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?