We’ve all been there — staring at a long list of credit card transactions and wondering how things got so out of control. If you’re in the habit of buying stuff you can’t afford, then it’s time to do something about it. Debt can have a huge impact on your credit scores, not to mention your ability to reach major life goals like buying a car or owning a house. You can break the cycle by first understanding the risks of your habit and then taking steps to break it.
1. Understand Needs vs. Wants
If you get tempted by the first shiny object you see, you need to be able to take a step back and ask yourself if the purchase is really worth it. Not sure how to do that? You can start by asking yourself if you need it or just want it. If it’s something like the latest eyeshadow kit or an indulgent couple of days at a spa, it’s pretty safe to say those are wants. They may feel like things you’re entitled to — you’ve worked hard so you deserve them — but chances are you can live without them, and so can your wallet.
2. Make a Budget
A great way to get your mind in the money-saving game is by drafting a budget. We know, dealing with finances seems like hard work. But drafting a budget doesn’t have to be boring. In fact, it can be a fun way to determine all the good things you get to spend money on. We recommend using a personal finance app to get started or going the old-fashioned route with pencil and paper and jotting down your monthly expenses — as in the things you must pay every month, like your rent. Write down how much you have coming in and deduct your expenses from that amount. Now you know how much discretionary income you have for the month — or what you can safely spend without going in the red. Aim to spend less than that amount, and your habits are sure to improve.
3. Put Away Your Credit Cards
Credit cards may seem like a foolproof way to spend money — after all, you don’t have to pay them until your bill’s due date. But throwing a bunch of unnecessary charges onto your credit card is a one-way ticket to debt. Accrue too much of it, and your credit could take a big hit. (You can see where your credit currently stands by viewing two of your scores, absolutely free, on Credit.com.) If keeping a credit card in your wallet is simply too tempting, consider leaving it at home or cutting it up.
4. Stop Making Excuses
More than anything, your habits depend on your mindset. And if you’re telling yourself the wrong things — I don’t have time to set a budget, I don’t earn enough money — your spending won’t improve. If you want to make real progress, you’ll need to get honest with yourself about your spending and take steps to address it. For some, that may mean speaking with a professional, while for others it may be as simple as using a spreadsheet to see where they’ve been going overboard. Whatever it is, make sure you get started now to avoid the pain later.