yourself some money by taking the space to reflect first.
2. Relying heavily on credit cards or loans for lifestyle purchases
Credit cards can be a helpful way to build your credit score, not to mention the added security they offer for making online purchases. But it’s important to only spend what you can afford so that you can pay off the credit card bill each month to avoid interest from accruing.
If you’re leaning heavily on credit cards or high-interest loans for non-essential spending, you could find that the interest quickly adds up. Over time, this could affect your financial wellbeing as you may need to use funds to pay off this costly debt that could otherwise have been used to further your progress towards your long-term goals.
It may not be practical to avoid using credit cards or loans entirely because of the benefits you read about above. By keeping track of how much you are spending on your card, though, you can ensure you never accidentally overspend. Monitoring your transactions in this way can help you to understand what you tend to spend on and where you could save money.
It may also help to set up alerts so that you receive a notification if you exceed a pre-set threshold. This will mean you can modify your spending if you reach the threshold early in the month.
3. Letting your lifestyle expenses rise in line with your salary
“Lifestyle creep” refers to the way your living expenses can steadily rise as your income increases. For example, perhaps you decide to go out for dinner more often, or shop in more luxurious stores, because you can now afford to do so.
While there’s nothing wrong with enjoying your new income, it’s important to balance this with making progress towards your long-term goals. It may help to create a new budget each time your salary rises, allocating some of it to improving your current standard of living while directing the rest towards your savings, investments, or pensions, to help you grow your wealth and work towards your goals.
Your financial planner can help you to create a realistic monthly budget that allows you to save for the future without sacrificing your preferred lifestyle today.
Get in touch
Our team of financial planners can help you to identify any spending habits that may be affecting your financial wellbeing so that you can work towards your long-term goals more effectively. Email us at info@harperlees.co.uk or call 01277 350560 to find out more and we’ll be very happy to help.
Please note
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
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