There is a huge private debt problem, if not crisis, in the US. Consumer debt is on track to reach USD 4 trillion by the end 2018. Consumer debts are non-mortgage debts including credit cards, auto, personal and student loans. Consumers are spending about 10% of their income paying these debts each month.
But you need to know: debt is not a financial problem. The reason you’re in debt is habitual. Debt doesn’t accumulate overnight. It usually builds gradually over time as your overspending racks up. To fix your debt problem, you need to fix the habits getting you in debt in the first place.
7 habits that will either make or break your bank account. Get these habits under control and you’ll never have to worry about debt again:
1. Emotional Spending
Emotional shoppers get addicted to the endorphin high that comes with buying. This can turn spending into a physiological habit. It’s also why excessive spending is about the experience from buying the stuff and not the stuff itself. The wealthy habit is to spend based on needs, not wants. Plan purchases rather than buy spontaneously.
A good habit for breaking emotional spending is to implement a 2-day rule for all non-planned purchases. Letting your emotions settle down for a couple days will help you think clearly and decide whether you actually need this item.
2. Addiction
Similar to emotional spending is addiction. This can be any kind of addiction that’s causing you financial trouble.
The wealthy habit is to avoid all forms of addictive behaviour. This is obviously easier said than done, especially for people with addictive personalities. If you face addiction problems, you probably need to seek. Get professional help.
3. Entitlement
Blame social media for a lot of the entitled behaviour you see today. When you see celebrities and your friends posting pictures of their designer clothes, big screen TVs, pedicures, and new cars, it makes you think, why shouldn’t I have that too?
The wealthy habit is to only buy what you can afford to immediately pay for. Your attitude should be you’re entitled to what the balance in your savings account shows you’ve earned.
4. Instant Gratification
Closely related to entitlement is instant gratification. You want it now and are willing to pay on credit so you don’t have to wait until you have enough money saved up.
The wealthy habit is to pursue delayed gratification. Put purchases into the context of your long-term financial goals.
If you want to retire early, then you need to spend for tomorrow and not for today. Ask yourself the question: will this bring me closer or further from my long-term financial goals?
5. Associating Self-Worth with Stuff
Debtors buy into the false belief that happiness is somehow connected to more-better stuff. Good advertising manipulates you into believing products will make your more attractive, smarter, happier, and live longer.
The wealthy habit is to separate your spending from your self-worth. Your possessions don’t define who you are as a human being.
Next time you’re about to make a purchase, ask yourself why you’re buying this particular item? Are you buying it to satisfy a need or is it contributing to a self-image you’re trying to create?
6. No Plan
Debtors disconnect spending, saving, and earning from each other. There is no budget, no plan for retirement, no tracking of numbers, and no strategy for increasing earnings. The debtor lives month to month because there’s no plan to do anything different. That’s why when you experience a rough patch, say losing a job or a medical emergency, the default plan is go into debt.
The wealthy habit is to create a plan and work your plan. Build an emergency fund, choose affordable insurance so you’re not totally exposed, and automate monthly savings so you don’t have to think about it.
7. Complacency
Nothing accelerates debt more than complacency. If your attitude is, “I’m already in debt, so what’s a little more?” you’re in big trouble. Not taking action is the worst thing you can do to alleviate your debt problem. Debt doesn’t accumulate overnight. It’s a series of small impulse purchases that eventually add up to serious debt.
The wealthy habit is to be proactive about conquering your debt. Living from month to month, using credit to pay for living expenses and stressing over money are warning signs that you need to take action. Cut up your credit cards and stick to only using cash until you get back on track. Break the habit of thinking credit is your money to spend.