Can Being a Minimalist Build Wealth?
The idea of owning more is a western phenomenon that assigns value for having more stuff. If you don’t have a boat or a wardrobe full of the latest fashion trends you are less worthy and should probably go buy something now to fill the void (just kidding but that’s how we feel, right?).
What is Minimalism?
The idea of minimalism has always intrigued me, especially as I clean and wonder how I ended up with so much crap! And then when I really start to think about it, I realize that I purchased all this stuff, most of which I didn’t even know I owned and certainly don’t use.
The Minimalists describe minimalism as, “a tool that can assist you in finding freedom. Freedom from fear. Freedom from worry. Freedom from overwhelm. Freedom from guilt. Freedom from depression. Freedom from the trappings of the consumer culture we’ve built our lives around. Real freedom.”
Using Minimalism to Stay Frugal
This is where minimalism and frugality come together to make a beautiful frugal baby! When we buy less stuff and focus on only what makes us happy, or is a necessity, we have more physical and financial space in our lives. We also get the wonderful side effects of having less stuff to clean, organize or manage.
The FIRE (Financial Independence Retire Early) community does a great job of bringing these two ways of life together to live intentionally while focusing on building wealth. When we clarify what is important to us and commit to only spend money in those areas, we free up a lot of income to invest and build wealth. This is a topic of its own but if it interests you at all, read more about it here.
How to Start Living Minimally Frugal
So what are we to do about it? The Minimalists also have a great 30-Day Minimalism Game which can help you start to clear out what you currently own. Look around and find patterns in areas that you spend money that you end up getting rid of. Home décor your weakness? Or maybe it’s books? Whatever it is, commit to spend less in these areas and use that money to pay extra on debt or invest. Having less is more after all.
How Your Spending Can Help Guide Future Habits With Money
We’ve all been there, too much month at the end of the money or you make too much money to be this broke!
It’s not a fun place to be and when you’re feeling that stressed with money, you can’t possibly see a way out.
What if I told you that if you looked at your current spending habits, you’d probably be able to tweak a few things to relieve your money stress? Of course there are always the situations when you simply don’t make enough money (you’ll have to increase your income or lower your monthly expenses) but I’m talking to those of you that have a decent income but it never seems to be enough.
This is where tracking our spending comes into play and it’s a total game changer! When we see where our money actually goes, versus where we think it goes, we are able to do a better job with our everyday spending. Do we want to continue spending the way we have been or do we want our money to be going towards something else like a vacation, season tickets at the local theater or a larger Christmas fund?
So how do you go about tracking your money so that you can make changes to actually be able to afford the things you love most in life? Here is a free 90-Day Expense Tracker that you can use to get started. Use bank statements, both checking and credit cards, Venmo history and whatever other accounts you spend money out of to fill in this spreadsheet to get your monthly averages. These averages will tell you how much money you spend in any category on average.
Since money isn’t an infinite resource, it helps to see how spending in one area will decrease the amount you have available to spend in another. This is when we can ask what’s more important, this new pair of jeans or another day at a resort?
When you compare those totals to your monthly income you can start to ask yourself, can I afford to keep spending this much money in certain categories or is this the reason that I run out of money each month?
Use your monthly averages to outline a budget and don’t forget to include your goals like that vacation you have been wanting to go on. If the totals in each category are more than you make in a month, you will have to reduce your spending in some areas.
By aligning our planned spending with our income, we can ensure we reach our goals and continue to do what matters most in life, without going into debt. But the trick is to get started. Start with the 90-Day Expense Tracker to see where your money is going and decide, is this the path I want to stay on or do I have other plans for myself?
Budgeting Made Easy By Following These Simple Steps
When you think of budgeting, I want you to think about a 5-minute task while you’re relaxing. Maybe you’re having a beer with your spouse after a long day or you’re cozied up in bed about to dig into a great book.
That is what budgeting can look like when you have a system in place and goals that you are working towards. You are no longer stressing about a bill that’s due or working the math to figure out when you get paid next before you can go grocery shopping.
These are the tasks that I do on a regular basis to ensure my budgeting system is working for me versus the other way around.
Weekly I categorize my spending and readjust areas I overspent in. When I overspend, I look at categories that have a little extra money that I can pull from so I am not negative in any area of my budget.
