Do any of the following scenarios sound familiar to you?
It’s two days until payday and I really need groceries. I’ll just write a check and hope it doesn’t clear before my paycheck goes into the bank.
I want to buy a new TV, but the money in the bank is for rent. Hmm… I do have that birthday money from Grandma coming in a few weeks, so I can get the TV now and replace the rent money when I get my birthday card.
I need clothes. I’ll use a credit card and I can pay off the balance when I get my tax return.
I’m going to skip my car payment so I can go on vacation. My extra student loan money will be here before the payment is 30 days past due, so I can make it up when I get back.
My dad will totally loan me the money to buy this dishwasher once I explain all the cool features. I should be able to pay him back in a few months when I get my raise.
All of the examples above are things I have actually done. That’s hard to admit, since I’m reading it now and cringing at how foolish I was, but it’s just the truth. For years, I was constantly waiting for money that would allow me to cover what’d I’d already spent.
If you’re shaking your head in recognition right now, welcome to the club. You don’t get a membership card and there are no meetings or cookies, but you do get to admit the sad truth: At some point, either now or in the past, you’ve spent money you didn’t have.
Why Does it Matter? You Paid it Back, Right?
Oh, you paid it back all right. More than likely, you paid back significantly more than you spent. Let’s look at each situation’s worst case scenario.
Writing a rubber check - If you’re lucky, your paycheck will be deposited on time and your check will clear as planned. If you’re not lucky, though, you could face overdraft fees, bounced check fees (from your bank AND the grocery store), and legal fees if you don’t pick up the check on time. Do this often enough and you could be arrested for check fraud.
Buying a TV with rent money - What if Grandma’s birthday card gets lost in the mail? What if she has a massive stroke before she finishes writing your check? These may seem like far-fetched possibilities, but I’m telling you, it could happen. How would you pay your rent? You could pay late fees or even face eviction. All for a TV.
Paying off credit cards with your tax return - How much interest are you paying on those cards between charging them up and paying them off? Probably quite a bit. If your tax refund is delayed, or you get audited by the IRS, that money may not arrive in time to avoid paying extra fees and interest. Or, if your car breaks down in the meantime, you could find yourself using that tax money for something way more important than clothes.
Going on vacation with future student loan money - From my experience, student loan refunds never arrive when they’re supposed to. There’s always a paperwork snag or a delay at the bank or a hurricane; anything to keep you from getting the money when you’re counting on it. Also, as I know all too well, those loans have to be paid back. A vacation will be the last thing on your mind when your loan payments take up half your net pay every month.
Counting on a raise - If you work in an industry that still awards raises, congratulations! In this economy, very few people can count on cost of living increases, promotions, or bonuses at work. Borrowing money from a relative, especially if you’re depending on a windfall to pay it back, can ruin your relationship with that person forever. Family members may be more understanding than a bank, but that doesn’t mean they don’t expect to be repaid.
Why Would Someone Be So Dumb?
Two words: Instant gratification. We don’t want to wait a week or a month for something other people already have. We want it now! And the problem has only gotten worse as time passes. I see three main reasons for this:
1. Advertising is shoved down our throats 24/7. TV commercials. Jingles on the radio. Banner ads on websites. Billboards. No matter where we go, someone is trying to sell us something, and they can be very persuasive. Unless you live underground without contact from the outside world, you’re exposed to more advertising than your brain can consciously register.
2. We know what everyone else is doing. All the time. I log on to Facebook, and the first post I see is a picture of a friend’s new car. Scrolling down, I can read about the groceries someone bought (and how much they saved with coupons), my cousin’s trip to the mall, and the renovation project of a former coworker. More than ever before, we know all too well what our friends and neighbors are spending money on - even if we rarely talk to them.
3. We rarely wait for things anymore. If I want the highlights from last night’s game, I don’t have to spend 5 hours in front of SportsCenter. I can look it up online in an instant - video, written descriptions, still pictures, and commentary from fans and players. I don’t wait for my favorite song to come on the radio; I pull it up on my iPod. I don’t even have to wait for an order to arrive from Amazon because I can download books instantly to my phone, tablet, or computer.
I’m not saying we aren’t responsible for what we do; I can just see why it’s so easy to fall into the trap of spending money before we have it.
How Do I Stop?
