It seems weird that anyone would spend money that they don’t actually have but yet it happens all the time! Have you ever justified buying something by saying “oh well, it’s payday next week anywa”, or even worse “I’m buying this with the bonus I’m getting next quarter”.
We forever rely on receiving a salary at the end of the month (and it’s generally something that can be relied on) but I would like to suggest (strongly suggest!) that we don’t make purchases or big financial decisions with money that we don’t actually have yet.
Why to NOT spend money you don’t have?
The point is that if you use next months money now, then what do you use next month? Perhaps you only plan to use a small bit of next months money now, but still, at some point next month you’ll run short or you won’t be able to save as you expected. If you don’t usually use the following months money before you have it you may feel that it’s okay to do so every now and then. As far as your cash flow goes, it probably is okay (if you manage it well), but you need to be wary of forming a habit! Going forward it just becomes easier (and almost normal) to keep needing to use the money you don’t actually have yet because you can never quite make it to the end of the month.
This unfortunately is the start of the dismal cycle of debt which leads to so many problems and lots of stress! And if you currently have debt and are already in this cycle of spending money before you’ve actually received it then you will know exactly what I mean!
Read more on what cash flow is and why it’s so important to change your spending cycle to one where you only spend money you actually have.
Instead of spending and then receiving it, you should be receiving money and then spending it.
Practical tips to change your money cycle
So how do you avoid needing to spend next months money now? This will largely depend on your current financial situation and these tips may not be as easy as they sound. If you have lots of debt then these tips will most certainly not be enough, but they should get you started on the very rewarding path of becoming debt-free!
Cancel you store cards
If you have store cards that allow you to buy merchandise now and pay later, cancel them! It’s just too easy to spend the money you don’t have! This may take several months to do but have a look at this post for how to cancel your store cards.
Using cash can be a great way to force yourself to only spend money that you actually have. You do need to be practical though as it’s unsafe to walk around with huge wads of cash. When going shopping, take along your list of things you need and take enough cash. Leave your credit card at home though and you’ll be surprised at how quickly your shopping goes as you’ll be super focused on what’s needed and your limited budget.
Set an “impulse buy” limit
It is sometimes necessary to do “impulse” buying of necessities that you had forgotten about. If you’re at the store and see something you need which isn’t on your list or your budget then it would be silly to go home only to come back later to buy it. It also happens sometimes that a store has an amazing special which would be silly to ignore if it’s something you would be buying anyway.
The solution is rather simple, just set yourself a monetary limit (eg R200) for impulse shopping. When you see something you want to buy that isn’t planned for, just check if it’s within your limit. If not, go home and delay the purchase and rather plan for it.
Create a budget
This is often the thing that scares people most. Budgets aren’t meant to be the nasty thing that stops you from spending any money; rather see if as a way to make better decisions! Make your money decisions in a calm & relaxed space and when you in a busy shopping centre being bombarded with marketing and sales people just quickly remind yourself of your decisions and plans. Have a look at how to create a simple budget.
Use a money app to help you keep track
There are many free apps to use to manage your finances and good old fashioned pen and paper works just as well too. Keeping track of your money and spending really helps you focus on priorities and helps you make better money decisions. I like using an app as I have all my facts and figures with me wherever I go. If I’m in a clothing store and want buy something I just quickly look at how much I have available to spend. It’s really easy!
I use a paid-for app called YNAB (You need a budget). It’s an US-based app but see how I use YNAB in South Africa.
Change your money habits
Changing your money habits can be hard and requires daily focus and effort. However, the reward can be life changing! Spending next months money now is never a good idea so if you’re in this cycle you need to really work on changing your mindset and your cash flow. If you want to become debt free and financially free, then this is the best place to start! Don’t spend money you don’t actually have!
Article reposted with permission from Take charge of your money.