BUDGET BUSTERS
When it comes to spending, the little things do count.
Cara Hirsch and her roommate have an expensive ritual: Visiting Yogurty’s, an upscale frozen yogurt establishment, three to four times a week.
After filling the cup with yogurt and heaping on scoops of cake, chocolate and cookie dough, the dessert usually costs between $8 and $10.
That means that every year, the 25-year-old Toronto real estate agent and her roommate are spending upwards of $4,160 on frozen yogurt.
“We were in the car and we had just done our Yogurty’s run. We calculated it and we gasped,” she said. “Two-thousand dollars on frozen yogurt is a complete waste of my money.”
According to a recent survey for Capital One Canada and Credit Canada Debt Solutions, 76% of Canadians know they spend too much money on certain items but have a hard time stopping the frivolous spending. Why is this a problem? Debt levels are on the rise. Average consumer debt, excluding mortgage, increased to $27,355 this quarter from $26,770 a year ago. Fewer Canadians are debt free (24% down from 26% last year, says RBC) and more feel anxiety about their debts (38% up from 34%). More people are retiring with mortgages or delaying retirement and working longer.
“The repercussions of constantly going out and spending money on vices or things you don’t want or need are dangerous over time,” says Laurie Campbell, CEO of Credit Canada Debt Solutions.
Shopping vices are things that you regret either buying or spending so much money on. They could be impulse buys or items that blow your budget, leading to you feeling shame or panic.
Now that it’s January and many of us are suffering from holiday hangovers as the result of overspending, let’s ponder on what we waste our money on.
The poll commissioned by Capital One Canada and Credit Canada Debt Solutions, reveals that our top vices include going out for dinner (29%), buying cigarettes (26%), going out for lunch (25%), clothing (24%) and buying lottery tickets (24%).
Canadians aged 18 to 29 are twice as likely as those over 50 to cite spending money on drinks and dinners as a regret (62% versus 29%). Twenty-eight per cent of Canadians over 50 regret buying too many lottery tickets.
“I’m not suggesting that people live a life of frugality where they don’t do things, but what I am suggesting is that people need to live within their means and plan their finances so they feel good afterwards,” Ms. Campbell says.
Fewer Canadians regretted buying big ticket items which normally require planning and saving: only 9% believe they should have bought a cheaper house and 15%, a cheaper car.
Ev e n though we might later regret it, we waste money for a variety of reasons, says Garrett Jay, author of Goodbye Money – 1,000 Ways to Waste It, or Not. We think we deserve to spend. We don’t want to be thought of as cheap. We love instant gratification. We think shopping is a hobby. We procrastinate. We say we can’t budget. We have to show up our Facebook friends. We think we can buy self-worth.
“We’re conditioned to buy,” Mr. Jay says. “It’s part of our culture to spend money, rather than save money unfortunately. We have to have the newest cellphone. We have to have the greatest, thinnest television.”
Ruth Buder, a 25-year-old public relations associate, will spend up to $80 on a great meal in Toronto three to four times a month. While she acknowledges that she could be saving that money, she’s loath to change.
“People are always going to have those vices. It is about finding the balance in general and not going over the top in every area and treating yourself every once in awhile.”
What if it’s not “every once in awhile?” What if it’s an every day habit? Those purchases can seem innocuous — a daily coffee, games on your phone — but they add up. Barbara O’Neill, who teaches financial management at Rutger’s University in New Jersey, calls these expenditures “leaks”; she illustrates them to her class with an image of a leaky boat with holes.
Before you can identify what changes to make, you have to identify the “leaks,” Ms. O’Neill says. Track where your money goes. Write down all of your purchases for a month, she suggests. Admit where you overspend. She points to a website, Spendster.org, which invites people to confess their shopaholic behaviour. Since 2009, visitors have admitted to wasting more than $11-billion.
You could have several vices. Sebastian Hubbard, a 27-year-old Toronto software developer, buys computer games that he doesn’t play and books that he doesn’t have time to read. And he once added up how much he had spent on cabs in a six-month period and it totalled about $2,000.
“It’s really like taking money and lighting it on fire,” he says. “The books and the games, they aren’t that much money but you can say that they’re small examples of an overall deficiency in willpower when it comes to money.”
He’s been trying to get his finances under control.
He’s accumulated some savings for an emergency (he learned a hard lesson when he had to have a root canal one Christmas and had to turn to his parents to pay for it), but he finds saving for a home or retirement almost too daunting.
It’s often an unexpected event that will teach you the consequences of wasting your hardearned bucks.
Jordan, a 26-year-old furniture store manager in Calgary, loves clothing and purses. With a salary of $50,000, she almost maxed out her credit card earlier this year (she had a $3,000 limit). The main culprit was a $1,400 Burberry coat. But around the same time as her big purchase, an accountant’s mistake led to her suddenly owing more than $6,000 in taxes.
It will take her a year to be debt free.
“I’ve realized that if you don’t have it, you shouldn’t spend it,” she says. “Now I only try to buy things with cash. I give myself a certain amount of money every month to spend on shopping and I can’t spend anything more. Since the summer, I’ve been saving $600 a month.”
Her advice to other weakerwilled consumers: “Walk away. At the end of the day, as much as you want [to buy it], being in debt is the worst feeling ever.”