Here’s how to identify and control a spending problem
Buyers in San Francisco.
David Paul Morris | Bloomberg | Getty Images
Vaccinations against Covid-19 are increasing, states are dropping their restrictions in the event of a pandemic, and Americans are feeling good going out and spending a year after spending mostly indoors.
“We’re now coming out of a cave, basically, and there’s a lot of emotion around it,” said Susan Greenhalgh, a certified financial advisor who runs Mind Your Money in Providence, Rhode Island.
Indulging yourself, especially after surviving the coronavirus pandemic, is fine as long as you do it within your budget and comfort zone, Greenhalgh said. But for those who aren’t careful, the momentum of finally being able to resume normal activities after the pandemic could lead to a hangover in the months to come.
To combat this and keep your budget under control, here are some red flags that financial experts recommend watching for a spending problem, and what people can do about it.
More Investing in you:
How To Find Your Best Spending Rate In Retirement
Childcare costs, lack of paid leave hold back many working parents
What you need to know before you start investing
You accumulate debt
An early sign that you might have a spending problem is that you are taking on debt, especially on high interest credit cards.
This is of particular concern if you suddenly find that you can’t make a full payment at the end of the month, have to reduce the amount you owe, or can’t even pay the minimum amount, according to Jacqueline Schadeck, a certified financial expert based planner. in Atlanta.
Of course, it’s likely that credit card balances will increase after a year without spending much to get out, Greenhalgh said.
“We were kind of getting used to very low credit card statements every month, and now they’ve gone up dramatically,” she said.
Having a higher bill a month isn’t an immediate cause for concern, but it’s something to watch for future credit cycles and consider if you need to restore your budget, she said.
Your credit score suddenly drops
Another thing to watch out for that could indicate you’re spending beyond your means is a sudden drop in your credit score.
This is because one component of the score is your credit usage, which is how much you spent against your total limit. As you take on debt, your credit usage will increase and your credit score might drop to reflect that, Greenhalgh said.
“If all of a sudden you put travel, clothes and restaurants on [your credit card] and you don’t think about it, don’t be surprised if your credit score drops, ”she said.
You let your emotions guide your spending
After a year of not doing a lot of the things we’d like to do, it can be tempting to let our emotions get the best of you and spend limitlessly. This can be particularly difficult in a context of uneven recovery, where the pandemic has been beneficial or neutral for some Americans but very damaging for others.
“You see some people have problems because of this because they use the expense as a way to just get accepted and keep up,” said Adam Blum, registered psychotherapist and founder of the Gay Therapy Center. He added that this has been particularly noticed as a problem among gay men.
“When we pass out and don’t think about what we are doing, it is more likely that we will make mistakes that we regret,” said Blum.
You tried to budget or limit spending, but you’re having trouble
Of course, some things after the pandemic will cost more due to inflation and crowded supply chains.
If your expenses are increased as a result of this, it may be unwanted, but it’s not necessarily a problem, said George Blount, financial therapist and managing partner of nBalance Financial in Cambridge, Massachusetts.
On the flip side, if your spending has gotten out of hand, it’s a red flag, he said. And, if you’ve tried budgeting using a system or product that just isn’t working for you, that’s also a cause for concern.
“You have to use the tools and you have to use them effectively,” Bloun said.
Additionally, if you’re making a lot of money but just don’t know where it’s going, it could signal overspending, according to Schadeck.
The solution? Conscious spending
To solve a spending problem, financial experts recommend that you become familiar with the details of where your money is going and the emotions behind the purchases.
“I always encourage people to be careful with their money,” Greenhalgh said. It means watching their spending for a few months in a row, she said.
Set aside some quiet time with your bank account and credit card statements and really see where the money is going, she said. Then assess what you feel good about and what you are not so happy about. This could include comparing expenses with a pre-pandemic budget, identifying any changes in expenses, and correcting the course if necessary.
Being connected to where you spend can help you form new habits, she said.
If you’re still having trouble spending, or think it could be related to emotions you’re having trouble controlling, seeking help from a therapist or financial therapist can help you with these issues.
You can also do certain exercises such as checking your emotions before making a purchase, Blum said.
“Everything we do has an emotional component, and if we don’t know what it is, we’re sort of operating at a loss, we’re stuck,” he said. By asking yourself why you are making a purchase before you swipe your credit card, you can become more aware of and address the emotional component.
SUBSCRIBE: Money 101 is an 8-Week Financial Freedom Learning Course, delivered weekly to your inbox.
CHECK: How To Make Money With Creative Activities From People Making Thousands On Sites Like Etsy And Twitch Via Grow with Acorns + CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.