Why do We Buy Things We Don’t Really Need?

It happens to me sometimes too that I end up buying something I don’t really need. I buy it and a week or too later I realize that it was a wasting of money. Obviously when this happens I don’t go through the right decision making process. So, why do we end up buying things which don’t really make us happier? In fact later on paying credit card bills could be frustrating and painful. Here are a couple of things I could think of:

• It could be the commercials that influence us and convince us that we absolutely need something. It seems that everyone else has it. If we don’t have it we are filled with the anxiety of the outcast.
• Our friends and family members have it. It seems that their life is so much happier. It’s embarrassing when they talk about it and we don’t have it.
• Our kids are asking for something they absolutely need mainly due to peer pressure.
• Sometimes we buy something we already have but we can’t find it or just simply lazy to look for it in the garage, in the basement or in the attic.
• Sometimes we buy something for a real good (cheap) price and we didn’t pay attention to the quality. Later on we end up buying the same thing but this time we get the better quality.
• It happens that we talk about something then I buy it and my wife comes home with the same thing.
• We buy things simply because we are distracted in a store and we forget about what we really wanted in the first place.
• Sometimes we get a good deal on a larger package and most of it will end up in the trash.
• Often we forget to cancel a subscription and we have to pay for that.
• We want to try out something for free but after the free trial period we forget to cancel it.

Before you buy something you don’t really need, remember you could save that money or better invest it.

Do You Know How Much Debt is Too Much?

Being in debt is not bad but being deep in dept is not good at all. If you want to avoid financial problems you should assess how healthy is your debt situation. Before you accumulate more debt you should be able to figure out how much debt you can afford.

All you have to do is to calculate your Debt-To-Income (DTI) ratio. This is what your lenders calculate when you need a mortgage or a car loan. To calculate the Debt-To-Income ration all you need is your monthly income and how much you spend each month on debt.

DTI = monthly debt/ monthly income X 100

To determine how much you spend on debt each month you have to add up all your debt sources:

• Mortgage or rent
• Car loans
• Credit card payments
• Student loans
• Alimony/child support payments
• Other loans

This will give you the total amount you spend each month on debt.

Next calculate your monthly income. In order to do that you will calculate your yearly income and divide it by 12.

• Gross income
• Commission
• Bonuses
• Alimony/child support
• Other income

Once you have your monthly debt and monthly income calculated you can calculate the Debt-To-Income ratio.

Example:

Mortgage - $1130

Car loan - $325

Credit card payments - $275

Total monthly debt payment - $1730

Annual gross income - $49,000

Annual commission - $4,500

Total monthly income - $53,500/12 = $4458

The Debt-To-Income ration will be:

DTI = $1730 / $4458 X 100 = 38.8 %

To determine how healthy your debt load is, here are the categories:

36% or less is the healthiest;

37%-42% is healthy but you should start to reduce your debt;

43%-49% you could have financial problems;

50% or more means that you are deep in debt and you might need help with debt problems;

Before you accumulate more debt, calculate your Debt-To-Income ratio to keep your debt load under control.

How to Make Smart Decisions

We are making hundreds of decisions every day but most of them are small decisions. Making decisions is almost always fun and gives a sense of freedom. Decisions which later on turn out to be good also boost our self-confidence. Making decisions means that we are not doing the same thing over and over again.

Small decisions are what to wear, what to eat, which movie to see, which book to read, what to do on the weekend, which shoes to buy and many more. When we regret our small decision later, it's not a big deal, we forget about it quickly.

There are also major decisions. These don't happen often but the consequences may last for a long time sometimes for a lifetime. Examples of major decisions are who to marry, what to do for a living, where to live, which house to buy, which car to buy, where to go for a vacation, how many children to have and more.

Before you make your decision you want to make sure that you know enough information about what you will make the decision. Don't get too excited and let just one or two things influence you. Don't make a decision in a hurry unless it's about calling 911. Sleep on it, there is always another opportunity. Make a list of all the pros and cons. You can only make this list if you are well educated about the subject of your decision. Go with the longer list to make the smartest decision. The more good decisions you make the easier will be to make good decisions in the future even in difficult situations.