Monthly I create a new budget based on what I have going on that month. Whether it’s a graduation party or date night to a baseball game, I set money aside to make sure I don’t have to put these expenses on a credit card to pay later.
Quarterly I update totals for my net worth and (if you have any) debt balances. Seeing these balances change each quarter will keep you motivated to continue to build wealth and pay off debt.
Annually I plan for the year ahead and readjust categories in the budget for what’s to come. Whether it’s a vacation or big house project, I add the category and start saving.
By putting a little effort into creating a system, you are ensuring that you reach your goals while reducing the effort that you have to put in on a regular basis.
So what does budgeting actually look like? After I make a purchase I categorize the transaction. Sometimes I do this while standing in line at the checkout or while I am pumping gas, other times it’s a few days later when I get a minute to login to my budgeting app.
If I overspent in a category, which will happen more as you start out with budgeting, I move money from another category to cover the overspending. So maybe I had $100 to spend on groceries but I spent $115, I’ll move $15 in my app from a category that will be ok without the $15, sometimes it’s Vacation or Extra Fun Stuff, it really depends on what’s going on at the time.
I continue categorizing my transactions all month and as money comes in, I put that money into categories for spending later. And once a new month hits, I make sure all the categories make sense and I continue where I left off.
So that’s it! If this seems like a lot, I promise it will reduce so much stress and uncertainty you have around your money. It will become a routine that you don’t give much thought to, like grocery shopping or mowing the lawn.
What systems can you put into place to make budgeting take less than five minutes each week?
4 Reasons You Aren't Budgeting and Why It's Hurting You
One of the main things that stopped me from budgeting was that I thought it was just something that was supposed to tell me no all the time. I thought that it would be the end to life as I knew it and that it was going to take a lot of time to manage.
The only thing right about my assumptions was that life would be completely different. But little did I know, it was about to get so much better! If I would have known that I would have started much sooner and if you’re not already budgeting, I’m here to show you why you should start one today.
When we become intentional with our spending we ensure that we get to do more of what we love most! We actually save for the vacations that we have been dreaming about for years. We might even save for a down payment on a new home or invest in ourselves by going back to school. No matter your goals, a budget helps get you there so much more quickly while remaining out of debt!
Here are four things you might be telling yourself that has stopped you from creating a budget. But don’t worry, personal finance is something we aren’t taught about so no wonder why we aren’t always good at it.
Budgeting just tells me want I can’t buy
A budget would only tell you no for a couple of reasons; 1) it’s not something that you said was important enough to start saving for it or 2) it costs more than you were planning to spend. When I help people create a budget, we are sure to include our goals, hobbies and things we love most in life. So you’re only telling yourself no to something that you once said wasn’t important. If things changed, let’s make room for it in the budget!
I am always overspending
When you overspend on your budget it might be because you didn’t estimate the correct amount for a certain category. Help yourself out by putting in a bit of effort to see how much money you need for each category, and the 90-Day Expense Tracker can help with this. You can also overspend if you aren’t checking in on your budget. Set five minutes aside a couple of times a week to see where you are at with your spending.
I don’t have enough money to budget
Believe or not, everyone no matter their income benefits from budgeting. It’s easy to think that you’ll start budgeting once you make “more money” but that day never seems to come. And in fact, we don’t magically become better with our finances because we make more money. No matter your income, get started with a zero-based budget to ensure every dollar you make is working to create your dream life.
I’m too afraid of what I’ll find
This is a real one and since it’s emotional it can take some time to overcome. One thing I would say is that nothing gets better as it is being ignored. We don’t just wake up with more in savings or less debt, we have to be intentional for these things to happen. So what do we do about it? We dig in, giving ourselves grace and we start working to improve our situation. It’s usually not as scary as we think it is and having the knowledge can help our situation change rather quickly!
So what can you do today to be just a little bit better? Maybe you look into your spending, clarify your goals or look into increasing your income. Whichever you choose, just choose one thing and get started. You won’t regret it!
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We Often Don’t Include the Most Important Things in Our Budgets
Before I started on the path to figure out my debt, I was completely in the dark about a budget. What is a budget for? Who needs a budget? What am I supposed to include in my budget? Once I have a budget, now what do I do?
