No Automatic in Personal Finance
Sure, you can set up automatic payments for your spending commitments. But should you? Automatic payments are easy to forget. Can you control that?
Your personal finance includes income, spending, and saving for investing. That requires your attention to maintain control.
Recurring subscriptions are the biggest form of income for many online services. People forget what they commit to and rarely review the charges to their credit card. They can simply lose control of spending and their personal financial status.
Reign in Your Spending
Few of us have the chance to ride a horse. If so, you could visualize how to “reign in” your spending. That means “pull back” to slow or stop your forward motion.
That is a feature to help you regain control of your personal financial situation.
Of course, that is an easy directive. You will need to know the steps to make that happen.
Make a Filter to Qualify
Whether you visualize a filter or a strainer, the objective is to take all the spending opportunities or temptations, depending on your perspective, and determine their value to you now.
Your needs will change over time and circumstances. Therefore, what looks good to you may not fill a need now. Timing is important. So, getting things which you want may interfere with getting something you may need later. That is the benefit of delaying purchases to help you save for unknown needs later.
The filter you develop for making spending decisions has three elements. First, question your spending decisions over the past few months. If you are not sure what they are, review your bank statements, credit card statements, and your cash receipts. Are you happy with how much you have spent compared to your income over that same period?
Second, tell yourself why you want to make that purchase. Food is easy to choose, if it fits your budget. Steak versus beans and rice makes a big difference at the cash register. I have spent a lot just trying to make my home pretty or more comfortable. Be sure to look at all categories of your spending.
Third, how will you fund your purchase? Cash, debit card, credit card, or loan. If you have to use any form of credit, then filter that decision twice!
Get Uncomfortable with Debt
Credit cards offer several features to build your desire to use them, such as airline miles, points towards gift cards or discounts, or cash back. The key is to pay the balance off each month to avoid interest expenses.
Beyond a certain point, the interest expense can offset the benefits. At 20% interest, you can do the calculation. Of course, I am trying to discourage you from using credit cards. They can give you that false sense of having no restrictions on spending, until the statement comes next month, and you cannot pay the balance.
Experience will teach you that the minimum payment may relieve the feeling of concern this month. However, next month has the addition of interest expense. And it builds from there.
My concern for you and credit comes from my own carelessness and trauma related to credit card balances getting out of control. So, please, pay attention to how you use credit cards and ask how that can be avoided.
Debt is not your friend. It limits what you can do with future income. I want you to be uncomfortable with that thought. Debt needs your full attention to be paid off ahead of the terms which sound so generous.
There Is a Process
How do you face this budget wrecker we call debt?
First, you must recognize how you build a credit balance. Most often you have made purchases ahead of your ability to pay for them. Therefore, you must slow down your spending. Even then, when buying essentials, go cheap, starting with food to fill you not to enjoy. No one said this would be fun. You created this mess. You must work to clean this up!
By not building your credit balance, you give yourself a chance to pay it off sooner.
Second, you need a plan to pay the balance. Make yourself aware of the interest rate to calculate the amount of interest you pay on that balance. A lower balance means less interest. That may sound obvious, but you will be thrilled to see that number go down over time. It will become an incentive.
After that, depending on the number of credit cards and other forms of debt, you need to start paying more than is required. Using the snowball method that Dave Ramsey promotes, you could pay off the smallest balance to be able to use that payment amount as an added payment on the next biggest balance, etc.
This is a process that requires patience and sacrifice. You cannot spend like you did before.
The Uncomfortable in Sacrifice
Sacrifice will mean a lot of different things to a variety of people.
My point is that getting into debt is much easier than getting out of debt. It is a perception issue. You made spending decisions thinking you could afford to pay for it later. However, the actual payment due proved that you could not afford those purchases.
Therefore, I suggest you sacrifice to pay for what you could not afford and delay spending on what you cannot afford to buy now (with cash).
Working through this discomfort will go quicker with good intent and focus on the process. Tracking your progress will become an incentive to be more intent!
Manage Your Reality
Few of us want to manage our spending. However, until you have unlimited income, your spending must be managed.
A budget is merely a means to see your reality. You make this much income and that is your spending limit. And, if you want to save for emergencies or for your future retirement, you must spend less than that!
By making a payment to yourself into a savings account and living on what is left is a simple way to budget and still take care of your future needs.
Work for Better
Do you make enough income? If not, work to do better.
Do you spend all you make? If so, work to do better.
Have you let your personal finances get out of control? If so, stop the money bleeding and work to do better!