How Splurging Now Can Hurt Your Future Budget

Written by A Guest Speaker on May 19th, 2008

How Splurging Now Can Hurt Your Future Budget
Writtten by Woobie of EvilWoobie.com

I was a new graduate when I had my first lesson on handling credit. You know how fresh graduates are, excited to have a job, feeling high over the new pay source and splurging like money will never run out. I took it to a whole new level, I splurged my actual paycheck AND my credit limit. I was all over the mall, finding things to buy rather than considering my needs. In my mind, I can pay for everything. My newly approved credit limit is humongous, and I’m all about rewarding myself for graduating successfully, getting a high paying job and just being… great. My rationale was: the credit bill is still a month away, plenty of time left to earn back what I splurged. I went home with my purchases, feeling confident that I am doing the right thing.

A month passed and I started becoming aware of the balance in my card. The bill arrived and the numbers swam in my eyes. Did I really spend that much on crappy stuff that are now accumulating dust in my closet? I zeroed in on the minimum amount I have to pay and breathed a sigh of relief. It was affordable and there’s enough time to earn what I need to pay the whole amount during the next cycle of billing. Everything’s still cool: rent’s paid, I have enough food inside my fridge to last the week, and most of all, my credit standing was ok.

I started getting worried during the third month when I saw the interest rate of the card I maxed months ago. The amount was higher than I expected. The 3 or so percent that the credit companies charge doesn’t seem big at first, but it does now that I consider how much it’s eating up my earnings for the month. My plan to re-earn what I spent failed as I didn’t factor in my daily expenses, and the small things I need to pay for to live. The paycheck which seemed so heavy at the onset suddenly became pitifully small when I finally sat down and calculated what I need to pay for and what I actually spend everyday for my daily needs.

It took a year for me to be in the black again in terms of my credit standing. Unknowingly, I taught myself a big and valuable lesson in handling money. A credit limit is not actual cash that one can spend. By splurging it at the onset, I committed the bulk of my future earnings to paying it all back, not to mention the interest that keeps accumulating. Put it in simple terms, If I cannot control my spending, I will not be able to save anything in the next year or so.

Now, I spend for my needs in reverse. I use my card to pay for the basics, groceries, toiletries, household items, etc., and I use my actual cash to pay for luxuries. That way, I see my stash dwindling whenever I pay for something I don’t really need. I still allow myself luxuries and the occasional spa treatment, but sparingly. I never liked the feeling of pressure and regret that I wasn’t more careful.

A credit limit is not ‘invisible money’ that you and I can spend. It is not the deep well of spendable cash that we can use anytime. It is our own money, the one we earn in the future. Splurging the credit means committing ourselves to a future in debt, with not much room for anything else.