I initially started with listing out all of my bills and the sort of obvious things, like groceries or restaurant spending. That made sense, right? I quickly hit a brick wall when I bought a present for a friend’s birthday, that didn’t fit into any of the categories I had listed.
So there it began. I would add categories to my budget as life happened, and I was missing a lot of things! I didn’t account for bachelorette parties, weddings, insurance premiums, attending Twins baseball games or annual events like the Minnesota State Fair.
How was I so far off? The idea of saving for these “smaller expenses” didn’t even cross my mind until they started adding up. One summer I remember being a bridesmaid in three weddings and attending 10 more, I was broke!
This is what got me looking at my calendar and creating space in my budget for the things that were already scheduled and I wanted to attend. I would quickly add up what I thought that event was going to cost to calculate how much I had to start saving with the time that I had left.
Sure spending $200 at the Minnesota State Fair wasn’t necessarily going to break the bank, I could pick up another shift at work and be fine. But when I started saving just $17 a month year around, that affected my finances so much less!
That is when buying all the beer at the fair and eating all the fried pickles, corn and donuts became really fun. Because it didn't matter if I also went out to eat that week, because I planned for this.
So I challenge you, take a look at your calendar and what can you start saving for right now? Make a list and figure out how much you should save a month. Here’s a free tool to get you started on all those categories you might be forgetting in your budget.
7 Questions to Ask Yourself to Be Better With Money
Reaching goals can be hard and it just doesn't happen by accident, we have to actually put in the work. So whether it’s running a marathon, eating healthier or getting that next promotion at work, a plan is laid out so we know, how am I going to get from A to Z? The same works with reaching financial goals or simply getting rid of stress around money.
For example, if you want to increase our savings for an emergency fund, you have to determine, how much money am I going to need? From there, how much can I afford to set aside each month? Then you have to set that money aside and actively not spend it unless it’s an emergency.
Below are 7 questions to ask yourself so you can stay on track with your goals and crush it with your finances.
What can I do to increase my income?
I am sure you know by now but the side hustle game is real! It has never been more important to have diversified income because a job is not forever. There are so many options today so get creative, try selling something you enjoy making, teach or consult in your area of expertise or pick up some dog-walking clients.
Can I afford to pay more towards debt? What would my budget look like without debt?
If you are making your monthly payments on debt I would push you to see how much extra you can afford each month, especially on high-interest debt. By making only the minimum payments we are paying more in interest and increasing our chances of disaster if something were to happen with our income. Best bet is to pay it off as quickly as possible. And for a bit of extra inspiration, take a look at a life without those monthly debt payments, what else could you be spending that money on? Más vacaciones por favor!
Am I saving enough today to fund my vision for retirement in the future?
How much are you saving per month and are you on track for retirement? The answer is different for everyone, it depends on how much money you would like to have for retirement and how long until you want to retire. Use this calculator to see what your balance will be at retirement. If you haven’t bumped up your contributions lately you might want to look into that, 15% of your paycheck is a good goal if you don’t have high interest debt. Bonus credit if you want to reach financial independence at an earlier age, use this FIRE calculator (FIRE stands for Financial Independence Retire Early) to see when you can reach this goal!
Is my emergency fund all set or how much do I need to get it funded?
Having an emergency fund to fall back on will relieve a lot of stress in case a pandemic happens, an expensive car repair is needed or your furnace breaks in the middle of winter. A good rule of thumb is to have 3-6 months worth of expenses saved up and set aside in an account that you have easy access to. Don’t include unnecessary spending while calculating this number, it should only include what you would need to get by, we aren’t going on vacation during an emergency.
What are two of your big goals and do you have a plan to get there?
In order to truly enjoy life, we have to be sure we are doing the things that make us happiest. Sure we have to go to work and pay bills but outside of that, on the weekends or in your spare time, what do you enjoy doing most? Maybe you want to save up for a camper or you want to buy a cabin up north. Whatever it is, are you setting money aside? Do you know how much it will cost? Have you created a vision board on Pinterest to stay motivated? Ok, the Pinterest part isn’t necessary but it sure can be fun!
What system am I following to stay on track with my spending?
Just like we have to be intentional to reach our goals, we need a system in place to help us get there. Do you have a budgeting app to watch your spending? Do you use the cash-envelope system for categories you tend to overspend in? Do you log everything in Excel and update the pivot charts to see your savings progress? Whatever method speaks to you, put in some solid effort and you’ll be amazed how easy it will become.
