Friday, October 17, 2014

6 BAD MONEY HABITS


There are 6 common bad money habits which you need to be aware of and avoid if you desire to succeed financially.

Habit # 1: Impulse buying
When you work and have money in your pocket, there will be this urge in you to go out and spend the money. The urge to spend will usually be very strong that it will be hard for you to sit back. This is the experience of most working people. It is as if the money just wants to go out and bring things home to you.

Even if you do not intend to spend money, you will be tempted to do so when you enter shops. Your eyes will catch something which you did not think of and did not plan to spend money on. Even if you go window shopping, you are most likely going to end up actually shopping.

Habit # 2: Desire for instant gratification
Along with impulse buying comes the desire for instant gratification. This is the urge you feel to buy something now, without delay.

We see the desire for instant gratification in children all the time. When they have money in their hands, they want to spend it. When parents take them to the shops and they see things, they want the parents to buy the items for them that very moment. They do not care if the parents do not have the money to buy the items. They want the things now, and will do anything from crying and screaming to just sitting on the shop floors and refusing to move, until they have the items in their hands.

My advice for conquering the desire for instant gratification is this: if you see something and feel the urge to buy it right there and then, go away and think it through. Stay away for a few days and then go back. You will be surprised how much you do not like it as you did the first time you saw it.

Habit # 3: Unnecessary spending
Many families in Papua New Guinea suffer financially because they spend money on unnecessary items. At the top of my list of unnecessary items are alcohol, betel nuts and cigarettes. People do not realize that they spend a lot of money on these items for which they receive no benefit in terms of their health or their wealth. I call chewing, smoking, drinking and gambling as “addictions which add neither to your health nor your wealth”.
The amounts people spend on these items may seem very little – a little here, a little there - but when added up over a year, you will be surprised how much they have spent.

I know one family of 2 parents and 4 children who chew betel nuts every day. They chew on average 3 nuts per day. I worked out that they spend K1 each on 3 nuts, lime and mustard, or k3 per person per day. They could be spending K6,570 a year (K3 x 6 people x 365 days) without realizing it. The son dropped out of high school because the family could not pay his school fees. If they had just stopped chewing betel nuts, he could have continued his education without any problems.

In one of my financial freedom seminars a participant testified publicly that he spends at least K15 per day on betel nuts and cigarettes. To him, it was “only” K15. When we calculated what he was spending or rather wasting on an annual basis, he was shocked to find that the amount was something like K5,475. That’s a staggering amount, considering that he had been borrowing money every year to put his children in school.

Alcohol is a major problem in Papua New Guinea for people at all levels of society. Many people drink just to forget their problems. Others drink so that they can enjoy life with their friends. But the fact is, problems do not disappear when or after people get drunk, and there is no real enjoyment in alcohol. What is clear is that alcohol leads people into trouble, deeper debt, health and social problems.

Gambling is another major problem. The majority of working people participate in one way or another. The common forms of gambling are betting on horses and playing poker. Even politicians gamble, which is why parliament has to shut down when the Melbourne Cup race is on.

Make up your mind not to spend money on these unnecessary and unhealthy items. No one has ever become rich gambling or drinking.

Other unnecessary items commonly bought by young working people are things like fancy mobile phones, stereos, television sets, home entertainment systems, etc etc.

I have seen people buying these things on the first payday, and I have wondered whether they really needed them. I mean, when they did not have jobs, they could do without such items. But when they start working, suddenly these things become necessities.

I also see many parents buying toys, computer games and hand-held gadgets for their children. I often wonder what the kids learn when they play these games. To me these are unnecessary expenses. I stopped buying toys long ago, and computer games are taboo in our house. I’d rather the children read and do their homework than look at the TV screen and play games for hours.

Habit # 4: Buying to keep up with others
Most of us desire to be like other people around us. We are never satisfied with who we are and what we have. We are always looking at other people and wishing we were like them, have the things they have, and live the kind of lives they live.

Businesses understand this desire very well. That is why most companies spend large sums of money on advertising. If you look at these advertisements, you will usually see people enjoying a particular lifestyle, eating certain foods or wearing certain clothes and being in exotic places like luxury hotels and islands. The advertisements are designed to entice you to buy the items that are being advertised.

