During the second quarter of 2021, household debt in the United States jumped from $313 billion to $15 trillion. Credit card debt, in particular, rose to $787 trillion — $17 billion higher than the previous quarter.
This spike shows that it’s more important than ever before for Americans to make money management a priority to avoid falling further in debt. And if you this sounds like you, here are four signs you might be living beyond your means — and how you can kick those unhealthy habits as soon as possible so that your existing debt doesn’t spiral out of control.
1. A Misinformed Mindset About Credit Cards
Many people tend to think that credit is free money, which can leave them in debt. Acknowledge that it’s money that you don’t actually have. Assess your cash flow and set a limit on how much credit you can actually use per month — it should never be equal to or over your income. If that were the case, you wouldn’t have enough cash for savings, to pay off debt, or to use for emergencies.
This sentiment is supported by CNBC, as we’ve previously noted here on our site. And although you shouldn’t be fixated on a single number, a general rule of thumb is to use no more than 30% of your credit limit. Not only will this help you put a cap on your credit card charges, it will also help keep your credit score in good standing.
2. An Unrealistic Budget
In the name of saving, we might make budgets that are too idealistic for our level of willpower. At best, a budget that’s too restrictive will leave you frustrated whenever you make a purchase, and at the very worst, you might end up spending too much to satisfy your temptations.
To solve this problem, you can try following a conscious spending plan. According to a post on conscious spending by Femme Money, conscious spending is actually connecting your money habits with your personal values. To do this, you need to keep your financial goals in mind. Find some motivation by reminding yourself why you’re saving for — is it to pay off your mortgage? Maybe it’s to put your kids through school? By reminding yourself that you’re doing this for a reason it can help you create more achievable budgeting goals.
3. Social Media Envy
Spending too much due to lifestyle envy is a real thing, and it’s a phenomenon brought about by social media. In a Petal feature on personal finance stories, Florrie shared her experience with social media envy. As a social media manager, Florrie was constantly exposed to other people’s lavish lifestyles on Instagram. She felt the need to prove that she and her husband were worth the same luxuries, and in her quest to fill her home with every influencer-endorsed trinket, she ended up in $35,000 worth of credit card debt.
Before you buy anything you see on social media, ask yourself if the product is something you actually need. You can avoid the FOMO by curating your feed, or cutting back on social media entirely.
Following a conscious spending plan can also help in this particular situation. Manage envy by reminding yourself of your financial goals, and reminding yourself of exactly what you might have to sacrifice for instant gratification.
4. Emotional Spending
An anonymous reader on Charlotte Cowles’ personal finance column recounted the story of her husband’s spending addiction during the pandemic. Even when he lost his main source of income, he didn’t curb his spending, and the anxiety that came about due to the pandemic only worsened his problem, leaving the couple with a credit card balance of $5000.
When you overspend because of anxiety, you create financial problems that feed this rather scary cycle. The trick is to set aside some money for fun. Allocate 50% of your income on needs, 30% on savings, and 20% on things that will make you happy. When you set aside money for necessities, you get a clearer picture of what you can spend guilt-free. You can also adjust the percentages to fit your circumstances.
Aside from this, you can try to find alternate ways to manage stress. When you’re anxious and feel the urge to spend, seek gratification in activities like yoga, meditation, sports, or art.
The instant gratification of spending money will never be worth the financial problems overspending can cause. So it’s important to take a minute to analyze your spending habits in order to find the best way to remedy them.
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