Learning to save for things ahead of time isn’t easy. It requires impulse control, something far too many of us lack. More important than that, though, is the development of a real desire to change your behavior. Your motivation could come from any number of factors - for me, it took realizing that my son was growing up without a good financial role model. Until you move beyond a vague inkling that your spending is out of control, you’re likely to continue spending money you don’t have, with all the negative consequences that go along with it.
Do you spend money before you have it? How has that worked out for you?
I try not to spend money before I have it. However, I am excited for my yearly raise this month and my raise for my MBA in August. These are positive raises that I'd be getting. I am not paying for anything ahead of time though, but I am making my dream budget with them.
Holding back on just one small purchase prevents me from spending because one small purchase triggers a string of small purchases. I got a snapshot of my eighteen month cash reserve projections on my phone. I drilled into my head that every unnecessary purchase reduces future cash reserves.
I carry one debit card and one credit card (for emergencies, you never know) and keep just enough money to pay bills in the checking account. I also put a daily limit on the debit card and the credit card. I rely on my paycheck for expenses and transfer the rest to my online savings account. I drilled into my head that the online savings account is not really money that can be touched.
Nope I wont spend money if I don't have it. You can get by until the paycheck is deposited.
Great article
This is totally me, all the time (as I think everyone knows). I'm always spending about $1000 ahead of what I've earned. It freaks me out because I think if there was an emergency, $1,000 would eat up my $2,100 EF pretty damn fast and I would have hardly any left over to keep a roof over my head. It's a really terrible habit and so far I haven't been successful at breaking it… once you're behind it's just so hard to catch up!
I think part of it is it's really easy to spend on credit than cash. I'd much rather charge something to my credit card than take it directly out of my bank account, it just feels easier. Consequently I spend more and fall further behind.
Anyway it's something I definitely need to get under control this summer =
OH I so know the student loan money that never arrives on time bit. Every year since I went back to college (almost 4 years now) something has happened to make the payment anywhere from 2 weeks to over a month late. I don't depend on that much now, plus I no long use loan money I make enough grant money but when I was in my hot mess debt downward spiral I needed that loan money as a lifestyle cushion. When I went back to school (and quit one of my two jobs) I kept spending as if I had the same income - not even close, I lost over half my income when I went back to school. All of that dependence on student loan money led to over draft fees, late credit card payments, late car payments, cell phone shut offs, etc. I remember writing a check for groceries and thinking "you have no idea how much I DON'T have this money"
Oh youth.
I have done this in the past and I think it gave me a complex. Now I feel guilty make purchases when I have the cash. The only good news is, my wife balances me out so i will actually buy things I need and I keep her from spending money we don't have.
My parents sadly live and breathe this kind of philosophy… I want to guess that over half or more of the checks they issue, including rent, is not backed up by the bank. Which is really irritating to me. I really prefer to ignore or not think about money until after I have it, because you never know what new thing will come around and mess with your whole budget.
I used to have a terrible habit of doing that! In the end I stopped because I hated the fact that I was always playing catch up. Instead of getting ahead and spending hard earned cash on something I wanted, I was always behind and trying to pay down a balance - not a good feeling. Excellent post!
Oh boy, I definitely recognize a lot of these scenarios from my past. And you're so right-using a credit card for something fun and planning to pay it back as soon as the tax return comes or whatever, that's just an invitation for an emergency to arise. Suddenly you need that refund for something more urgent, and the credit card balance carries over. Honestly, I've gotten to a point where I'm nervous about spending money on anything fun, even if I have the cash. Experience has taught me that something bad is likely to happen soon after and then I'll wish I had that money back. Yuck, that's pretty depressing now that I see it typed out here, but unfortunately that's just how the past few years have gone.
I rarely spend what we don't have but I can's say it never happens. Thanks for a reminder. Great post!
Are you sure we can't have cookies? (Of course we need to buy these cookies within budget and money that is alloted for said cookies but still cookies sound nice). I used to be so horrible at all of these things. I remember once that I bought a truck before paying rent becuase of money that was owed to me. I figured I'd have it back on time-luckily I did but it scared me the day before rent was due and I still had nothing in my account. I've gotten better and will admit that I look to see what could happen with spreadsheets and the like but I try not to spend the actual money unless I have it. _
This is me all the time! I really need to stop, because I need to stay away from instant gratification. I always used to spend my paychecks in advance, so when it was pay day, I actually didn't feel happy. Now I pay off my CCs each time I get paid so that whatever is left is all mine.
