When was the last time you use cash to buy something?
In most countries today, we are encouraged to do cashless transactions.
Aside from convenience and ease, it saves a lot of time and you are able to track your expenses in your online banking application.
However, the danger lies when we substitute our cash with our credit cards and when we forget the limits and the responsibilities of owning one.
Just to give you light from what is happening around the world when it comes to credit card debts:
-A typical American has four credit cards, and the average account is seven years and two months old.
-The average Australian credit card debt is more than $3,000
-The average American has a credit card balance of $4293 according to the latest Experian data.
If you want to check the percentage of household debts in your country, click here.
There is no doubt that there has been a MASSIVE increase in credit card usage around the globe.
Let me ask you this:
-Do you feel bad when you lose someone?
-Do you feel bad when you lose something?
-Do you feel bad when you lose your money?
In Behavioural Economics, we have a term called loss aversion. Loss aversion suggests that for individuals, the pain of losing is psychologically twice as powerful as the pleasure of gaining. And it is because of this reason that we hate losing things or avoiding to lose things or losing money in our day to day life.
Because we hate losing our money, we have resorted to using an external object to purchase something outside of us – our credit cards.
Imagine yourself in front of the Apple Store buying the new iPhone 11.
Which would affect you more?
Swiping your credit card for the $1400 iPhone or
Getting $1400 from your wallet and physically handing it over?
The latter would be more difficult because we are really in touch with what is happening physically, emotionally and mentally.
When you use your credit card, it’s a foreign object outside of you and your mind is being tricked that you did not lose any money because the card is still with you.
No wonder, we have used it over and over again.
But now that we know how our mind is tricking us. What can we do today?
We have to start using cash in our daily lives so we can better understand and honestly know where our money is going and how much we are really spending.
When we do this, it will save us a lot of money from impulsive purchases and we can appreciate more the money we earn and use it wisely.
If we use this new information, you will be on your way to saving more money than acquiring more debts in the future.
I hope you learned a lot from this.
P.S. You do not have to be alone in your financial journey. If you feel that it’s time to uncover the beliefs that are holding you back, let me help you. Feel free to book your session here.
PPS. If you know someone who needs to hear this, share this newsletter with them.