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- It's easy to spend money in ways that don't build wealth.
- If you constantly have a credit card balance, you're probably not spending the right way.
- Other signs include missing the mark on savings goals, and owning more things than you need.
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If you're paying your bills on time every month, you might think you're doing well with money. But are you using your leftover money the best way you can?
Discretionary spending can be a great way to treat yourself, unwind, or even save more. But, it can also get you into trouble.
If you're lucky enough to have money left over at the end of the month, you choose how it's spent, saved, and invested. If it's not being used wisely, there are five sure signs.
1. You know you earn more than enough to cover basic expenses, but you always end the month in the red
If you're not careful with your spending, there's a good chance you'll end up in debt, even if it's not an ongoing problem.
While you might earn enough to cover your expenses, you might not be living within your means. If you're spending more than you're making, you can't save towards goals, and you might start carrying balances on credit cards. The average credit card interest rate is well into the double digits, and will only increase the amount you'll pay for an item over time.
2. You don't know where your money goes
If you're not sure where your money is going, it's probably not going to the right place.
Whether you're saving it for a goal or buying a gift for a friend, spending on something meaningful will leave you knowing exactly what you spent on. But, buying meaningless things will make it easier to forget.
Paying attention to where your money goes each month — perhaps through one of the best budgeting apps — will help you better understand where you should cut back, and where to spend more.
3. You're not making progress on your goals
Paying your bills is important, but so are your future goals.
Whether you want to retire,buy a house, or get out of debt, you need to work towards these goals to achieve them.
If you think you're overspending before you're able to save for goals, there's a quick fix: automatic transfers. Set up recurring transfers from your checking account to move money to your savings. For retirement goals, setting up or increasing a 401(k) contribution with your employer will take that cash right from your paycheck to your retirement plan. This method will keep the cash out of sight and out of mind, and keep you from spending.
4. You don't have spending goals
If you're just aimlessly spending, you're probably not spending on the right things.
Spending goals are there to keep you in check, but they're not just dollar amounts in a budget. A spending goal might simply be to afford to spend on a vacation you've always dreamed of taking, or buy your partner a birthday gift. You should make it a goal to spend on important things, rather than the little things that strike you in the moment.
Setting up spending goals is like setting up a budget, but your spending goals should be more specific. Look for ways to direct the money you spend towards these bigger goals, rather than spread out over less important, less meaningful items.
5. You haven't looked at your spending recently
If you aren't on top of your spending, chances are you're spending too much.
A once-monthly glance at your credit card statement can be a big help. Are you finding surprises on that statement? If so, look into them.
Check for subscriptions and monthly charges, too — they're easily forgotten but add up. Cancelling a few subscriptions you don't use could really help you reduce your monthly spending and free up more cash for you to use the right way.
This article was originally published in February 2021.
Personal Finance Reporter
Liz was a personal finance reporter at Insider. Before joining Insider, she wrote about financial and automotive topics as a freelancer for brands like LendingTree and Credit Karma. She earned her bachelor's degree in writing from The Savannah College of Art and Design. She lives and works in Cincinnati, Ohio. Find her on Twitter at @lizknueven.