Is there anything holding me back from taking action?
If you aren’t able to get started on the above items, why? Are you too stressed to even start? Do you not have a supportive partner? Does your debt seem too high to even begin to dream about retiring? Whatever it is, take one little step forward. Choose one thing that you can start to work on and begin there. You’ll be amazed that with a little support, it’s not as scary as you might have imagined!
My Why & How a Budget Changed Everything
After I finished college, I did what a lot of broke 20-somethings do. I moved to the city, got a full-time job making very little money and made up for my inflated lifestyle with a waitressing gig five nights a week.
I had around $60,000 in student loan debt, a number so big that I couldn’t even comprehend it as a 22 year old. Combine that scary number with a society that tells you “student loan debt is good debt” and “debt is a part of life”, I had accepted my fate.
So instead of more efficiently managing my finances, I worked to enjoy life and put my debt on auto payments. For around eight years it was out of sight and out of mind. I tell you this because I think a lot of us feel this way, especially before we drink the debt-free-lifestyle kool aid. We don’t believe we have options! We believe debt is a fact of life and we don’t have a choice in the matter.
It wasn’t until my late 20’s that my monthly debt payments were becoming an issue. How was I supposed to buy a house or save for a wedding with this much debt? Let’s be honest, I wasn’t close to either of those things but I wanted to be ready once I was at that point in life.
I started talking about my money struggles with peers and I learned of an entire community of people paying off large amounts of debt, in relatively small amounts of time. These people were living my dream and I couldn’t believe it took me this long to find them!
I quickly tallied up my debt and there it was, the number that I had been avoiding for a long time, the amount between me and my new debt free life, $46,514.91.
I created a “budget”, at the time it was more like a list of bills, and I committed to a number that I thought I could afford to pay extra towards my debt each month.
I had a target date that I was going to be debt free but once I started to see progress, I cut the time in half. Not because I was making a ton of money but because I quickly realized how much money I was actually wasting a month. Going out to eat, new clothes, alcohol. All the things!
I was making progress and I was seeing first hand the impact of paying extra towards my debt! I also began playing around with a few debt-free calculators online and calculated the impact of every extra dollar that I paid. This became my motivation to bump up my payment to something bigger, while still manageable, and it allowed me to shed years off my debt free journey.
Each milestone was cause for celebration and motivated me to pay even more. Quickly my amount owed was $40,000, then $30,000 and eventually single digits and gone!
My budget evolved over time and became the source of my success, as cheesy as that sounds. I was able to prioritize the things I loved most, like going out to eat with friends or road trips with my partner and pup, while still paying down debt.
Some months I paid more and some less, but the goal was there and my mind was set that my future life was so much more important than this life I was living that was making me more broke.
Becoming debt free doesn’t happen by accident and it doesn’t happen overnight. I had to learn what a budget was and how to stick to one. If you can’t relate to the word budget, I was right there with you! I mostly wanted to know how much extra I could be sending towards my student loans and it just so happens a budget tells you that, who would have thought?
How I Stick to a Budget Without FOMO
Something that I often hear from people is how limiting a budget can feel. If you consider setting a spending limit on items limiting then, maybe? But remember, you are the one that is setting those limits and we all have to have limits. Money is not unlimited so unless going into debt is a goal of yours, you have to know when to say no.
I am here to shout from the rooftop that I don’t see my budget as restricting. I see it as something that gives me permission to spend, and here’s why.
Your budget is like that best friend when you are at the mall that says, you need that shirt, get it! It is saying, hey, you set money aside for this specific thing, what are you waiting for?
When I help clients create their first budget, we start the process with creating a list of everything that brings them joy. Do you value spending time with family and friends? Do you like traveling? Do you always need the latest gadget? Is it your personal mission to try every brewery in Minnesota?
Whatever you find value in, you want to make sure you are incorporating spending for those areas! My budget always includes a category to save for the Twins home opener, the Minnesota State Fair and Black Friday. Non-negotiable. These are experiences that are affordable and have become a tradition with close friends.
Maybe in your previous life (pre-COVID) friends always do a last minute pricey brunch and you feel guilty when you go, and when you don’t. Start setting aside a small amount of money each week, or with each paycheck, so these events don’t break the bank.
