There are a lot of reasons why you might hit the mall this weekend, but most of them have nothing to do with need. That's not an entirely bad thing - in fact, it's a sign of the overall prosperity many people in North America enjoy. Unfortunately, our debt loads suggest that many of us want more than we can actually afford to pay for in cash. According to a study by the Vanier Institute of the Family, an Ottawa-based research group, Canadians' debt to income ratio now stands at about 150 percent, which equates to about $1,500 of debt for every $1,000 we earn. Sound familiar? Check out some of the things that may drive you to buy, even when you've sworn off shopping.1. To feel better about yourself
Although a myriad of makeover shows promote the idea that a new look will make you feel better about yourself, buying to boost your self-esteem can be a slippery slope. A study published last year in the journal of Social Psychological and Personality Science found that luxury purchases - designer purse, anyone? - are more likely to be purchased with credit than cash, especially when these items fall under the category of "status consumption." But it gets worse: When access to a credit card was combined with threatened self-esteem, it significantly affected shoppers' spending levels.
Lesson learned - There's nothing wrong with buying something new as a pick-me-up once in a while, but if you're looking for self-esteem at the mall, you're likely to find debt instead. And self-esteem is one thing you just can't finance.2. Lack of a financial plan
According to the Canadian Financial Capability Survey, a survey released by Statistics Canada in February 2011, nearly 40 percent of Canadians reported having difficulty planning for their financial future. Unfortunately, not having a plan often means watching your bank balance shrink without getting you any closer to your financial goals. That's why it's important to consider what you want out of life and how your plan can help you get there. Maybe retiring comfortably (or early) is a priority for you, or you are concerned about paying for an education for your kids. Or maybe you want the freedom to start your own business someday.
Lesson learned - Whatever it is you want to accomplish, keep your eye on that goal and set some clear steps to get there. Usually, this means paying yourself first and diverting money to your savings accounts before you have a chance to spend it (sorry). Which leads us to our next point...3. Too much money (in your checking account)
The age-old advice for dieters is to keep your cupboards clear of junk food because if it's available, well, it'll probably disappear in short order. Money creates a similar kind of temptation, so the harder you make overspending, the less likely you are to blow your budget. The best way to do this is to develop a game plan to put into action the day you receive your paycheque. Access your account online and remove funds from your checking account as soon as you are paid. Depending on your situation and your financial plan, you may choose to divert a certain percentage of each cheque to debt repayment, retirement savings or a rainy day fund.
Lesson learned - Too much money is not a bad thing (not bad at all!) if it's not easily accessed for impulse purchases. Whatever you choose to do to keep those funds stashed away, do it consistently and remember why you're doing it. Most importantly, keep that money (and maybe those donuts!) out of easy reach.4. Too much credit
An often-quoted story about Donald Trump states that when he was $1 billion in debt, he pointed out a homeless man to his daughter, intoning that the man on the street had more money than he did. Just as having too much cash in your bank account can set you up for failure, so too can having too much available credit. The only difference is, the consequences here are much more severe because rather than simply having no money, you will have negative equity, which technically means you have less than nothing (ouch!). The unfortunate reality is that everyone needs some credit these days in order to establish and maintain a solid credit score. That said, a credit card can be like a cookie jar for some people - they just keep going back for one more treat.
Lesson learned - If too much credit temptation is a problem for you, consider setting a low limit on your card (say, $500 to $2,000). That way, if you rack it up, you won't be in too deep. But keep in mind that it probably won't take long before your credit card company tries to sweet-talk you into bringing that limit back up. When it happens, stay strong.Listen to your gut
There's nothing wrong with enjoying the fruits of your labour - you earned it! But if your spending is holding you back from achieving what you really want or, worse, you're spending money that you have yet to even earn, it might be time for a gut check - not a shopping a spree.