We’re all guilty of it: flashing the credit card at something it should never have been flashed at, only to get home and feel truly terrible about it. We make poor financial decisions when our resolve is feeling weakened. Maybe we’re stressed, tired, hormonal, upset, or just really, really hungry, and the purchase can give us some immediate sense of gratification, even if that feeling is quashed the second we leave the store.
But these decisions can have lasting consequences. When they happen too frequently, they can ultimately land us in debt. This not only affects our cash flow as we pay off those debts, but it can have a lasting impact on our credit score. But these mistakes are there to be learned from, and we can ultimately reflect them with some careful reflection and smart financial planning, to stop a bad decision from becoming a bad habit.
Understand the mistake
When you’ve made a financial mistake, the sinking feeling in your stomach is the first sign. That is the brain telling you that you’ve made an error, and you’re going to have to deal with it. At this point, many people become indignant, shrug it off, and overlay it with positive emotions about their purchase. The key to success is to, at this point, acknowledge that it was a mistake. Understanding why the purchase was a mistake is important to avoid it happening again in the future.
It’s too easy when faced with a poor decision to try to pass the buck. Blaming it on tiredness, stress, hormones, or hunger is all well and good, but it takes some of the responsibility away from you. However compromised your senses were, the bad decision still lies with you, and failing to own that responsibility means it is liable to be repeated. Essentially, telling yourself off is the only way to fully take ownership of the problem, and help to guarantee that it won’t be repeated down the line. It isn’t a nice thing to do to yourself, hence a lot of people avoid it, but it does show a strength of character, and it’s the first step towards never making another terrible financial decision again.
Learn their consequences
Separating cause from effect is a very effective psychological means of avoiding the consequences of our actions, and it’s a very natural response to a high-stress situation. It’s difficult for us to face up to the consequences, but that’s how things begin to snowball, and debts can soon become seriously out of hand.
Understanding how our poor decisions affect everything from our immediate spending money and cash flow, right up to our long-term credit score, is the best way to avoid events repeating themselves. To find out more about how your credit score has been affected in the past, check out this CreditRepairCompanies review of CreditRepair.com. These apps, and others like them, enable you to review your credit score on a rolling basis, meaning that any mistakes are in plain sight, and have to be dealt with. Keeping a close eye on your credit score is a great way to rebuild yourself a strong score, and interact more closely with your purchases and decisions.
Make a plan
Once you have made a mistake, owned up to it, and understood the consequences, it’s time to move forwards with dealing with it. Many people at this point choose to cut up their credit cards so that they can only spend money that they physically have in their current account. This is a great first step, but it’s not the end of it. A budget and plan need to be put in place to pay back debts, and to keep debts away in future. The best way to do this is sit down and understand your budget. Work out your current financial situation on a month by month basis by comparing your income to your living expenses, including rent, travel, insurance, utilities, and groceries. Once you’ve worked this out, you’ll see how much is left over at the end of this month. Some of this should be put into a savings account if possible, and what’s left is the amount that you can pay back your debts by each month.
Contact the people you are indebted to and inform them of this, and set up a repayment plan going forward. Once you’ve done this, stick to your budget. If you need anything desperately, take the money out of the savings you’ve slowly been building, but don’t allow the desire for luxuries to slip in. Sticking to a tight budget until debts are gone is a good way to remind yourself that you can live without luxuries, which will help to put you off from making any huge financial mistakes further down the line.
The key thing to remember here is that you’re not punishing yourself. Once you’ve owned up to your mistake, and you’re ready to rectify it, there is no punishment to be had – you’re an adult, not a naughty child after all. The hardest bit is to take ownership of a mistake, once that’s over, everything is on the up. This is why celebrating goals is so crucial. Set yourself goals for your savings account, and dates by which you’d like certain elements of your debt to be wiped out, and then celebrate those achievements. A blowout shopping session isn’t a recommended celebration, but a nice glass of wine, a takeout, or a new accessory – within your budget – can be a really great way to thank yourself for sticking with it.
Learn from mistakes
The key thing here is learning from mistakes. Everyone makes them; there’s no point wallowing in self-pity at your inadvisable financial mistake. But there is a huge point to be made about understanding those problems, so that they don’t rear their ugly head in the future. Humans have a great ability to learn from things we’ve got wrong in the past, and by doing so enhance our prospects going forward. It takes great courage, but it can be immensely fulfilling.