If I don’t see it, did I really spend it
The average balance on a credit card in Canada in Q4 2024 was $4681 and delinquencies are on the rise.
It is common to hear the advice, save up for it before you buy it, but we live in a world of instant gratifcation and the deck is not stacked in our favour. You often get hit with ads buy now, pay later or there are only two left, or my personal favorite, you will never see this price again (It’s my favorite because three weeks later you see the same price again.). There are points programs on credit cards rewarding our spending with free groceries or free travel. The average balance on a credit card in Canada in Q4 2024 was $4681 and delinquencies are on the rise.
Why the points programs? The credit card companies are for profit organziations so if they are giving you something for free, is it really free? Credit card companies know two things:
1. Usining a credit card means you will spend more than if you paid cash(one study found it to be 160%more).
2. You are twice as likely to make an impulse purchase using a credit card then using cash.
The reasoning is simple, when you pay with a credit card, you feel less pain. Should you stop paying witrh a credit card? Not necessarily. The trick is to trigger the same pain you would feel if you paid cash. The four suggestions I have are:
1. Remove apps from your phone that you make purchases from. It places an extra step to make the purchase. You need to log into your laptop or desktop to make the purchase.
2. Immediately after you make the purchase, make the payment. This way you get your points, you don’t need to carry cash, and you still feel like you spent money.
3. This is my recent discovery and what prompted this blog, use a credit card that shows up on your online banking profile so that everytime you log into online banking, you see your balance. If your credit card is separate, you can avoid looking at it until the bill comes due and it allows the balance to creep up without you feeling it.
4. If you are making a purchase that isn’t a necessity, contribute the same amount to your investment account. This gives you confidence that you can afford the purchase and reward your current self and it also looks after your future self.
We live in a world of ease and comfort and it is usually a good thing. Spending painlessly is not good and can, and is leading to cashflow and debt issues for many Canadians.
Need help getting your cashflow under control, book an hourly seesion we can review it together.