Dear Mindy,
Every month, it feels like paycheck in, paycheck out. I’m covering my bills, but I am also buying additional stuff that I don’t urgently need. The result is that every month I am coming to the limits of my credit card and bank account again– although it SHOULD be possible to save money. But for some reasons I always spend all the money I have.
What should I do?
This is the most common email I get. And my answer is: stop using the credit card. Pay for everything via debt card. Why?
Credit cards give you a margin of error and a timing buffer, so that you don’t need to be as diligent with your expenses–I know this from experience :o)
To get to that next level of cash flow clarity, you have to know exactly what goes out, and you have to be super careful about it for a few months. Imagine starting a new healthy eating routine–you would be planning and anticipating every meal when you first start out. That’s how it needs to be with money at first, so you get better and better at it.
When you get rid of the credit card, you stick to real-time cash flow and don’t have the latitude that credit cards create to buy stuff on a whim. It forces you to stay on track in a way that credit cards don’t.
Personally, I have gone on months where I told myself, “I am not buying anything this month other than paying my regular monthly bills and groceries.” If I visit with a friend, I suggest coffee or coming over to my place. For that month, I don’t eat out. I don’t buy books on Kindle. Everything I think about buying goes on a list and if I still want it when the month is over, I decide if it fits into my spending plan going forward. I have found you can pretty much wait a month to buy almost everything.
As you work on this, go back over your previous credit card statements and find your trouble spots (mine are always books and eating out too much). Place a buying moratorium on those things for a month. See how it goes.
Once you know what is essential to your living expenses and what you can save, lock in that number. Save it automatically so it becomes another bill to you. That reinforces your behavior.
It doesn’t mean you can never go back to using credit cards, but you might simply need an internal limit…for example, I know that if I have charged more than $1,000 on my personal card each month, something out of the ordinary is happening. This is the sort of thing you should automatically be aware of—and it’s a great point of clarity to work on for a few months.
Who’s with me? Who wants to stop using their credit cards for 100 days? If you want support, you can check out my free workbook that identifies the 10 easiest things you can do to improve your money – download that here.
photo credit: Taxfree Shopping Extravaganza via photopin (license)