Keeping Up With The Joneses - The bad habit that costs you...
The RBA continues to make aggressive moves to the cash rate to squeeze inflation, however the biggest hits are being taken by property owners.
While we can continue to find attractive offers from many lenders to gain your business, the reality of the sixth cash rate rise in a row means even those on higher incomes, if they haven’t already, will now need to take a serious look in their spending mirror.
While the effects of all these cash rate and subsequent interest rate rises are yet to see the full flow on effect for most people, it is only a matter of time before unnecessary consumer spending has to stop to put an end to this constant surge of financial pressure.
We are going back to basics and talking about how ‘Keeping up with the Joneses’ is the bad habit that costs you…
Feel free to share with family and friends.
There’s a quote that says, “Money can’t buy you happiness, but it can buy you a yacht big enough to pull up right alongside it.”
True if you’ve got that sort of money. For the rest of us, our discretionary spending is usually travel, clothing, gadgets and cars – the kinds of things that make us happy.
Australian Bureau of Statistics (ABS) data suggests that consumer spending is influenced by job security and economic factors like interest rates and inflation.
Favourable economic conditions certainly lead to consumer confidence and substantially affect how much discretionary income is available.
However, are you aware that our spending is also often related to our emotions?
How often do you read statements like:
“Be the envy of your friends” “Don’t miss out” (The FOMO factor) “Available TODAY ONLY”?
We live in a world where we are expected to keep up with the Joneses. Every time we turn on the TV, Google something or jump on socials, we’re bombarded by sales, offers and images of what others have or do.
Social media marketers can be your financial enemy…
Given the lucrative advertising deals these influencers achieve for themselves, plenty of us are making purchasing decisions around the sites we follow.
Today’s online influence is pestering us with advertising that makes it too easy for us to lose control and then find ourselves in debt!
Unlike Yacht-guy from the quote, our finances are generally limited, but there are ways to ensure we stay in control of our finances.
That ‘B’ word again – Budget
Yes – we have heard it all before, but with increasing mortgage repayments, this has become more of a necessity – NOW more than ever! It is time for all of us to make a budget and stick to it. Sure, it’s not fun but it’s a time-proven technique for keeping your spending under control. It is also going to be an important requirement for those who will be coming off those low fixed interest repayments in the next one to two years.
Be realistic though and allow yourself some spending money. Just make sure you don’t splurge beyond your affordable amount.
Revisit how you use debit and credit cards
There is one thing millennials actually do well – use a debit card instead of a credit card as they only like to spend money they have in the bank.
In fact, only 41% of Millennials own a credit card compared to two thirds of their older generations. Many of them, however, do use Buy Now Pay Later (BNPL) methods of payment as a way of purchasing their unbudgeted items.
It’s wise to avoid those Buy Now Pay Later schemes. They are so easy to arrange and you can build up quite a debt without realising it! Most importantly, if not managed well, it can affect your credit score and borrowing capacity.
Debit cards on the other hand, can be linked to a bank account or loaded with cash. Either way you are using your own money not the bank’s, meaning you can’t spend what you don’t have – there are also no interest penalties!
So if you feel you are living beyond your means take a look at your spending habits and work out what will suit you best. Sometimes just changing one or two spending habits can make a huge difference.
Consider payment plans to help you budget for those expensive annual bills
Most utilities and insurance companies allow you to set up regular payment plans so you pay a set amount each period. You’ll always know what you’re up for and it’s paid automatically. Your gas or electricity provider can help get you started. It is a great way to help you understand your monthly budget as well and decreases the annual bill shock. You should enquire if the monthly payments are loaded with additional charges and if so make sure you can budget for them. You will need to decide if paying monthly (and perhaps a little more than paying annually) is more manageable and more suitable for you before taking action.
Avoid social media
Have you ever noticed how after Googling, say camping equipment, suddenly you’re seeing advertising for tents and camp-stoves?
Algorithms embedded in the internet record our searches to help advertisers target us through social media.
We get it – it’s tough to avoid social media, but if you’re susceptible to targeted online advertising, you may need to limit your exposure to it – at least for a while.
Avoid the temptation to impulse buy. Also, don’t shop when you’re feeling down.
Advertising is designed to appeal to our need to fit in, to keep up with our friends, to make us happy or to show off. Things you want to buy, but don’t necessarily need, may simply be status symbols. Before you whip out the plastic, ask yourself if a handbag with an Italian label is really worth months on a repayment plan or a whole week’s salary?
If you think you’re going to struggle with any of our suggestions, please read our case studies on 'Can YOU break the 'pay to pay' cycle?'
As always, before doing anything you do not understand and before making dramatic financial changes, please obtain professional advice with those qualified to provide guidance on any financial decisions you are wanting to make.
As for that quote about happiness and huge yachts, those words were courtesy of 80’s rockstar David Lee Roth.
Since most of us never scaled those dizzy heights, we’ll just have to take his word for it.
We hope you enjoyed this update and put our suggestions to good use.