Often I write things for my blog that maybe our actual client base doesn’t need to prioritize as much here in the economically vibrant, high-tech, dual-income world of Seattle. However, I believe that we can ALL be better with our spending and debt management. And since I know there are still TONS of people who have economic challenges and are just living paycheck-to-paycheck, I try to write about things that help build a solid financial foundation, even if you don’t feel ready for full-on financial planning.
Here are some things I do to help people “boot camp” their spending and eliminate extraneous expenses.
Cash flow management strategies
I believe tracking dollar amounts per category is essential for clarity, but I think once you have clarity, you make the behavioral changes to achieve less spending. For example, I would never tell someone they have to stick to $X for say, Dining Out…I would look at how many times they went out to eat, and tell them to reduce by 10-20% – so instead of going out 10x per month, try only going out 8x instead.
Think about if I am trying to lose weight. I need to track my calories, yes, to understand the dynamic, but it’s my BEHAVIOR that actually makes the change. It’s the same with spending. You need to understand the spending dynamic before you change it. Here are some ways you can do that.
Get connected to Mint, Personal Capital or YNAB. Fundamentally, you need a system that aggregates your spending all in one place so you’re not stuck downloading things into excel and doing a lot of data entry. If you use one of these programs, you’ll only need to categorize. Mint.com is my default because even if you get off track, it’s easy to catch up. Here’s an older analysis of YNAB. A few things might be updated since I last looked, but the people who can use it intensely for 3-6 months get huge results.
And as you build this habit of clarity, here are some tactics:
Plan to review 1-2 times per week MINIMUM. Until you settle into a new normal, you’re going to need to be vigilant. How would you behave if you needed to lose 50 pounds? You’d stay on top of your calories, right? Well, to reduce spending, you need to stay on top of it. But it doesn’t need to be a LONG session – just 15 minutes. You can set the timer on your phone so you don’t go down the rabbit hole.
Some tips for using Mint – which is much less boot campy and directive than YNAB, which is why I provide a bit more personal guidance:
- Just connect checking account and spending credit card so you stay focused on spending ONLY inside Mint
- Turn off all alerts except the Weekly Summary email
- Ignore Budgets and spend 15 minutes in the Trends tab reviewing the different reports
My weekly actions with Mint are always:
- Review Mint 15 minutes – I like a Friday review to help get my mind right for the weekend
- Use Mint to determine actions and behaviors for the next week
- If you’re part of a couple, schedule Mint Money Dates to plan strategies and new behaviors and figure out what works if you’re struggling in a specific category
- Make a calendar reminder weekly to re-read this post while reviewing Mint.
Reality is, if people can curb spending in 2-3 areas, it makes a HUGE difference.
Do a Spending Diet. I do a Spending Diet a few times a year. Here’s that blog post to refresh your memory. Spending Diets are reminders that you don’t NEED everything you’re buying… and if you start to defer purchasing things when you think of them, you can actually reduce your overall spending.
Some immediate behavioral things most people can do to make cash flow tracking easier and help you become more aware:
- Cancel every service or autopay that is non-essential
- Stop using all credit cards for a month to get a feel for things, then go back to ONE card so you can track total spending
- Make a rule that you can’t buy anything on your phone – in fact DELETE ALL SHOPPING APPS so you have to sit down at a computer to make your purchases
- Make a rule that you can only shop online 2x per month, so you have to keep a list or a shopping cart going of the things you need to buy.
- Plot out a few more months of Spending Diets (I like January, May, September) – 4 weeks of only buying ONLY the essentials
Direct deposit and automate cash savings
Now that you’re seeing some improvement with spending, you’ll need to capture that extra money!
Direct deposit part of your paycheck immediately to an online high-yield savings account. First off, you can google “best online high-yield savings accounts” and find a ton of FDIC-insured savings accounts that are likely paying around .5% right now. Get one of those.
THEN, once it is set up, get the routing information and set up your paycheck to have a certain dollar amount shoot immediately over to that account each paycheck. I have seen this be SOOOO effective for people who not only need to save to build cash reserves, but also for saving for vacations, cars, home projects – anything you need to plan to pay for.
Because if it resides outside your day-to-day banking, people tend to leave it alone a little better than if it’s at your regular bank. And, I promise you’re earning more interest than at ANY commercial bank or credit union I see on a regular basis. Eventually, you’ll be able to increase this as you identify more things you’re saving for and keep doing a better job of maintaining your monthly expenses.
Put your debt on auto pilot
You know people’s biggest issue with paying down debt?
People get sooo worked up because they hate seeing that balance, they take a HUGE chunk of money and make a big payment. And feel really good. Until the next unexpected cost happens. Then, guess what they have to do because they just spent all of their money paying down debt? Yup – they have to go into debt again to cover the cost. I have spoken to potential clients, explain they need more balance…these people end up not working with me and then come back two years later and say, “Okay, you’re right, I am exactly where I was two years ago, let’s try your way.”
So trust me on this. Put debt on a doable schedule and SAVE CASH.
Guess what? If you end up saving a ton of cash, you can ALWAYS turn around and make an extra debt payment. I mean, it’s not against the law or anything…the difference is, you’re taking emotion out of the decision. You’re looking ahead and planning out upcoming expenses, how you’re going to pay for them and assessing any surplus that can be devoted. I mean, you wouldn’t tell me to stop eating completely until I lost 50 pounds, right? Same thing with debt. Balance.
Snowball that debt. Now that you’ve made peace with a set amount going to debt each month, you can STILL probably pay it off sooner than you realize by SNOWBALLING the payments.
All this means is, when you finish paying off one debt – let’s say the payment is $200 per month – you simply add that $200 to the NEXT highest priority debt. So your total debt payments don’t go down by $200, you just redirect that money to the next balance. This, more than any other strategy, will pay debt off so much faster than you realize! Now, I fully understand that some families might be so tight that they NEED that $200 extra. And that is fine too. You can assess and reassess the snowball strategy with each debt paydown.
Don’t rule out debt counseling. If people need help because the debt overwhelms their situation, I usually send people to a non-profit credit counseling agency to get an assessment. These agencies can sometimes help negotiate with your creditors to reduce interest, change minimum payments, etc. Just google “non-profit credit counseling agency” to find one near you (or you might even find a virtual option). NON-PROFIT is important in this case!
Don’t rule out debt consolidation. Once you feel like you have a handle on spending and debt payments and everything is clicking along, your credit score might start going up. You might consider looking at www.CreditKarma.com for keeping an eye on things each month (just checking on things when they send their monthly email). As your balances go down, you might be eligible for some zero-interest balance transfer offers, to reduce the interest paid. This would realistically only shave off a few months from the paydown timeline, but it’s still useful to consolidate the balance and pare down credit card usage.
Ultimately, families seem to be most successful using only ONE rewards program that benefits you the most, and limit spending to that specific card (Chase Sapphire is a client favorite). It just makes it easier to track spending and KNOW that you will pay it off monthly.
More than anything else, your ability to save dictates your future wealth. If you like what you’re reading, feel free to sign up for my library of mindset and wealth building articles and guides to keep your focus on this – you can sign up here.