We still have to say no to some things since our money isn’t infinite. But saying no to something you don’t value is a lot easier than saying no to something that you do.
Start today with writing out all the things that truly bring you joy, a little soul searching one might say. Figure out how much you can afford to spend on these items and make sure they are in the plan. And remember, no item is too small to start saving for. My car tabs are way less annoying when I save $5 a month versus $60 at the DMV, that’s a happy hour!
12 Things You Are Wasting Your Money On
OK, I am not here to tell you that you are bad with money because you are spending way too much money on certain things. Absolutely not! But I am here to be a friend that reminds you that “hey, personal finance, you got this, and here’s another way you can get even better with your money!”
Where we buy certain items can have a big impact on our money. By spending more money than we need to on certain items, we are basically lighting cash on fire or throwing it out the window.
Please don’t light your cash on fire.
A dramatic example, if you were walking around Nordstrom and you noticed they started selling toilet paper, would you buy it there? I hope not! I bet it’s going to be $63 for a 24-pack and that is just not responsible.
The same goes for everyday items we buy from stores that we find ourselves in more frequently.
Two reasons why you might be overspending is that you shop out of convenience, meaning you like buying everything in as little stops as possible, or you like shopping local.
Concerning the second point, I understand that supporting a local business is important. I’m not here to argue that, but it can end up costing you more money on certain items. If you are struggling to pay your bills or you are drowning in debt, I ask that you take a pause and buy certain things at a cheaper store while you catch up and get back on track.
Spoiler alert: I remember the first time I even noticed the Dollar Tree even had thank you cards. I was there with a friend who was looking for something specific. So I did what any good patron would do, I started walking the aisles to see if there was anything that I needed (which I am sure I didn’t need a darn thing).
I found myself in the stationary isle and noticed at least 10 different options for Thank You cards! My mind was blown because I always hated keeping these in stock at my house because they were usually expensive to buy! But here I could get a cute set, for cheap, and not feel guilty about it.
Another item is seasonal décor. While I am not a huge fan, I hate storing it to use only one time of the year, there are tons of options that are all budget friendly if this is your thing! And remember, Santa doesn’t care where you bought the stuffed snowman from, it’s the thought that counts!
Ok so here is the full list of items that you can find at discount stores, such as the Family Dollar or Dollar Tree, that have little to no difference in quality.
Greeting cards
Seasonal decorations
Notebooks
Wrapping paper and gift supplies
Storage bins and decorative containers
Party supplies
Vases and other decorative items
Dinnerware
Food storage containers
Cleaning supplies
Coffee filters (do people still use these?)
Travel size essentials and containers
Take some time out of your next errand day and jump into one of these thrifty stores to see what you can find. Make sure it’s already on the list, I am not giving you permission to go on a shopping spree here, though sometimes it can feel like you are robbing the place because it’s so cheap!
3 Holiday Tips to Avoid January Buyer's Remorse
Here we are, that wonderful time of year where we show love and affection by participating in our consumerist culture while worsening our own financial wellbeing.
Ok that was dramatic, but is it not true? This year has taught us that physically being with one another is not only something we crave, but it’s something we need.
Dinner parties with friends, trying something new with a spouse or connecting with loved ones at the annual holiday gathering is far superior than anything big box stores have to offer.
Black Friday this year broke records for online shopping, topping off at $9 billion. And as you might have guessed, Cyber Monday broke another record at $10.8 billion.
While I can’t stop the economy from surging during the holiday season, I can ask that we all reflect on what we are buying, why we are buying it and does anyone actually want it?
Here are three tips to keep your holiday spending under control so that you don’t start the new year with buyers remorse.
Be sure you are setting money aside. Presents, gift wrap, holiday grocery store runs, it all adds up. Create a realistic budget that you know you can follow this year and remember that your January self would appreciate little to no credit card debt. Click here to download a template to get started on your budget.
You don’t need to buy a present for everyone you have ever met. Keep your shopping list to a realistic size and only give something that you know the person truly would enjoy (hint, you don’t always have to buy something, handmade items can be just as fun)
If you are buying gifts, whether it’s with a family gift exchange or for a spouse, agree on a total dollar amount that you are comfortable spending. To help you stay on track be sure to compare prices on multiple sites and shop early for deals.
