Maintaining sound finances starts with living on a budget. In fact, ask any expert in personal financial management to name the single most important principle of sound finances and you will likely get an earful about budgeting. It is that important.
Given the role budgeting plays in managing one’s finances, it seems to make sense that blowing your budget risks your financial health. Exceeding your budget every once in a while isn’t a big deal. You can recover. But if you are regularly busting your budget wide open, you could be headed for a serious financial fall.
In an attempt to help you avoid such a disaster, here are five budget-busting traps to avoid at all costs:
1. Carrying Credit Cards with You
Credit cards are good tools when used properly. They make it possible to travel on vacation without having to carry cash. You can use a card to pay for big-ticket items without having to write a check. And yes, credit cards are helpful to cover certain kinds of financial emergencies. Credit cards themselves are not a problem. It is all in how you use them.
Using a credit card improperly can lead to an insurmountable volume of debt. Once that debt starts to pile up, interest piles up with it. You can easily find yourself in a position of never getting your credit cards paid off because your minimum monthly payments are just barely keeping up with interest charges.
The way to steer clear of this trap is to avoid carrying your credit cards with you. Leave them locked up at home whenever you can. Only pull them out when you absolutely need them.
2. Buying on Impulse
Speaking of credit cards, Forbes contributor Business Council member Elie Katz says that credit cards actually increase impulse buying. He should know. Katz is also CEO of a company that helps retailers track sales and increase revenues. Credit cards are a topic he deals with regularly.
We mention this to remind you to avoid buying on impulse. The more often you succumb to impulse buying, the more likely you are to spend money you do not have. This leads to a cycle of debt and repayment that could eventually become too much to bear.
For the record, impulse buying is essentially unplanned buying. You purchase something on a whim rather than implementing a plan you had in place ahead of time. You can succumb to impulse buying at the grocery store. You can impulse buy around the holidays. If you purchase something without having previously planned to do so, you are buying on impulse.
3. Buying Gifts for Every Occasion
Next up is the trap of buying gifts for every wedding, birthday, graduation, and holiday. Gifts are not bad in and of themselves. However, we humans have a tendency to play the one-up game. Gift giving becomes a competitive sport when you do it often enough. That gets expensive really, really fast.
It is not necessary to purchase a gift for every special occasion. Reserve gift giving for immediate family members and your closest friends. An inexpensive greeting card with a personal note from you is fine for everyone else.
Another thing is to not let yourself be guilt-tripped into buying gifts. There are people out there who will try to shame you for not bringing a gift to the birthday party. There are others who will expect you to buy them gifts just because they move into a new apartment. There are lots of reasons for gifts giving, but not all of them are good reasons. Do not give gifts out of a sense of guilt.
4. Justifying Instant Gratification
The need for instant gratification is a big problem. We see something and we want it now. Rather than saving for it, we whip out the credit card and make the purchase. Too many purchases in too short a time creates a mountain of debt.
Where does this sort of thinking come from? Perhaps it is the result of living in a time when technology puts so many things right at our fingertips. Maybe it is the result of living in a prosperous country in which we don’t have to deny ourselves very many things. Perhaps the need for instant gratification is due to something else entirely. Who knows?
At any rate, we compound matters whenever we justify the need for instant gratification. We come up with creative reasons to explain why we had to make the purchase right then and there. Such justifications only provide fuel for future purchases. Avoid giving into the desire for instant gratification. And should you succumb from time to time, do not make excuses justifying it. See it for what it is.
5. Borrowing to Pay Monthly Bills
Like credit cards, borrowing via personal loans, cash advances and the like can be very helpful when done the right way. One thing you absolutely should not do is borrow to pay your monthly bills. Doing so is yet another financial trap that can lead you to a very bad place financially.
If you cannot cover your monthly bills with your regular income, it is best to admit the reality you face – you are already spending more money than you make. Borrowing will not solve the problem. In fact, it will only make things worse by costing you more money in loan repayments.
Not having enough money to pay your monthly bills means you need to increase your income, decrease your bills, or a combination of both. At any rate, borrowing is not the right way to go.
All five of these financial traps can quickly bust your budget. Have you fallen victim to them in the past? If so, have you recovered or are you still paying the price? Our advice is to avoid them at all costs. Go out of your way to steer clear of them. In so doing, you will find yourself on more stable financial footing.