What is it that causes some people to get into debt and others to financially thrive? You might be tempted to say it’s simply down to their salaries, but often this really isn’t the case and you can have two people on the exact same salary but with completely different finances. Of course the cost of living here comes into play a lot, and dispensable income is calculated by how much is left over after they’ve paid for everything they need to survive. A family with lots of children isn’t going to be as well off as a single professional on the same salary. But again even if you compare two people with near enough the same living costs you’ll find that there are often significant differences.
The issue then comes down to how they choose to spend that dispensable income and whether they opt to save it, invest it or fritter it away. Often people who are in a lot of debt could actually have avoided the situation had they chosen not to pay for a holiday that year or their widescreen TV. Of course it’s not always the case, but there are certainly a lot of people who fall into this category. In fact, if you look around you’ll often find that people with less money end up spending more and getting themselves into more debt while those with more money can come across as more tight fisted. So what’s going on?
The Urge to Buy
The problem is that some people just struggle with the urge to make expensive purchases and aren’t as good as others at ignoring this temptation. Of course if you are someone with poor impulse control, then ignoring the temptation to buy the latest gadget might be a little harder for you, and this is going to reflect on your finances.
There’s more going on here though too. For one there’s the smart marketing employed by companies and store owners which is all geared towards getting you to want their products and to make a rapid purchase. Then there’s the fact that many people actually get a sense of self-worth from making purchases they can’t afford. For many people self-esteem is tied closely with material possessions – and particularly if they don’t have much money and are sensitive about that fact. In short if you don’t have any money and you feel bad about that, then you might actually make more purchases so that you can look and feel as though you do.
Likewise people with less money are often happier to make purchase because they have less of a ‘pot’ saved, meaning they almost have ‘less to lose’ (even though they’re actually spending a higher proportion of their overall savings).
Overcoming the Urge
Why have I told you all this? Because understanding the psychological processes at play here can greatly help you to prevent yourself making unwise choices when it comes to spending money. If you find that you do get some of your sense of self-worth from making purchases then you should try to find other ways to get that feeling and you should change the way you think about material possessions. If you buy things compulsively almost, then you may benefit from cognitive behavioral therapy which will be able to address the underlying thought patterns that result in your buying behavior. You can learn more here: http://www.ocduk.org/cognitive-behavioural-therapy
Seeing a cognitive behavioural therapist you may also be able to learn some useful skills that you can employ the next time you find yourself wanting to make a purchase. An example of this might be to simply make the decision to buy the product later instead. For instance then, you could write down the item you wanted to buy and make the decision to buy it in two months. This way you can rest easy knowing that it’s ‘sorted’, but often you’ll find that in two months’ time you don’t want the same item any more anyway.
Likewise another method could be to make ‘one in, one out rule’ meaning that every time you make a new purchase you have to get rid of something old. This is financially a smart system because you’ll save money by selling off lots of items, but it will also help you to make fewer purchases as you won’t want to get rid of your things.
In fact just having a ‘cull’ of your belongings can help you to become less dependent on them and make it easier to turn down purchases in the future.
About the Guest Author:
The writer of this post, Nick Dunin works as a finance management blogger with http://www.debtconsolidation.com.au and provides efficacious options to people in need with their debt repayment issues.