Habits of a Millionaire, Just in Time for the Holidays?
Let’s get straight to the point. Budgets are the key to building wealth and while you might know the importance of one, I don’t know if you are giving them as much credit as they deserve.
Ramsey Solutions, the Dave Ramsey empire, conducted the largest survey of millionaires, with over 10,000 participants, all to find out what some of the common trends were.
Here is what they found:
8 out of 10 invested in their company 401k
79% did not receive an inheritance
Only 31% averaged $100,000 a year over the course of their career (and one-third never had a six-figure salary)
The average millionaire made a habit of budgeting every month
Since the holidays are here, and 52% of us Millennials are going into debt because of it, I’m here to offer a solution. Don’t wake up in January with your credit cards maxed, desperate to cure your holiday hangover, let’s change the path you might be headed down.
Here is a free, easy-to-use template to get your holiday budget created today! Use this spreadsheet to organize your holiday spending categories, assign dollar amounts to avoid debt and record your transactions to help you stay within budget!
While this year’s budget may not be fancy, we only have a month until the big holiday so let’s be realistic with how much you can save, I want you to know that it’s ok. 2020 has tested us, pushed us and prodded us to act differently.
So here we are, creating a budget, changing our spending habits and building a future for ourselves because we deserve more than just going to work and paying our bills. Thanks 2020 for the wakeup call.
Bouncing Back After #livingmybestlife
Keeping up with the Joneses is expensive. Spending excessive amounts of money on going out to eat, a quick trip up north or that thing at Target adds up quickly and is a major reason Americans struggle with debt.
I am here to tell you that overspending just by a little in a handful of areas may be the reason you are carrying a balance on your credit card.
According to an article in usatoday.com, “Groceries are the number one reason why people carry a balance.” One explanation for increased credit card debt is that we put everyday expenses on credit cards, when we once used to pay for these items in cash. Dealing with other debt payments, we are strapped for cash at the end of the month, unable to pay the full balance on our cards.
Here are some tips to get ahead of your credit card debt after you had a couple months of excessive spending:
Look at your spending and figure out which categories caused you to not make your payment in full
Determine a spending limit for all your budget categories and make sure it adds up to less than your monthly household income
Use that extra money to pay extra towards your credit card balances
Check your spending before each purchase to make sure you haven’t hit your category limit
Make sure you are not spending just to qualify for rewards or card benefits, you can do this once you get your balance back to zero
If your credit card balance is not manageable, but you would be able to pay it off within a year, look at consolidating onto a new card with 0% APR.
The thing to remember is that consolidating to a new card or rolling the debt over with your mortgage does not solve the problem at hand. Be sure you are proactively creating a spending plan before each month and really sticking to it. By following a plan each month you will be able to ensure you have money extra to pay down debt.
15 Ways to Save Money
Saving money is something that you are either really good at or it goes against everything that brings you joy. I find that while I really enjoy saving money some ways, other ways can be tedious and not worth the effort.
Here are some tips I personally use. I find them helpful whether you lost a job, are looking to get that emergency fund started or just want to be a little better with your money.
Pay off your debt - payments to interest is like throwing money out the window
Keep a running total while you are grocery shopping as a reminder of how quickly the bill adds up
Oh and buy generic brands, because it’s the same thing
Review all of your subscription services and cancel those you use the least
Send money to a savings account automatically and for specific items (it’s easier to save for that trip to Mexico this spring versus for a generic vacation fund)
Unsubscribe from those companies that always email you tempting offers
Bring your lunch to work (if you aren’t working from home of course) and save restaurants as a way to treat yourself
Say yes to the match for your employer’s 401k benefit - free money
Look at your cell phone bill - can you get on a family plan, ditch your insurance, get on a plan with less data or sign up for an off brand servicer like Cricket or Visible
Make your morning beverage at home
Rent books at the library (you can even request books they don’t have)
For your next vacation, grab an airbnb rental during the week, you’ll find a cheaper rate you won’t have to spend lots of money on gas or fancy plane tickets
Sell anything around your house that you are sick of, don’t use or is more work than it’s worth - you won’t miss the junk once it’s gone and you’ll love the cash
Challenge yourself to not spend any money (besides the essentials) for a week
Shop around when making larger purchases, you might be able to find it cheaper at another nearby store or get a price match
6 Reasons You Are Still in Debt
Your debt and your thoughts towards debt is directly tied to our society. Debt is normal. Just because something is normal doesn’t mean it’s good. As my mom used to say, “if your friend jumped off a cliff, would you?”