I'm afraid on some occasions I think that it is OK to spend money before you have it. For example, we have paid for furniture on an interest free credit card (paying it off over 10 months - we have 15 months interest free) for our new house. This allows us to entertain family and friends and have a lot of fun NOW in our new house! We have a five month contingency if anything goes wrong!
I've bought items on credit, but I can't say I've ever risked overdrawing my bank account or missing a credit card payment because I was expecting a payment to come in. Anything could happen!
I'm always amazed when people spend their rent money on something frivolous. Some don't even try to convince themselves that the money will come in before the rent is due. They just spend their rent money. No biggie. If my rent is late, I have to pay a $75 fee. No way I'm paying that kind of "interest" for something I don't need and probably won't fully enjoy anyhow.
Oooh, this is a real bugbear for me! T does this a lot - and it probably, at least for him, stems from growing up poor.
I'll admit to borrowing from other money buckets occasionally. Example: planning a holiday. Great deal comes up earlier than expected. Travel fund not fully funded. So I borrow from another savings account, and then top it back up.
The best point you made was about the student loan refund checks. There is, indeed, always a snag, or so it seems. And while they call them "refund checks," they're really checks from a lender to yourself - to borrow money - which is the exact opposite of a refund, in the truest sense of the word! Ironic, huh?
I've never done this as I've never had credit of any type before. I can borrow money from my parents but when I did, I always had money on the bank to repay them. I never borrow money for more than a week either. I usually only borrow money because believe it or not, sometimes it is inconvenient to go to the ATM and because my savings are a bit hard to access, sometimes I can come up short if I forget about something.
Great post Andrea. The sad thing about spending money you don't have (and this includes buying things on credit cards or even buying a huge house with a 90 year loan) is that it ends up costing you a lot more than it would if you just waitied until you had the money. At that point, you never have the money and vicious circle begins. A little bit of sacrifice when you're starting out so that you have the cash to buy things before you need them will save you a lot of money over a lifetime.
Yes… I've done a couple of these things. I actually worked in the cash room of a grocery store, so I knew exactly when I could write a cheque and guarantee it wouldn't get cashed before the $$ was in my account, because I knew when the bank picked up our deposits!
As for counting on a raise, not in this economy. And my tax returns have been very small for several years, so I don't count on those any more either!
This is one of the biggest problems with American culture.. We are programmed from day-1 to always be wanting for something better.. Even if we can't afford it.. The coolest cars are the most expensive ones.. I always seem to have a list of 10 things that I wish that I could buy right now.
What has to change to break this cycle is a shift in thinking. You have to accept that you already have what you need to be happy.
The only time I've ever spent money I didn't have was right after we moved here for grad school. We had just graduated from college and gotten married, so we really didn't have much in the bank, and then we moved halfway across the country and had to wait 3 weeks for our first paychecks. In the meantime, we had to pay our security deposit and first month rent at our apartment.
So we put our first grocery shopping trip on our credit card (and it was a big once, since we were starting from zero food), and bought a mattress because we really didn't want to sleep on an air mattress for 3 weeks. One of our first paychecks covered it, I was just so nervous that something would happen and both of us wouldn't get paid or something!
Fortunately we got paid on time, as expected, and we were able to pay off the credit card balance before it was due, and save enough for the next month's rent. It was really tempting to just buy all the furniture we wanted right away, but we would have paid way more in interest, and I was glad we didn't in the end! Living without furniture for a few weeks didn't kill us.
Does buying a house count with a mortgage?
I've done most all of those things, in some form or fashion. Especially the writing a check a couple of days before payday. I think that we live in such a society that it's easy to think we 'deserve' what we want, when we want. You certainly stepped on my toes with this one.
I have definitely done all of these things in the past. It took a long time to learn impluse control, especially when it came to facing empty cupboards. Looking back though, I could have gotten by with the little food I had, but I chose to grocery shop early.
I did this for way too long back in my super debt days. Thankfully, I've kicked this nasty habit to the curb completely. It takes an amazing amount of self control sometimes, but I refuse to spend anything before I actually have it.
This new law of the land with my finances has actually cause me to miss out on some things I've really wanted, but then I usually realize I didn't actually NEED it and move on to the next thing. Plus, it's a boon to my confidence that I can fight this battle and keep winning. Winner winner chicken dinner, indeed
Whoa andrea get out of my brain as soon i as think of something i swear like a day or two later you have an article on just that!! LOL