3 Money Mistakes to Avoid When Your Finances Tighten
Moments ago you were in a good place with your financial goals. You created a solid budget for yourself and were knocking out your smaller short-term goals one by one.
Then in a swift moment everything changes, your job has been downsized or worse, cancelled along with your salary.
It’s frustrating! You think, “How am I ever going to get ahead? I was on a solid trajectory and hitting every target.”
Your emotions cause you to question if your efforts were even worth it. You start imagining the worst and before long your frustration gives way to apathy. Your discipline goes out the window as does your budget.
It’s understandable. We have all been there when setting out to make a serious change in our finances. We started to see some excellent progress and then a wrench was thrown in the plan.
It was hard enough to make the change in your habits and now you’re going to have to make another change?
Since this type of event happens to all of us at some point or another, it’s not a matter of ‘if’ it will happen but ‘when’ it will happen.
It’s necessary to be aware of some common pitfalls when this occurs.
Mistake #1: Spend, Spend, Spend, It’ll All Be Gone Anyway
In your momentary frustration you go out and spend big. You invite some friends out for feasting and drinks.
Maybe you even buy a couple of rounds. Yes, yes this money can be put to better use but for now you are doing what you want. “I have been denying myself these good times to budget and save. And for what?” is how you reason.
Buying things feels good, it releases your feel-good hormones. You know deep down that this little spending spree you have indulged is leading you away from your goals but right now you want to feel good.
A few hours later or the next day after the warm fuzzy feelings of euphoria have melted away you face your reality. You’re still in the same situation and you blew some cash that could have helped you gain a solid footing in your new situation.
Mistake # 2: Putting the Brakes on Your Commitment to Your Budget
It may be that you don’t go on a spending spree but you restrict your commitment to your budget.
You might become less aggressive in paying down your credit card debt. You stop your monthly habit of paying yourself first from your income.
It is tempting to think that relaxing these established goals is a wise move so that you have more to spend on necessities. But in choosing to do so you forget that these goals are more about habit development then about a certain dollar amount.
Nixing your commitment weakens these habits and any money unaccounted for will slip through your fingers which is what you don’t want. Now is the time to remain consistent in the positive financial habits you have already formed.
Mistake #3: Will That be Credit or Debit? Credit, Please.
Some people may not shrink their budget but they will do the opposite and expand their budget by spending on a credit card.
While it may be obvious not to make any huge purchases on credit like a sofa or a new flat screen T.V. What is a little less noticeable is using credit cards to pay for groceries and gas.
Small purchases seem innocuous. One may charge $50, $60, or $100 on the card and reason it isn’t that much, and can be easily paid back.
If it’s only a one-time charge they’re probably right but several charges for the groceries and gas adds up quickly. It is the slippery slope of necessity that can quickly get out of hand only adding to your misery.
It’s All in How You Handle Yourself
You have a challenge on your hands and it calls for calm decision making not frenetic choices based on emotion.
First, allow yourself to feel the frustration of this negative change in income. Give yourself a time limit for this indulgence, the point is to feel the emotion and let it waft through you without making any foolish spending or budgeting decisions.
Now that you have returned to a sense of calm and are thinking clearly it is time to reassess your budget based on this reduction in income.
You may decide to lower your payments to the minimum monthly’s or decrease the amount you regularly put into savings. That’s okay, this is different from the previous scenario in that you have made this decision from a level head.
Furthermore you haven’t eliminated the habit of saving and paying down debt which is really the most important part of any financial plan.
The money is still being told where to go instead of leaving it to chance. You may have temporarily reduced your monthly savings habit from $200 to $150 but that $50 didn’t vaporize, you reallocated it for the purpose of readjusting your budget.
Once you have made the necessary adjustments to your budget to reflect the reduction in your income you won’t be prone to making any of these mistakes.
You will have remained in control of your money-making decisions with this downturn of your income instead of letting the circumstance control you.
