What’s The Issue?
You’re sitting around the table with a group of friends. Swapping stories, laughing, and reminiscing – then it happens. Someone mentions how bad they are with money. For some reason they cannot seem to save anything. Every cent is gone before they even get a paycheck. This time they went to Home Goods and went ham on the home decor. You chime in and say, ugh me too! You know this money thing is a serious problem but don’t know how to fix it. How do you stop being bad with money?
The Self-Fulfilling Prophecy
First of all, stop saying that you are bad with money. This is a self fulfilling prophecy. If you say something enough, you actually become the thing you don’t want. So stop saying and stop thinking you are bad with money. You are not bad with money, you are in the process being good with money.
You Aren’t Alone
Second, understand that being good with money is not easy. We live in a high consumption society that focuses on immediate gratification. You are not the only one that feels like money burns a hole in their pocket. Realize that stores and marketing efforts are designed to make you spend your hard earned money as quickly as possible. Everyday you are encouraged to spend tomorrow’s dollar today by living above your means and getting into debt. Do not try to keep up with the Jones’. In all likelihood, the Jones’ are broke because of all their excessive spending.
Why are you reading this article right now? Obviously, you know you should get better with money. However, why do you think you need to be better? What is the purpose?
If you want to improve, you need to have a very clear why. Your why is going to be what pushes you to succeed. If your why is not strong enough, old habits creep into your life quite fast.
Only you can define your reason for making changes in your life. You are the only person that will ensure you succeed or fail.
Take ownership of your life and be empowered to succeed.
Define Your Goal
So you know you need to be better with money and you know why. However, what are you working towards? What is your ultimate goal?
The best goals are written down using the old fashioned pen and paper. Don’t write down your goals once and forget about them. Write them down every day. Look into the mirror and say them out loud to yourself.
Goals need to be SMART (Specific – Measurable – Attainable – Realistic – Timely). If you need help defining your goals, check out my step by step guide here.
Create a Plan
Your plan for getting better with money is called a budget. Yea, it sounds super boring, tedious, and overwhelming. But, a budget tells you where you currently are, and where you need to go. Your budget is your road map for success.
When creating a budget, you need to find out how much you actually spend and how much you should be spending. From there, you can track your progress. If you find yourself falling off the bandwagon – then you can easily catch yourself.
Gather Financial Information
The first step to creating a budget is to gather all of your financial information from the past month.
Don’t worry if there are one-time purchases from this month. There is always some sort of one-time purchase and if you build into your budget a one time purchase, then it will be more accurate.
Your information will include all revenues and expenses. It is easiest to use the cash basis where you just log the money that comes in and the money that goes out. This means, if you bought furniture for $1,000 and paid a $500 up front and will pay the other $500 when the furniture arrives, then you will log the $500 you paid up front as cash out.
Revenues and Expenses
The easiest way to gather your financial information is to look at your bank statements and credit card statements. If you have multiple credit cards and bank statements you are going to want to gather everything into one place.
I am going to describe creating a budget using Excel because it is the easiest tool to use. However, if you are uncomfortable with excel or do not have it available, you can use Word, or pen and paper.
In Excel you are going to have three columns. Your first column (cell A1) should describe the name of the vendor, for instance, Target. You will also be tracking both income and expenses in the “vendor” column. Your second column (cell B1) should show the amount spent or earned. The third column (cell C1) is going to have “category”.
Your categories are your budget categories.
You can create a fourth column to describe whether the expenses are fixed or variable. This is useful for figuring out quickly which expenses you have the ability to reduce and which ones are not going to change. It is not necessary, but if you want to add a “Fixed v Variable” column in cell (D1) then feel free.
Once you gather all of your financial information and list all expenses and revenues, your excel should look something like this:
Once you know how much you spend, now you can figure out where you can slash some of those annoying expenses. The easiest way is to go straight to the variable expenses. Are there any outrageously high amounts in this category? When finding ways to reduce expenses, challenge yourself but do not make cuts to the point of having your budget be unsustainable.
Debt Pay-Off Plan
When you create your budget, make sure you carve out paying off debt as a line item in your budget. And I mean more than the monthly minimum payment.
You want to get rid of debt quickly because it holds you back from living your best life. Be free of this burden. A good rule of thumb – debt 4% or lower can be paid off slow and steady but debt higher than 4% needs to be paid off intentionally and as quickly as possible.
There are two main strategies to paying off debt:
- The Debt Snowball Payoff Method: Paying off the smallest debt first
- The Debt Avalanche Payoff Method: Paying off the highest interest first
You can also use a hybrid of these two approaches to pay-off your debt. The most important thing is that you pick an approach to debt pay-off that motivates you to continue.
Facing your debt head-on is overwhelming. It was easy to put yourself into debt and its this massive undertaking to get yourself out of it. But it is possible! You can and will get out of debt and stay out of debt if you create a plan that will motivate you.
It is really important to surround yourself with people that share similar values. Your social circle greatly contributes to how you live your life. Make sure you are around people that are supportive and encouraging. Try to limit your interactions with individuals caught up in the consumer lifestyle. You have other plans and it is time to focus on those goals.
Some people are generous to a fault. Whether you just like to give to those in need or you want to help out your friends and family, having the ability to give is an amazing thing. However, if you are giving when you are bad with money, then generosity hurts you. Remember, you can’t help anyone if you cannot help yourself.
What does this mean?
It means that you are responsible for your housing, food, medical expenses, and retirement. As a result, you need to make sure these things are SOLID before you consider giving away any of your money.
How do you know if you are ready to give?
- Do you have a 6-month emergency fund?
- Have you maxed out your HSA?
- Have you maxed out your IRA, 401(k), or any other retirement plan?
- Do you have funds available to eat healthy and cover your living expenses without going into debt?
If you have not met the criteria listed above, you are not ready to give monetarily. However, you can give your time and provide donations such as clothing you no longer use to local organizations.
Like I mentioned above, the ability to give is a great thing. Just make sure you actually have the ability.
Self control for those bad with money is a real thing. The best way to combat a lack of self-control is to eliminate as much as humanly possible all the stimulation that makes you feel like you want to buy things.
For instance, if sneakers or video games are your thing – stop subscribing to all emails related to this, do no go on Instagram, Facebook, Twitter, or YouTube to search these items.
If all your friend’s are going to rub in your face the latest sneakers they bought – this is probably the time when you need to spend less time with those particular friends. You need a solid support system.
When you see something you “can’t have” it adds fuel to the fire and you are going to want that thing so much more. It’s like being on a diet, as soon as you are on it is when you start craving all that sugar and processed junk food.
Out of sight out of mind. At first you may feel FOMO (fear of missing out) but that feeling goes away as you begin to make progress towards your money goals.
- Being good with money is not easy. However, follow the steps above any you will get better.
- If you have any questions let me know! I am happy to answer.
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