5 Overspending Traps To Watch Out For
Overspending is something we’ve all experienced. And now that it’s practically Christmas, overspending traps are even harder to avoid. So when you’re out there doing your shopping, keep an eye out for these five overspending traps, so your hard-earned money doesn’t go to waste:
Sales like “50% off for a limited time!” can create a false sense of urgency that urge you to spend money on things you don’t need. Many sales are designed to trigger impulse purchases, which may not be kind to your wallet. If you don’t have the money for it, 50% off is still a 100% waste of money.
How to avoid this: Make sure that a sale is the best value for you before you whip out your wallet. Know the prices of things you want to buy, so you know if you’re actually getting a good deal. And, if you don’t have money for it in your budget, just don’t buy it — even if it’s on sale.
2. Ignoring the rules of your 0% installment.
Many of the major credit cards have been hyping up their 0% interest installment plans recently, so you can “buy now, pay next year.” But if you don’t know the rules, you might end up paying interest anyway. Rules differ between banks, but usually, you have to pay the monthly installment in full, otherwise you’ll either start paying standard interest, or your installment plan might be terminated, requiring you to pay the total amount in full. Plus, if you change your mind and decide you want to pay in full before the amortization term is over, the bank will charge you a fee (for example: BDO’s Absolutely 0% will charge you 5% or P300, whichever is higher, and BPI’s Real 0% charges a pre-termination fee of P550 plus an additional 2% interest on the principal amount).
How to avoid this: Read up on the rules of your credit card’s 0% installment before you use your cards so you don’t get hit by surprise fees.
3. Using cards instead of cash.
We at iMoney like to say that using a card hurts less than using cash, which leads you to spend more. Here’s the scientific proof: researchers at the Massachusetts Institute of Technology found that people using credit cards are willing to spend up to twice as much than people using cash. Think about this the next time you go out to shop with your credit cards.
How to avoid this: If you want to use your credit cards (for rewards and such), set yourself hard limits so you don’t end up overspending. If you know you’ll have a hard time sticking to the limits, leave the card at home and shop with cash.
4. Peer pressure.
A lot of people feel the pressure to keep their spending in line with their friends’, even if they can’t afford it. If you have friends that like to go to expensive restaurants or bars, you might end up spending more than you should when you go out with them.
How to avoid this: Have a handle on your finances so you know exactly how much you can spend on social situations. Learn how to say “no” when you know you can’t afford to go out. But don’t be a hermit: put aside a little bit of money every week so you can afford a night out with your friends, guilt-free.
5. Waiting until the last minute.
Waiting until the last minute is a trap that will cost you. For example, you might get so busy that you forget about making holiday preparations until December 24, at which you begin a mad dash to buy presents and Noche Buena stuff and end up spending a lot of money, throwing your budget out of whack. When you buy at the last minute, you end up buying things that aren’t necessarily the best value for money because you’re under time pressure. This goes for a lot of things, like holiday gifts, budget plane tickets, and even groceries.
How to avoid this: Plan your expenses well ahead of time. This way, you have time to look at cheaper options (both in brick-and-mortar stores and online), consider what would be the best value, and save up money for big-ticket items. Plus, planning will get rid of the stress involved with last-minute shopping.
Are there other overspending traps we’ve missed? Let us know in the comments!