But there is hope! Here are some reasons that people stay in debt:
1. You think there is no way out. Being in debt doesn’t have to be your destiny. You can kick it to the curb, you just need to have the confidence to take the steps to change your future.
2. You don’t know the reason you keep accruing debt. Knowing how you accumulate debt is the key to getting out. Do you have a problem with a credit card? Do you like fancy cars? Look into these traps and stay away from them!
3. You don’t want to make sacrifices. I’m not asking you to give up your hobbies or to never go on a vacation, but there might be some things you have to say no to.
4. You and your spouse are on different pages. This is a hard one but something that needs to be addressed head on. If you share money with someone, both parties need to agree on how you will spend your money and what your priorities are as income changes.
5. You don’t have goals or a plan. At the end of the day, it’s hard to stay motivated when times get tough if you don’t know your why. Take some time to dream big! Write down everything you are going to do (or buy) once you are out of debt.
6. You don’t have a budget. This is a simple one. Get on a budget, they are a necessity for everyone!
This App Will Change How You Think About Budgeting !
While I was getting out of debt I started using an app early on that I think was a total game changer. This app not only helped me stay accountable, but it took all the guessing out of “how much do I have left in groceries” or “oops I spent too much, now what?”
Drumroll please - YNAB (You Need A Budget). Yup, that’s the name of the app!
Now, there are a lot of budgeting apps and there is a chance that you might already have one. But let me tell you why this one is different and why you should think about spending the $7 a month for it.
First off, if you spend too much in a category, YNAB will turn the category red and you won’t be able to ignore the problem. It will then ask you where you want to pull money from to make things right again. When you overspend that money has to come from somewhere and YNAB has no problem holding you accountable.
The second reason I love YNAB is that it let’s you use credit cards and it’s easy! I won’t go into the details here but just know that you can still accumulate your miles while you are paying off your debt.
Lastly, it makes saving for larger items a piece of cake. Maybe you want a savings goal for a specific item, like a new coach. Or you are saving for vacation but are going to be spending money along the way. Or maybe it’s a monthly bill and you are sick of looking up how much it is each month. Yup, it’s all there, and more!
The point I want to make is to encourage you to reach out and find tools that will make things like budgeting or paying off debt easier. Don’t try to create fancy spreadsheets or processes for saving receipts that you will never use.
Why make things harder?
5 Things I Did to Get Rid of Debt
1. Create a budget (see last week’s article on how to do this)
I always thought a budget was for poor people that needed a plan. Which ironically was me but I didn’t think so at the time. By writing down your plan ahead of time you are able to ensure that you aren’t spending more than you make and that every penny is going towards your goals.
2. Pay extra on current debt
This may seem like an obvious one but you’d be surprised. Use your budget to determine how much you can afford to pay extra each month and make that payment first! When we make debt payments at the end of the month life gets in the way and we don’t pay as much as we had originally planned. By comparing my spending habits with my income I was able to see how much I could afford to pay extra on debt with my current lifestyle. No matter what my income was each month, I would always pay the same amount towards my debt.
3. Don’t sign up for new debt
I had to call this one out because our society normalizes debt to an extreme, we even have “good debt” and “bad debt”. Debt is debt. Period. Depending on your personal goals you may want to eliminate certain debts before others but to truly build wealth, don’t take on new debt.
4. Get a side hustle
Everyone should have multiple streams of income coming in, it’s a safety net in case something changes with your job. Increased income doesn’t mean increased lifestyle. Send extra income towards your debt or use it to pay for larger purchases in cash. While I was paying off debt my side hustle was waitressing. It was dependable easy cash and I had been doing it for so long I could do it in my sleep.
5. Have some real (and sometimes hard) conversations with yourself
Personal finance always involves self reflection. Whether you make a lot of money, or have a smaller income, can you afford the lifestyle you currently live? I am going to guess no if you have debt. Do you need to cut subscription services? Do you really need a new phone every two years? Small lifestyle changes add up and make a large impact towards paying off debt.
