In week 2 of our 5-Week Financial Plan series on Bondfire Radio, we talked about spending and debt. Before we tackled the debt, we tackled the spending, as in, why do we spend money in the first place?
We found a great list of spending triggers from this Money Crashers article and started there. Some of the top reasons people spend:
1. Shopper’s high/retail therapy: if you use shopping as a way to relieve stress, reward yourself, or as a way to pick up a bad mood. On an another note, what you must really be doing to manage stress is take up one of those stress managing classes at this Miami treatment facility, if you think it’s going off-kilter.
2. Competition/panic buys: think Black Friday, every day. Or sites like Groupon, Gilt Groupe, or woot.com.
3. The idea of saving/perceived value: if it’s 50% off, it feels like you’re saving money if you buy the thing.
The most important thing when it comes to your spending is to know why you’re spending. One of my favorite recommendations to clients and workshop participants is to spend one week literally asking yourself “Why?” before you buy something.
You can also continue to build awareness by putting your spending through the ringer using the Important/Urgent Matrix. If you’ve done it once before, I’d do it again in 3-4 months to see if the spending has shifted to different boxes. It’s a cool way to see progress.
Now what about that debt?
If you have multiple credit cards with multiple balances, the most important piece of advice I can give you is to create a system for paying down the debt and sticking to it. The biggest mistake I see people making when it comes to paying down their debt is to pay down big chunks when they get a windfall (bonus, tax refund, etc.).
Instead, use a system like the debt snowball to pay down your debt. Use this handy debt snowball calculator to find out how long it would take you to pay off the debt if you focused on paying down one credit card at a time.
The second biggest mistake I see people making is not saving at the same time they are paying down debt. Even if it takes a little bit longer to pay down the debt, having a savings cushion means you won’t have to get into more debt if some big unexpected expense came up.
One of my clients described it back to me in the most awesome way possible. He said, “Oh, so I can think of it like pre-loading a 0% interest credit card.”
So make some wiggle room in your budget and be putting away as much towards savings as you are towards your debt.
All of January on Bondfire Radio, we are going into serious detail about the guts that go into making a financial plan. It’s definitely a pen and paper kind of month because we’ll be going over tons of info; we will even be touching on the subject of bankruptcy law.
Then, in April (financial literacy month!), we’re going to kick off a huge, year long event – The 52-week Financial Plan! I’m going to spend a year with you to help you put together and implement your financial plan!
Changing your money habits takes time. Real time. Time to have set backs and bounce back from them. Time to let new ideas sink in. Time to experiment and see what sticks.
Please feel free to share it with someone who you know is ready to tackle their finances and wants some guidance and support. It’s going to be one awesome year!