There are plenty of good, common-sense recommendations for ways to solve your personal financial problems. Great advice, to be certain. However, there are also long-standing recommendations to quit smoking. This advice is even backed with tons of research and evidence. Yet, there are still nearly 6 million Canadians who continue the bad habit.
It’s the same with money. Even with sufficient advice and information on ways to solve your personal financial problems, it can be challenging to get out of debt. Why is that?
Psychologists have found that it is difficult to break habits because we have essentially, through repetition, programmed our brains to keep doing the same old same old. When we do things over a period of time, maybe our whole lives, habits form.
Just as it takes a while to form a habit, it takes a bit of time to create personal financial problems. So, expect to invest a little time in setting things straight. While you can’t hope to solve all of your financial issues overnight, you can benefit from what experts tell us. Make it more successful by following these tips:
1. Change Your Mindset
Financial writer and author Melissa Leong, “Money Go Happy: Spend Smart, Save Right and Enjoy Life,” says that it can be a mistake to talk only about budgets and spending habits while ignoring what’s going on inside your head. You may need to rethink your relationship with money and spending. Leong recommends examining your behaviors.
Think about the last three unplanned purchases you made. How did you feel before and after the purchase? Although you can experience a heady rush from acquiring things, that feeling doesn’t last. If, when you feel discontented, your response is to buy more stuff, that’s a habit you can break.
One way to do this, Leong suggests, is to limit the amount of time you spend on Facebook and other social media comparing yourself to the Joneses decadently shiny moments. Instead, spend time with people you admire and who share your values. Take pleasure in the pursuit of real financial freedom with no need to compete at the mall.
2. Establish Accountability
The American Society of Training and Development found that when it comes to addictions, people are 95% better at achieving their goal when they are held accountable. Certainly, your personal financial woes do not qualify as an addiction, no matter how many shoes you buy. But, there can be years of habits that sustain the problem.
It seems that we are not very good at stopping ourselves from doing whatever bad thing we’ve always done. Other people can help, though. When you tell others that you intend to stop overspending, you are more likely to do it. In fact, accountability may be the most critical factor in changing your current behaviors to something that serves you better.
Financial guru, Dave Ramsey, advocates having a financial accountability partner. This is someone who will encourage you to stay on track with your financial goals. If you are married, that person should be your spouse. Otherwise, choose a trusted friend who will be gentle, yet firm, check in with you frequently, and not let you get away with your usual habits.
3. Stick to Your Budget
Once you have an accountability partner, you still do need a budget. Experts recommend budgets because they work. Holly Johnson, co-author of “Zero Down Your Debt,” advocates tracking to help understand where the money is going. It may not be necessary to track every penny. However, just the process of thinking through every dollar you spend can keep you mindful of your financial habits.
Even for the experts, sticking to a budget is tough. Alan Cory, the author of “A Million Bucks by 30,” pays for everything in cash. He says it forces him to stay on a budget since he can only spend what’s in his wallet. Research backs him up. Shoppers will pay up to twice as much when using a credit card.
Another equally effective method is to use envelopes for each of your budget categories. Simply track your expenses on the outside of the envelope. When the cash runs out, stop spending. Problem solved. Experiment to find what works best for you.
4. Build an Emergency Fund
Financial planners typically recommend that you have three to six months of expenses in your emergency fund. The fund will prevent you from relying on credit for the unexpected. This is an aspirational goal, however. If you are still trying to dig your way out of debt, set a lower target.
Eric Nager, an investment advisor at Southern Capital Services, says, “One thousand dollars is a great start.” Try for an intermediate goal of $500. Build this fund with whatever change you can spare.
Multi-millionaire film star, Hillary Swank, once told talk show host, Kelly Ripa, that she clips coupons. While coupon clipping won’t make you rich, if you cut your grocery budget by ten dollars a week, you’ll have $500 in a year.
Fund your savings through automatic deductions at your bank. If the money still taunts you, make your account as difficult as possible to access. Skip the ATM card and find a cross-town bank or credit union. Or ask your most fiscally responsible friend or relative to hold onto it for you.
5. Pay Down Your Debt
Although many advisors recommend paying down high-interest debt first, there’s a growing number who subscribe to the “snowball” method. This means that you make the minimum payment on everything, then throw any surplus income at the smallest bill. Once that is paid off, you tackle the next lowest.
According to Ellie Thompson, the CEO of Money Therapy, “Paying off debt can get addicting if you do it right.” She believes that if you start small rather than with a monster loan, you will gather momentum as you continue. Like a snowball rolling downhill.
Andrew Hallam, the author of “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School,” recommends paying off your credit card every month. This is another aspirational goal since you must first eliminate your debt.
Keep Going to Solve Your Personal Financial Problems For Good
Every month, take another hard look at where you are spending money. Your diligence, in combination with these expert tips, should help you make significant progress toward solving your personal financial problems.
If you are really in a hole, you aren’t going to be able to dig your way out by foregoing your morning latte and bringing your lunch from home. In more extreme cases, financial coach Cornelius Davis says cutting expenses may not be enough.
“If you plan to make any headway paying down your debt, you have to bring in additional income,” he says. This could be by asking for a raise, finding a new employer, or a second job. There are many opportunities to make money working freelance or part-time gigs, both online and off.
Not everyone can make these choices, however. Each circumstance is different. If you need additional help, set up a consultation with a Licensed Insolvency Trustee. There are several options your Trustee can help you explore.
Photo by Kelly Sikkema on Unsplash