Their message is, “If you do not have these things, you are missing out on life.” It is called “consumer engineering”, and it forces people to spend their money just because someone suggested to them that they would live better.

You will definitely see your work mates and friends possessing certain things and seemingly enjoying life, and the temptation will arise to want to own the same things. When this happens, you must control yourself. You must again ask yourself whether the items you feel tempted to buy are needs or wants, assets or liabilities – for you. Do not look at how essential those things seem to other people. Ask yourself whether they are necessary for you.

If you do not exercise self-control, you will end up buying the items, not because you need them, but because your friends have them. Many people have bought such things with borrowed money. Not knowing how their friends acquired those things, they went ahead and borrowed just to have them, so that they could be like their friends. As Will Rogers observed, “A lot of people spend money they have not earned to buy things they don’t need to impress people they don’t like.” Don’t be one such person.

Do not try to emulate other people and their lifestyles. Or as some people say, “Do not try to keep up with the Joneses”. You are not competition with anyone as far as your lifestyle is concerned. Be yourself, and chart your own course in life.

Do not buy things just to look good in other peoples’ eyes. It is the desire to look good that ruins many people financially. Imagine if the whole world were blind. Do you think people would buy some of the things they buy? Would you buy them yourself? I guess not. And I propose that most peoples’ spending habits would experience a revolution.

The desire to be like others and look good in other peoples’ eyes, has sent millions of people all over the world into financial struggle and poverty, and continues to do so today. It will continue in future as long as people become dissatisfied with the way they are, want to become like others, and value the admiration of other people above their own financial destiny.

Habit # 5: Seasonal and emotional buying
There are certain times during the year when everyone seems to be buying things because it is the season. Newspapers, radio, television and supermarkets generate such hype that people become emotionally psyched up to just go out and buy things. Such seasons include Easter, Fathers’ Day, Mothers’ Day and Christmas.

Special times of observation and devotion such as Easter and Christmas have become highly commercialized. You hear Christmas carols being played on radio in all shops and see all kinds of toys, decorations and coloured lights being sold. These are all designed to entice you to part with your money. People care less that these are important days in the Christian calendar. All they are interested in is to use the occasion to squeeze more money out of unsuspecting consumers.

We Papua New Guineans look after and remember our parents every day. Sadly, today, an increasing number of people have allowed themselves to be programmed to remember their parents only once a year.

So much emotion and excitement is built up that most people feel they are missing out on something if they do not buy some of the items that go with the season. If you are wise, you will exercise self-control during these times and not buy just because everyone else seems to be doing it. You will realize later after the emotions have subsided, that you did not need the things after all. You will also realize that most of what is sold during these times is not durable. It is all artificial – including the flowers!

Habit # 6: Raising expenses to meet income
When you receive a pay rise or a sudden surge in income from commissions, bonuses, allowances and gifts, you will be tempted to go out and spend. The thought that this is extra money which you can afford to spend without feeling any financial pinch, is quite destructive.

Somebody observing this in most people has come up with a law that says, “Expenses rise to meet income.” In other words, the more money people have, the more they tend to spend. This tendency is as old as human history. Even King Solomon observed is his days: “When goods increase, they increase who eat them” (Ecclesiastes 5:11).

Despite the fact that people are coloured differently and live in different parts of the planet, they are essentially the same. When it comes to spending, almost the majority spend more when they have more. As incomes rise, so do expenses. It is as if money is only for spending.

If you want to follow the minority who succeed, you must not allow this to happen. Again, self-control is vital because the urge to spend can be overpowering.

I have seen people buying household items such as TVs, cars and stereos after a pay rise from a promotion or even an upward adjustment in income to compensate for increases in the consumer price index (CPI adjustments). Many of these people have actually buy the items on credit. They think that they are able to repay the loans with the new level of income. But they do not realize that their spending will lead to financial struggle in the future.

If you are aware of these main bad money habits and keep way from them, you will save yourself a lot of unnecessary headache and heartache.

* Tiri Kuimbakul is an economist, author and motivational speaker. He is creator of the ‘Seven Steps To Financial Freedom’ personal finance seminar which he runs for corporate organizations. He can be contacted on secos@global.net.pg.

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