When you were fresh out of college and landed on a job, what was the first thing you wanted to spend money on?
Was it a gadget?
A beach bumming getaway?
Or maybe a pair of the most exquisite and professional-looking shoes for the office?
A couple of paychecks after that initial craving, have you now finally nailed it?
If you did, then here’s a round of applause for your achievement unlocked.
If you did and are now in debt over it, then here’s a tap at the back saying “that’s fine for starters but don’t ever think about it again.”
Many young folks (thank goodness, not all) find it in their hearts to celebrate this new chapter in their lives outside classrooms in a manner that will please credit card companies and loaning sharks.
Sometimes, we have to admit that we go overboard at gratifying ourselves for a job well done whether at work or at home.
But shouldn’t we? Isn’t it the reason we work hard?
Yes, rewarding ourselves through buying stuff is our right to do so.
However, managing our hard-earned money is our serious responsibility as well—that’s of course, assuming that we don’t want to be a liability to the next generation.
Here are a few examples of how managing your money could be made easy.
- Ditch that credit card from time to time
You read it right: we don’t want you to cut your plastic cards into lots of shredded pieces.
I don’t suggest that you call the bank that issued it to you to close your account altogether.
It is best to avoid using your cards to buy “simple” things like going to the movies, getting dinner, or shopping for nice clothes.
When you pay with your credit card, psychologists believe that you are being detached from the true meaning and feeling of spending.
American researchers Drazen Prelec and George Loewenstein in 1998 said in their study that credit cards make humans easily tempted to purchase goods and services the moment it catches their eyes, only to feel the “pain of paying” when the bill eventually arrives.
Because when you pay with a card, it is not the same as paying with physical cash. You literally hand over the cash but with the card, you swipe and get it back!
Almost two decades later, Prelec and Loewenstein’s popular pain of paying theory is still very much applicable.
Behavioral economist and Duke University professor Dan Ariely suggests that we do the reverse psychology of credit card, which means paying later on, into paying in advance.
Ariely believes that in this way, our vacation or lunch-outs will become more pleasant experiences as paying in advance automatically reduces the pain of paying and casts away the temptation to spend money which we have not even earned yet.
Key takeaway: Make sure you pay off your credit card balance in FULL each month to take advantage of the benefits of using a credit card.
If you cannot do this, then cut all your credit card and use cash instead for your purchases. This will discourage excessive spending. It is easy to spend with a credit card but harder with physical cash.
- Think about your hourly rate
Let’s just say you earn $8 per hour.
After going home from work earlier than usual, you thought of dropping by the mall for some yummy ice cream.
There you were, on your way to the ice cream stand, when a sparkling purple dress caught your eye. It was 20% off, mind you, and it now costs $48.
Are you willing to “work” for six hours to get that elegant addition to your wardrobe?
If you think that dress, which you admittedly know could be worn once or twice a year, is worth six hours of unspeakable stress in the office, go ahead and get that, girl!
Otherwise, don’t buy it. Discipline yourself to calculate how many hours you need to work to get that dress.
Our belief is that when you view the cost of certain “want” side by side to your hourly rate at the office, chances are you will be able to come up with a slightly better decision of whether to buy it or save the money for later.
- Use physical cash to experience the pain of giving away money (when you buy stuff). Paying with a plastic card don’t have the same psychological effect as cash. If you can’t handle temptation in the mall, use cash
- Always convert the item’s price into how many hours you need to work to get that item. Better to engage some logic in your decision making.