What Is Your Financial Kryptonite (and How to Conquer It)
Do you worry about keeping up with the Joneses? One way or another, we all battle some sort of financial demon we'd be better off without. What's your personal financial weakness — and how can you conquer it? (See also: 10 Financial Mistakes to Stop Making in 2014)
Sucker for the Sale
Stocking up on sale products that are staples in your family's cupboards is a prudent savings strategy — why not buy a couple of bottles of mustard at the beginning of barbeque season if the store is offering them at a deep discount? But do you find yourself tempted to buy things — groceries, clothing, garden supplies, or hair products — just because they're on sale?
To avoid sale-induced buyer's remorse, you may want to ask yourself a few questions before reaching for your wallet:
- Would I buy this product if it weren't on sale?
- Will I — or other family members — use it, wear it, or eat it?
- Will I — or other family members — notice or care if I try a new brand because it's cheaper than what we normally buy? One brand of kidney beans may be interchangeable with the next, but what about socks? Do we like what we like, or are we open to change?
- Is the sale price significantly lower than the normal price? (This is a particularly good one for groceries; often the sale price is mere pennies lower than the normal price.)
Never Enough Shoes
Do you have an Emelda Marcos affinity for shoes? Or baseball hats, sunglasses, ties, scarves, eye shadow…? You get the picture. Some people can't pass up their shopping weakness. It's as if the shoes, hats, sunglasses, and makeup call their name when they pass that section of the store. If you're flush with cash, no issue. If not, buying your favorite temptation can become one.
Slow the impulse by thinking through the purchase. Will this pair of shoes complete more than a few outfits? Are they really comfortable, or will I wear them once before they accumulate dust in the closet? Can I afford them?
Another strategy is to take inventory before heading to the mall. If you know that you need a new pair of black flats, great! Happy hunting. If you see three pair of black flats already taking up space on your shoe rack, you may want to have a little pre-mall talk with yourself… something along the lines of "no more black flats — no matter how cute they are, or how deep the discount!"
Shopping is all about choices; make wise ones that you won't regret. There is such a thing as having enough shoes.
Buying in Bulk for the Sake of Buying in Bulk
Do you find yourself drawn to buying things in bulk because you are convinced it's a better value? It may be — but only if you use what you buy. Warehouse stores often package popular grocery products like chips, nutrition bars, and sports drinks, for example, in variety packs. But let's face it: If you always wind up with the seven bags of onion-flavored potato chips at the end of the box because nobody in the family is willing to eat them, is it really a bargain? (See also: 15 Things You Should Buy at Costco)
Warehouse stores indeed offer great values — but be an informed consumer to maximize your buying power. Know your per-unit prices to make sure you're getting as good a deal as you think you are.
Falling for "Once-a-Year" Sales
No offense to mattress stores, but they are famous for their "once-a-year" sales events. Yet, somehow, each month, they come up with a clever new name for a new sale. Sure, different manufacturers and models might be featured during each promotion, but don't fall prey to the pressure of having to hurry and buy now — before these never-seen-before-or-again prices — disappear.
If you ever watch TV, you can't help but notice the super special deals on cars this month. Or next month. Or the month after that.
Big-ticket purchases should be carefully researched to avoid expensive mistakes and buyer's remorse. Buy a new mattress, car, or other big-ticket item when you need one — and after you've had the chance to read reviews, take enough test drives, and comparison shop. Don't place the timing of these purchases in the hands of the advertisers who can lure you into believing that now is your once-a-year opportunity to get a good deal.
Waiting for "Later" to Save
Many people think setting aside money as savings is what you do with "extra" funds. How many of us have "extra" funds at the end of our paychecks? Make a savings plan part of your mandatory monthly expenses, and watch your cushion fund grow over time. Start with a small amount ($25 per paycheck, or whatever figure you feel won't crimp your grocery budget) or a percentage of your paycheck, and gradually increase it incrementally over time.
Personal finance expert Jean Chatzy offers a retirement nest egg calculator that can help you determine the amount of money you need to set aside for a comfortable retirement dependent on your current age, income and over factors.
Buy Now; Pay Later
Do you find yourself afflicted with the "can't hardly" syndrome? As in, I can't hardly wait until I can afford to buy this new leather jacket, so I'll just charge it and worry about paying for it later? Short-term gratification can result in long-term pain.
Purchases made on credit cards aren't "free." You still have to pay for them at the end of the credit card cycle. Paying the required minimum each month results in huge interest charges, snowballing the balance and increasing your debt load. Bankrate estimates the average credit card interest rate to be 15.6% for variable rate credit cards, but many fixed rate card charge much higher rates, many over 22% on unpaid balances. Accumulating debt, hoping for the day that your finances will improve is venturing into dangerous territory.
Responsible use of credit cards can be a prudent way to manage cash flow — and collect rewards (airline miles, hotel points, cash back, etc.). But they are not meant to cover purchases you can't afford.
Of course on the flip side, there are people who are so afraid of accumulating credit card debt that they use only cash, debit cards, or checks. But the only way to build credit (which everyone needs to qualify for rent, mortgage, car leases, or or other loans) is to use credit.
Fear of Investing
Handing over your money to someone else to manage for you is scary stuff. But knowledge is power. Become an informed investor and let your money work for you. Part of that education process is finding an investment advisor that you trust. Together, you can work as a team to grow your fortune, take risks within your comfort level, and plan for a financially comfortable retirement. (See also: Begin Your Investing Career Right With Some Mutual Fund Basics)
What's your personal financial kryptonite? Please tell us how you combat it in comments!