As someone who has accumulated $30,000 of credit card debt twice in my life, I know a thing or two about mismanaging money.
And although I was great at saving, somehow I still found myself always in financial trouble.
But in 2018, I was able to pay off my debt and officially become debt free.
Now there were many reasons for why I always found myself in this position even though I considered myself a good saver.
But the one thing that always stayed true was the fact that I would always spend more than I made.
Once I was able to learn and understand this poor habit, I became more aware of where my money was going.
In my opinion, I believe this is what most people with financial trouble struggle with the most.
It’s not the lack of money that causes this issue, but poor habits. So let’s examine why you may be struggling with your finances.
Examining Overspending
Unless you’re a top 1% earner, more than likely you have to live within your means.
Meaning that you have to spend less than what you make, and save whatever is left.
This is a pretty straight forward method to make sure you never get into serious debt. Unfortunately most people struggle with this very simple concept.
You would think it would be due to lack of knowledge, but this is not the case.
Yes it is for some, but for those that struggle with debt, it’s due to poor habits. It also doesn’t help that society somewhat influences you to become a consumer.
With all the commercials and advertisements of other people enjoying nice things, it’s easy to manipulate people into also wanting nice things.
Having Access To Credit
When spending cash, it’s easy to control your spending. If you only have 10 dollars in your hand, then you can only spend what you have.
But in this world of innovation, we now have access to money through digital means.
Money is no longer paper in your hands, but a number in an account. We now have access to financial tools like credit cards, ATM’s, Venmo, etc.
Which means you now have access to money 24/7. This is dangerous because it gives you the illusion that you have something that’s not even real.
In your mind you’re probably thinking all this money for me to spend that I don’t have to pay back until later, this sounds like a good deal.
But these institutions are betting that you rack up high interest charges which will only put more money in their pockets.
Misusing Credit Cards
If used correctly, credit cards can be a very useful tool to get the things you want out of life.
But if you’re someone who tends to spend more than they have, it can lead you down a path of financial ruin.
That’s because if you continue to make purchases on the card and only pay the minimum each month, you will never pay it off.
High interest will continue to pile up each month, keeping you stuck in this rat race of debt.
So if you’re someone that continues to find themselves in this type of situation, the smart thing to do is get rid of your credit card. Cut it up and throw that thing out!
Taking Out Car Loans
Auto loans tend to be a huge factor in the lives of those who struggle with managing money.
That’s because getting a car loan is a pretty easy thing to get as long as you have some income coming in.
Purchasing a new vehicle that you could never afford if you have to pay in cash seems to be the norm in today’s society.
That’s because instead of focusing on the overall price of a car, the dealer has you focus on the monthly price instead.
When you see the monthly price, you think in your head, “that’s not too bad.”
But what you fail to realize is that you will be paying a lot more for the car for the next 5-7 years.
Not only that, but you just created an additional added expense to your budget.
Bending To Outside Influences and Agendas
How often have you been out with friends and they wanted to do something you know you couldn’t really afford.
But being the friend that you are, you didn’t want to be the person who spoils all the fun for everyone else.
Humans are social creatures which is why we all want to be around people we enjoy.
But these very same people we tend to enjoy can help put you into a financial hole.
Of course this is done unintentionally, but peer pressure can be a huge struggle for many.
Many live by the “Yolo” or “tomorrow isn’t guaranteed” style of living not realizing that there is a high possibility that you live a pretty long life.
What then will you do if this is the case, especially as life expectancies continue to climb.
When it comes to your spending habits, they should be driven by your plans and desires, not for the enjoyment of others.
Spending To Feel Good
We all deal with stresses and demands in our lives. So for many, spending money is a good way to relieve yourself of this misery.
However, the more you spend, the less you’re able to save in the future.
Not only that, but as good as it may feel to spend the money, you won’t feel great when that bill arrives.
So it’s important to find other ways to relieve yourself of stress. Either by meditating or hitting up the gym.
Whatever relaxes you the most and doesn’t hurt your wallet as much as going on a shopping spree would.
Analyzing Your Spending
I usually tell people who are looking to lose weight, that in order to do this, you have to get into a calorie deficit.
Meaning, if you burn more calories than you consume, more than likely you will lose weight.
The same goes for managing money.
If you spend less than you make, at the end of each month you will then have extra money that you can use to save and invest.
But just like many Americans who struggle with eating too much, there are many who also struggle with spending too much.
So in order to solve this problem, you need to first figure out where your money is going.
In the next section, I will provide you with some tools to help you analyze your spending.
If any of the following three things apply to you, then you should look into budget apps:
- You aren’t saving enough money to meet your financial goals.
- You feel as though your spending is out of control, or you don’t really know where all your income goes.
- You’re anticipating a significant life change )for example, marriage, leaving your job to start a business, having children, retiring, and so on.
The purpose of analyzing your spending is to know where your money is going. This is especially important if any of the three things I mentioned above apply to you.
If you’re someone who already considers themselves good at saving, then you may not need to complete a spending analysis.
But I doubt you would be here if that were the case.
Initially it's important to track your spending which helps you form good habits in the future.
Once those habits have been developed, there’s no longer a need to track your spending if you so choose.
As long as you’re reaching your savings goal, then you’re on your way to a successful financial future.
Using “Free” Websites and Apps To Track Your Spending
The great thing about technology is that it makes our lives so much easier.
Projects that would typically take days if not weeks to complete can now be done in a matter of minutes.
So when it comes to tracking your spending, technology gives you a full picture of your finances all in one screen.
So when it comes to tracking your spending, the most tedious part is entering all the data.
Sites like You Need a Budget (YNAB), Mvelopes, Mint, EveryDollar. Personally I’ve tried both Mint and EveryDollar and I found them both useful for what I was trying to accomplish.
However there are some things you want to be careful of when dealing with these “free” sites.
They tend to come with a ton of advertising and/or affiliate relationships with companies.
Meaning if you happen to click on any of the links they provide and make a purchase, they receive a commission.
This of course can create a conflict of interest since there is no incentive to recommend a helpful product or service that doesn’t pay an affiliate fee.
So you have to be careful when making your way around these sites.
For me, it doesn’t really bother me because when using these sites, I tend to have blinders on.
I go in there to do what I came to do, then get right out.
The other thing that can be more difficult to control is the fact that in order for these tools to track your spending, they need to connect directly to your financial institutions.
Basically credit cards, checking accounts, etc. this of course can be an issue for many.
But if you're comfortable with that, then it can be a great way to get you started with managing your finances.