INTRODUCTION
Financial recklessness (or bad spending habits) of investors has been identified as one of the reasons why some businesses, especially new ones, collapse at an early stage.
According to a report by Nanoglobal, certain business startups experience a 90% failure rate due to their potentially disruptive nature.
Apart from the disruptive nature identified by Nanoglobal, experts have also identified bad spending (also known as financial recklessness) on the part of business owners as one of the factors responsible for business failure.
A study by a European payments platform known as Soldo says that UK-based companies are losing not less than 2% of their revenue as a result of poor spending control by business owners.
Due to the dangers of bad spending on an investment, we have decided to write this article to make you understand the dangers of reckless spending and how to overcome them.
WHAT IS FINANCIAL RECKLESSNESS?
Financial recklessness (bad spending habits) can simply be defined as unwise financial habits and activities that can ultimately have negative effects on your total well-being. In other words, it is the act of spending your money lavishly and carelessly without planning for the present and the future.
Financial recklessness usually happens when you don’t exercise discipline over yourself. Naturally, the needs of human beings are insatiable.
As you go out every day and see different goods being displayed, you feel like buying things all the time. However, you need to learn how to have self-discipline and know bad money habits to break.
EFFECTS OF FINANCIAL RECKLESSNESS
1:DEBT BURDEN
When you spend your money recklessly without planning, you can expose yourself to the dangers of debt. Remember that debt comes with interest, apart from the principal amount. Too much debt would affect your profits, ruin your business, and deprive you of financial fulfillment.
2: YOUR PHYSICAL AND MENTAL HEALTH AT RISK
When you place the burden of massive debts on yourself through financial recklessness, you could start indulging yourself in some habits like excessive alcohol and heavy smoking so as to cope with the frustrations and unpleasant feelings resulting from the ugly situation.
The difficulty of paying some important bills could cause intense depression and ultimately affect your health.
3: IT LIMITS THE PROGRESS OF LONG-TERM FINANCIAL GOALS
Spending lavishly on a daily basis without planning on how to save some parts of your disposable income to actualize better financial goals could have devastating effects in the future.
We are not saying you should only plan for the future and don’t enjoy it at the moment, but you should not be wasting your money on unimportant things, because doing so would make you use substantial parts of the money to settle debts.
4: IT CAN HAVE A NEGATIVE EFFECT ON YOUR CAREER
When you are faced with the frustrations of massive debt and how to cope with the payment of your bills, it could reduce your productivity in your business. If you don’t deal with it, it could lead to the collapse of your investments.
If you want to work somewhere, some companies may decide to do a background check on your credit history. They would see you as an unreliable person if you had a record of massive debts.
5: IT CAN DESTROY YOUR RELATIONSHIP/MARRIAGE:
Inability to manage money prudently and save for the future can lead to a relationship or marital crisis, including divorce.
If you are the type to indulge in uncontrolled spending, your partner or spouse will see you as someone who doesn’t have a future when it comes to financial security.
Research carried out by Pru Life Prudent Relationship, based in the United Kingdom, proves that not less than 46 percent of UK couples usually have heated arguments on money issues.
6: YOU WILL NOT BE PREPARED FOR EMERGENCY SITUATIONS
In this life, unforseen circumstances can happen at any moment. Circumstances like faulty electric appliances, sickness, leakage of your roof, unexpected essential events, and so on. Therefore, if you usually spend senselessly and don’t cultivate the habit of saving, you will find it difficult to address such important issues.
HOW TO OVERCOME OVERSPENDING
1: Have a clear plan.
An adage says, “He who fails to plan plans to fail.” Draw a plan for what you want to achieve with your income. The investment you want to undertake, the essential things you want to buy, and the time frame you want to do them.
2: DRAW YOUR BUDGET:
Draw a budget for the amount of money you want to spend on a particular thing within a particular time frame.
Drawing a budget helps you monitor how you spend your money, thereby preventing you from spending your money on unnecessary things not within your plan. You can also allocate a specified amount to miscellaneous items.
3: DON’T YIELD TO PRESSURES TO SPEND.
Train yourself to be very disciplined so that you will not cave in to pressures and temptations that could make you spend beyond your means. No doubt, those temptations or pressures will surely come; you just have to stick to your budgets, unless such an issue falls under emergency needs.
4: CULTIVATE THE HABIT OF SAVING
There is a day called a “raining day” where you would be asked to retire, either as government or private staff. Of course, you would be paid your pension, but don’t depend on that alone.
Have a particular bank account where you would not withdraw from no matter what happened and be saving a specified sum of money therefore monthly, no matter how small. The funds, along with your pension, can be used to make a viable investment and enjoy your retirement.
5: DON’T USE A CREDIT CARD ALWAYS
Unrestrained usage of credit card is part of the examples of bad spending habits you need to curb as an investor who wants to succeed.
Don’t always use credit cards to buy things, especially things you can’t afford to purchase at a particular time. I will advise you to save gradually until the money reaches the amount of the item you want to buy. Don’t be in a hurry to buy something unless that thing is very important at that time.
CONCLUSION
We have given those tips on how to stop bad spending habits. Now that you are aware of the dangers of reckless spending, ensure that you follow the helpful tips given to you.
Start making moves on how to spend your money wisely by planning, budgeting, and saving for a secure future.
Thanks very much for your great response. I promise to be posting quality and well researched articles always.