Know what you spend and how you pay
In this section, you will learn how to become aware of your spending habits and which habits can pose a risk to your financial well-being.
Being in control of your spending means tracking where, when, how and what you are spending your money. Once you have a system, it is easy to keep track of your daily expenses.
Below are a few of the tracking options which are outlined in the lesson on record keeping from the budgeting module. You may want to review the budgeting module.
- keep all of your receipts, or
- record expenses as you spend—this can be done in a notebook, calendar, computer program or mobile application
- Use your bank’s expense categorization software built into online banking, and/or download information from your online banking account to a spreadsheet.
There are risks associated with disclosing your online banking and credit card information to third-party financial mobile applications and/or online services. Make sure you review the user agreement carefully to determine whether sharing your information with another party will result in losing your protection against unauthorized transactions. When in doubt, do not share your banking information and if you are at risk, contact your bank immediately and change your online banking passwords.
If you have questions, write them down and bring them to your in-person counselling session.
Risky spending habits
Tracking your spending allows you the opportunity to review your habits and identify the ones that pose a risk to your financial well-being. This section will give you information to help you identify some potentially risk habits, and strategies to avoid these habits.
Impulse purchasing and compulsive spending
We live in a culture of consumption in which we are constantly encouraged to spend. Impulse purchasing is a decision made in the spur of the moment. When making an impulse purchase, you probably aren’t thinking about what effect the purchase will have on your budget or if you are able to afford it.
Below are a few strategies you can use to help you avoid making impulse purchases:
- avoid unnecessary trips to shopping malls;
- go shopping with a list and stick to it; and,
- identify the moods that affect your spending behaviours (stressed, happy, sad, hungry, tired, distracted) and find ways to avoid shopping during those moods.
The payment method can also influence your ability to make impulse purchases. Consider the following strategies to avoid impulse spending:
- leave your credit cards at home and delete your credit card information from your mobile payment/digital wallet account; and,
- set up a bank account to keep your savings separate from your chequing and have your bank remove access to your savings account from your bank card.
Online shopping
Consumers choose to shop online due to the convenience of round-the-clock access and front door delivery. However, this very convenience can also enable impulse purchasing.
If shopping online has led you to make too many impulse purchases, you may want to reduce the temptation.
- Try ‘unsubscribing’ from online retailers.
- Go into the store and pay with cash. The act of physically going to a store and paying with cash makes people more aware of how much they are spending. This may help reduce online shopping and impulse purchases.
Speak to your counsellor if you are having trouble with impulse purchasing, online shopping, and/or compulsive spending. If you have questions, write them down and bring them to your in-person counselling session.
Impact on spending when using credit
It is important to know that using credit is neither good nor bad. Credit is a tool. As with any kind of tool, whether it is good or bad depends on how you use it.
Credit enables habits which pose a risk to your financial well-being.
- It is easier to impulsively buy something when you have credit available to you.
- It is easier to shop online when you have credit available to you.
- It is easier to satisfy a spending compulsion when you have credit available to you.
Having credit available to you isn’t the cause of these habits, however it makes it easier to form these habits.
Why is this?
It is important to understand the connection between:
- habits which pose a risk to your financial well-being, and
- credit makes it easier to form risky spending habits.
If credit is not used responsibly, it will pose a risk to your financial well-being. Overusing credit can become a serious financial problem.
The reason credit makes it easier to form these habits is simply that it gives you more opportunity to make the purchase by giving you greater purchasing power. Without credit, you would only be able to form these habits if you had the cash. With credit, you don’t immediately need the cash.
These are some signs that you are using credit as a tool in a way that is putting your financial well-being at risk:
- your monthly spending is more than your monthly income;
- your credit cards are maxed out;
- you only make the minimum payment on your credit card balance; and/or,
- you use one credit card to make the monthly payment of another.
Consider these strategies for using credit responsibly:
- use your budget and let your financial goals guide your spending decisions;
- consider your current balance, not your credit limit;
- remember you have to pay it back; and,
- use your credit card only for things you would have purchased anyway (for example, your essential expenses like groceries).
People tend to spend more with credit than with cash, and are even willing to pay more for the same product when using credit instead of cash.
If you have questions, write them down and bring them to your in-person counselling session.