3 Easy Steps to Get Started With Your Budget
A budget can seem overwhelming, stressful and sometimes, boring! But a budget is the key ingredient to paying off debt and saving for those things in life that matter most helloooo vacation!
1. Track your current spending
Look at your spending from the last couple of months and get an average for money spent in each category. Think of categories as buckets your transactions fall in - restaurants, clothing, hygiene, monthly bills, subscriptions, etc.
2. Outline a budget with your new and improved spending habits
After you know how much you currently spend in each category, add up all those categories and see if you are spending more or less than your current income. You may need to do some adjusting. If you are spending more than your income, you will need to decrease dollars assigned to categories. If you spend less than your income, where should that remaining money go - saving for a new car, a down payment on a house, your 401K?
3. Start budgeting!
Now is the time to follow your new budget with the goal to stay at or below the spending limit for each category. Be sure to track each expense so you know if you are getting close, or going over, the money assigned to each category. A budget is not perfect so continue to track your expenses and adjust your budget with each month.
49% of Americans Are Concerned, Anxious or Fearful
According to Marketwatch, 49% of Americans are “concerned, anxious or fearful about their current financial well-being.” The not-so-funny thing is that this study was before 1) the coronavirus, 2) a potential recession and 3) record breaking unemployment rates.
This is almost half! Why do we continue to live life with debt if it is causing us so much pain? Ost of us don’t see a way out. It has become so normal in our society we truly start to believe there is no other way.
One roadblock when trying to get out of debt (which means living on a budget) is that you become an outsider. You start to have doubts that your friends will think of you differently, that people might think you are poor or that you can’t do fun things anymore. And the fact is that all those things can’t be further from the truth.
Aligning your spending with what you value most in life (vacation, a bigger house, fancy restaurants) is the best thing that you can do for yourself. Because you will be truly happy.
Don’t let what others “might” think of you as something that is stopping you. Being in debt shouldn’t be how you live your life, doing what makes you happy should.
Why and How You Should Be Saving With Sinking Funds
A sinking fund is when you set small amounts of money aside each month towards the purchase of a larger item. Wouldn't it be easier to save $100 a month for Christmas and have $1200 by December rather than putting Christmas on a credit card and stressing about it in January? YUP! Or how about that 6-month insurance premium? It's much less scary setting aside money each month rather than sacrificing all your fun money the month it's due.
Sinking funds can be used for anything that is not a monthly expense and becomes a line item in your monthly budget. So for example, in your budget, you will have a line item for your rent/mortgage, groceries and Christmas sinking fund (along with a bunch of other stuff). And each month you are setting money for the Christmas sinking fund aside but you aren't actually spending money in that fund until it get's closer to December.
How do you organize money from all these sinking funds? You can transfer the money into a separate account or keep it in a labeled cash envelope. There are also a few apps that help you organize money into separate categories to make your account balance more clear - Qapital and YNAB are a couple that I recommend. Use whatever makes the most sense for you!
This Is Why You Might Be Broke...
Are you confused at the end of each month because you know how much money you make, and there should be plenty to cover your bills, but then POOF - it's gone before you even knew what happened? Unfortunately, I think we can all relate to this one! I promise I won't harp on the importance of a budget in this post, even though that would tell you exactly where your money is going.
My guess is on subscriptions! And not only subscriptions themselves, but the mentality that the purchase doesn't effect anything. How many things are you "subscribed" to each month? I'm not talking about magazine subscriptions like the good old days. I'm talking about Netflix, Hulu, Disney Plus, Amazon Prime, Bark Box, Spotify, all the beauty boxes, Dollar Shave Club, Stitch Fix, Hello Fresh and the ever so popular wine club -- the list can go on FOREVER.
This is where your money is going. $5 here, $15 there, you don't even notice each individual transaction but by the end of the month your paycheck is out the window. And it is not each tiny service that is making you broke, it is the mentality that these things don't have any effect on your money.
I'm not saying you can't have these these things, some of them save you time, increase your mental health, allow you something to look forward to during quarantine. I get it! But do me a favor, go through your bank statements for the past month and write down your subscriptions. Do you need them ALL? Are you paying for something you barely use? Can you find a free version? And before you sign up for the next new thing, take a second, see how it is going to fit in your life and determine if there is something else you need to give up to account for this new cost. Small changes like cancelling some of these services can free up money to put towards things you truly love.