By Marissa Sollows, Senior Education Coordinator, FCNB. Originally published by Financial and Consumer Services Commission of New Brunswick. Republished with permission.
It’s no secret that credit cards can make it easier to overspend. Combine the ability to spend more money than we actually have with FOMO and you have a recipe for disaster (or at least a panic inducing credit card balance).
You may not have heard of FOMO yet, but you have likely been affected by it. FOMO, the Fear of Missing Out, is the physical and emotional reaction we have when we feel that we are missing out on an opportunity. FOMO can provoke strong emotions ranging from sadness to full-blown anxiety. It can also make us feel unsatisfied with the experiences we have had and things we own.
FOMO is not new (although you may be more familiar with the old adage ‘keeping up with the Joneses’), but thanks to social media we have never been more aware of just how much we are missing out on. At all hours of the day, we are inundated with pictures of the fun experiences our friends are having and the super cool things they just bought.
We don’t just fret about the things feel we are missing out on, we do something about it! In a recent Citizen Relations Study, 7 in 10 Canadian millennials said that they would make a purchase as a result of FOMO. Yikes! No wonder we are overspending. The reality is this “ideal” that we are trying to keep up with is likely all in our heads! A picture may be worth a thousand words, but it doesn’t always tell the whole story. We’ve all been there at some point.
- You see a picture of your friends on a trip to Europe and are instantly envious, ready to swipe the credit card and jump on the next plane. You might not have seen how they cut spending on little luxuries while they saved to go on the trip without racking up a credit card balance…
- You see your friends snapping pictures of the fancy condo they just bought and feel disappointed that you’re renting an apartment even though you’re working hard to stick to your budget and save for a down payment on your dream home…
- You see the slick new car your friend bought and instantly regret the practical model you’re driving despite the fact that yours is perfectly functional and it doesn’t come with 5 years of car payments…
These pictures can make us feel like our friends are living successful, fulfilled lives and we’re lagging behind. If FOMO starts to get you down, keep in mind that you may not see the hard work your friends put in, like saving up for big ticket purchases, paying down debts and growing a savings account. These photos may even hide some unhealthy financial behaviour, like compulsive spending habits or a high credit card balance.
So how do we curb this reactive overspending and avoid credit card debt? Before you swear off technology and social media for good, try these tips to keep FOMO at bay and your credit card balance under control:
- Know your limits. Just because you qualify to borrow a certain amount, doesn’t mean you can afford it. Only borrow what you can reasonably afford to pay back out of your budget. Having a budget will give you a clear picture of how much money you have available for debt repayments each month.
- Figure out what is important to you. FOMO happens when we lose sight of our values and focus on what everyone else is doing or buying. Instead of focusing on what everyone else is spending money on, focus on what is important to you. Take inventory of your values and set financial goals around them. It will be much easier to say no to FOMO induced purchases when you are saving for your own “something special”.
- Think before you swipe. Give yourself a cooling-off period. If you take a day or two to think about the purchase, you may decide that it wasn’t as important to you after all.
- Pay in full. Aim to pay your statement in full every month to avoid paying interest. It can be tempting to make the minimum payment or pay for only a portion of your purchases so you can free up cash for other expenses, but interest can quickly add up and increase the cost of the things you have bought.
- Make a repayment plan. If you decide to buy on credit and cannot pay it off in full right away, make sure you have a plan before buying. Know how much you can afford to pay back every month, how much time it will take to pay it off and how much it will cost you in interest payments. Consider setting up automatic payments to your credit card so that you are sure that you don’t carry the balance for longer than you can afford. FCAC’s Credit Card Payment Tool can help estimate how long it will take to pay off a balance and how much you’ll pay in interest.
- Do not use your credit card to fill a gap in income. If your income changes, adjust your spending and lifestyle to compensate. It can be tempting to use your credit card to keep up with your friends, but it will cost you in the long run. Small expenses like fancy coffee, concert tickets and new clothes can add up quickly and take ages to pay off. Check out FCNB’s credit card infographic for more information and smart borrowing tips!