A widespread misconception is that people who overspend usually buy a lot of expensive things. The truth is that most people who are in debt have spent too much money on everyday items like eating out, transportation, and vacations. They are like a frog in gently boiling water; they don’t realize they’re in the soup until it’s too late.
The fact that more options exist for making cashless payments hasn’t helped is significant especially with the growth of e-commerce. This includes mobile payments, e-wallets, debit and credit cards. With people remaining indoors and avoiding public transportation as a result of the Covid-19 outbreak, the use of cashless payment methods is set to increase.
Included in this category is the increasingly common “Buy Now, Pay Later” (BNPL) plan. In most cases, there are no costs involved, and you can pay it off over time with zero interest. You don’t need a credit card to participate in a BNPL program, unlike the conventional “Installment Payment Plan” that’s popular among credit card holders.
Customers, especially the younger demographic, have benefited from the convenience of cashless payment options. Installment plans can be helpful for some customers. This comes in handy when you need to make a large purchase, like a TV, but you also want to limit your spending or utilize less of your available credit that month.
The truth about overspending
Those who don’t have a firm grip on their finances, though, run the risk of overspending. Let’s pretend you opted to make installment payments on your purchases. It’s possible that making a product temporarily more “affordable” will lead to more frequent and larger purchases. Splitting up your payments makes it more difficult to keep tabs on how much money you’re actually spending, which can lead to poor money management. In addition, late payments result in fees that increase the total amount owed. Keep in mind that putting off paying off debt is still adding debt.
Average consumer expenditure growth rates (by type)
A recent survey by DBS titled “Are you losing the race to inflation” found that these three primary spending categories—transportation, shopping, and food—saw the greatest increases over the past few years. The biggest increases occurred in discretionary spending categories including shopping, going out, and vacationing (+56.7%), followed by transportation (+60.2%).
Customers may wish to think about the long-term effects on their finances as the latest inflationary pressures coincide with post-Covid pent-up demand.
In Singapore, overspending is far more common than losing money at the casino or making poor investments. People who tend to overspend rarely realize they have a problem until they are already drowning in debt. When that happens, your only options are bankruptcy or assistance from banks and Credit Counseling Singapore (CCS).
Their ability to get a loan to buy a house or a job may be hindered if they have a poor credit history. Stress, sadness, and physical health problems are just some of the many non-financial concerns that can arise as a result of carrying too much debt.
Some people develop a psychological dependence on money, which can lead to overspending. They use the money to deal with issues like stress and anxiety in their life. While some may go overboard while trying to make a good impression on coworkers and friends by footing the tab for an expensive supper.
In order to stay afloat in the face of growing inflation and the prices of necessities, it is crucial to reduce wasteful spending, adhere to responsible spending patterns, and stick to a monthly budget.
Here are 7 ways to avoid overspending when switching to a cashless lifestyle
1. Establish a sensible spending plan and savings goals
The first step in any successful financial strategy is creating a reasonable budget that includes both savings and spending goals.
A summary of your financial habits should include the following:
- Your financial plans that keep you from going overboard
- The cash flow comparison over the past three months
- The top spending categories display allows you to keep tabs on your monthly spending by category
You can save hundreds, if not thousands, of dollars yearly by gaining insight into your spending habits. An extravagant meal out or a new designer purse can quickly drive up your monthly costs if you aren’t careful.
By having a firm grasp on your financial condition, you’ll be better equipped to make decisions about your money, both now and in the future, that will help you reach your financial goals.
2. Establish a savings plan and an emergency fund
When your paycheck arrives, make it a habit to immediately put money aside for yourself. If possible, try putting away ten percent of your monthly salary. Separate your savings from your checking and use a higher-yielding account.
In addition, you should save up enough money for three to six months of living costs in case of an emergency. This will provide some breathing room in case you end up having to make some unanticipated expenses. It also helps you avoid the unfavorable scenario in which you have to sell off investments before they are ready in order to raise cash.
3. If you are frequently short on cash, do not finance a purchase with future revenue
Not everyone can or should use the option to pay for products in installments. It makes more sense for some of you to wait and buy later on while others should start saving now.
Those who are frequently short on funds should avoid installment programs. If you just pay a small amount toward your balance each month, it can be easy to lose track of where your money is going. It might also make you more prone to making impulsive purchases. If you fall into this category, you should put off buying what you desire until you have the cash on hand to pay for it in full.
4. Affordability is a major factor
Cashless payments and installment systems might be beneficial to consumers who are financially responsible and can pay off their installments within the time frames specified. This will be helpful for them in controlling their own finances.
These options allow young people who may not have considerable funds to buy things like laptops and PCs without resorting to credit cards.
Pricing should be reasonable. Make sure you can afford the purchase and the cost of repayment before doing it.
5. Don't give in to the allure of online shopping
When shopping online during the 7.7, 9.9, or 1.1 sales periods, it might be tempting to get sucked in by seemingly irresistible deals and convince yourself that you need to make a purchase right away.
First things first: delete all of these tempting pictures from your social media accounts unless you’re actually looking for specific things. Doing so will help you control your spending habits and avoid wasteful impulse buys.
6. Put your credit cards to better use
Using a credit card doesn’t automatically mean taking on more debt. They also give you access to perks like price reductions, bonuses, and points for future purchases. Pick a credit card that fits your way of life so that you may get the most out of your spending.
Spending on one or two cards allows you to earn rewards and discounts more rapidly. Reducing your credit card’s spending limit is another option. If you find it difficult to keep your spending in check, you might ask your credit card company to lower your credit limit to, say, one month’s wages.
Make sure you pay off your credit card bills on time and in full to avoid paying hefty late fees and interest.
7. Do not let your debt to get out of hand
Eliminate unnecessary payment options and consolidate due dates to gain command. Set alarms or calendar reminders, or use a service like automatic Giro payments, to ensure that your credit card payments are always made on time. In the same vein, these notifications will be useful for canceling an online service membership before its renewal is automatically processed.
Credit cards, BNPL, and personal loans are all forms of credit, and if you’re using them to pay for your monthly expenses and then have trouble paying them back, it’s time to take a serious look at your financial situation. If debt restructuring is something you need, look for assistance. You could benefit from CCS’s Debt Management Programme or the bank’s Debt Consolidation Plan.
Get going, already!
Get in touch with a financial advisor immediately for an assessment of your current financial situation and advice on how to improve your long-term planning.