The Secret to Fixing Poor Spending Habits: The Situation and the Solution
Your bank account is always dangerously close to being empty. You can’t seem to pay your bills when they’re due. Your financial debt is rising every day and you have no idea how to handle it. If this sounds like you, it’s time to take a hard look at how you’re managing your finances.
Let’s be absolutely clear: having a tough time paying your bills doesn’t mean that you’re poor. Anyone can end up struggling to pay their bills if they don’t understand proper money management. In fact, some people find themselves in this position month after month, repeating the same vicious cycle their whole lives.
So, how do you ensure that you always have money in the bank to handle your bills? Easy: identify poor spending habits and take steps towards fixing them.
Well, maybe ‘easy’ isn’t the right word. Yes, the process can be relatively straightforward, but it can actually be pretty difficult for some people. Making one lifestyle change can be tough, but making several? It can be downright mentally exhausting!
That’s why we’ve created this resource. Today, you’re going to learn how to tackle this issue. From addressing the problem to solving it, you’re going to learn how to do more than just pay your bills on time. By the end of this article, you’ll understand the building blocks of complete money mastery.
Identify Poor Spending Habits
If you’ve let your spending habits get out of control, it’s time for some self-reflection. Before you can truly fix your money management problem, you need to understand how you ended up in this position.
Take an honest look at your spending habits. What do you do with your paycheck every week? If you’re splurging on non-essentials the moment you get paid (or spending most of your paycheck on the weekends), that’s a clear sign that your money management skills need some tuning up.
Of course, that’s an extreme example. A more common issue is when people try to live beyond their means and end up relying on credit cards. Not only does this get in the way of establishing strict personal guidelines when it comes to your finances, but it can also get you into debt (the cornerstone of poor spending habits). Again, discipline is your greatest weapon here.
One of the most self-destructive money management habits is refusing to set aside money in a savings account. While it may start off innocently enough, having no money left in your bank account for an emergency can (and will) eventually catch up with you. In fact, the scariest part about this habit is that it tricks you into thinking that you’re in control of your spending.
So, how do you take control of your spending and develop long-term financial stability? The secret to fixing your personal finances comes down to these four steps.
1. Account For Your Assets
So, you’ve isolated your particular issue (or issues). Once that’s taken care of, it’s time to understand how bad your situation is (and more importantly, what you’ll need to do to get out of it). By figuring out how deep this rabbit hole goes, you’ll be one step closer to making sure it never happens again.
Your best bet? Take advantage of some of the free personal finance tools out now. There are plenty to choose from, but one of the most popular (and easy to use) tools on the market today is Mint.
Mint (and other personal finance tools) can make the process of organizing your finances much easier. For example, let’s say that you’re having a tough time keeping track of each financial account you have (credit cards, savings, checking account, etc.). Not only does Mint help you look at each balance in one place, it can actually warn you if you start to stray from your established financial plan.
Beyond that, Mint can also help you keep your monthly expenses in order. The beauty of personal finance tools is that they can help you kick the habit of underestimating how much you spend every month. Mint can even help you check your credit score. A personal finance tool might not completely solve your problems, but it’s certainly a step in the right direction.
Now, while your primary goal is to have enough money in the bank to pay your bills, Mint also has a ‘savings goal’ feature that lets you start saving money to put towards other larger purchases. This is actually the key to long-term financial success. Being able to save money to put towards a specific item or event is the sign of a person with true financial mastery.
2. Build A Budget
Once you’ve started keeping track of your money, you’re next step is the most important one: start building a budget that fits your lifestyle. Now, there are plenty of budgeting strategies that you could follow, but for today, we’re going to focus on one.
If you’re struggling to pay your bills, priority-based budgeting is going to be your best option. Essentially, you’ll be using a system that directs any income straight to your essentials category. Now, the key here is defining your essentials before your paycheck comes in and setting the money aside for those expenses.
Defining your essentials can require a bit of personal consideration (maybe you can live without cable or the internet), but most essentials lists will look the same: rent, car, electricity, etc.
Sidenote: another benefit of this strategy is that it trains you to identify places that you’re spending too much money. Maybe you’re spending too much on your cell phone plan. Maybe you’re buying a $5 cup of coffee when you could’ve just bought a bag at the grocery store. Whatever it is, using a personal finance tool and establishing a budget can help you aggressively cut out those extra expenses.
One of the best parts of the priority-based budgeting strategy is that you’re able to take advantage of automated paying. By removing the human element of paying your bills, you can take a certain level of stress off yourself. Plus, an added benefit of this system is that once your bills are paid off, any extra money left is yours to use as you see fit.
Our advice? Take that extra money and put it to good use.
3. Consolidate your Debts
It might be intimidating, but the longer you take to attack this issue, the worse it’ll get. The more credit card and student loan debt you have, the further away you are from true financial stability. If you’re serious about managing your money, you’ll need to make an effort to pay off that debt.
If you’re looking to consolidate your debt, you have a few options. First off, you could get a debt consolidation loan. The idea here is that your new loan pays off your credit card or student loan balances and replaces them with one payment and one interest rate, making repayment that much easier. You could also use a balance transfer to consolidate some of your debt. The key here is to find a way to make your debt just a bit more manageable.
4. Talk to a Community Financial Advisor
Our last piece of advice is pretty simple: proactively seek more information. Believe it or not, there are affordable personal finance advisors that you can ask for advice. You probably have access to some free local community resources right now! Getting expert advice about your particular situation could make all the difference in the world.
There’s nothing easy about living within a budget. But after that first month of getting your essentials taken care of, you’ll see how managing your money is its own reward.
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