A few years ago, I had this friend who became excited when he discovered that he actually had money in his bank account. His exact words were, “Sweet, I have $150 in my bank account, I’m going to buy some new shoes!” As you might expect, I put palm-to-face and shook my head.
After working in the credit department of a major bank for over six years, I learned a few things about people.
- A lot of people are not good with money.
- A lot of people are in denial about their money management skills.
- A lot of people are not good with money… wait, I said that one already.
At the bank, I’ve seen people with $30,000 credit card debt, barely making the minimum payments, yet still buying tickets to concerts and cruises, eating out at expensive restaurants, and shopping at expensive stores.
Another friend of mine was recently looking to get in shape. I suggested joining my gym, that way we could work out together. He told me that he couldn’t afford a gym pass. However, this friend lives in a really expensive neighbourhood, owns a car, has lots of nice gadgets (new cell phones, laptop, TV, video camera…), and eats out three times a week.
Without addressing any deeply rooted psychological issues, there are three things that you can do to get your finances in order.
The first thing is create and follow a monthly budget. There are a lot of free budgeting tools and forms that you can get online. The important thing is to monitor how much money is coming in and how much is going out. This will at least make you aware of your financial situation.
The second thing is analyze your lifestyle and make any changes necessary to reduce expenditures. Maybe you are paying too much for rent, perhaps your car needs to go, maybe cut back on unnecessary spending like eating out, going clubbing, and trying to impress the neighbours. This is the tough one. A lot of people struggle with debt because they live beyond their means and are unwilling to make certain sacrifices.
The third thing is set realistic goals. Some typical goals might be: save at least 10% of every paycheque, pay off all credit card debts, pay off student loans, get a higher paying job, buy a house…
Saving money can be simpler than you think.
Five tips to help you save money:
- Reduce the limit on your credit card or put your credit card in a block of ice. These things are great ways to reign in your impulsive spending.
- Only buy something if you need it and try to find the best price. If you don’t need something immediately, you can often find it for cheaper online. Living near shopping districts or going grocery shopping on an empty stomach is bad for people with impulse-control issues. There are also a lot of things you can learn to do yourself rather than paying someone, such as changing your own oil, cutting your own hair, building your own website, growing your own vegetables…
- Do not buy something unless you can afford it (putting it on credit doesn’t count).
- Downgrade your lifestyle: eat in, don’t go out as much, create distance between you and enabling friends/partner, move to a cheaper neighbourhood/city, get rid of cable, get a better text messaging plan, sell your car, quit smoking…
- Avoid paying high interest rates (i.e. switch to lower rate credit cards, negotiate better rates with lenders, consolidate your debt, take advantage of low-rate balance transfers).
If you have set a monthly budget, minimize expenses, and save at least 10% of each paycheque, then you are on your way to achieving your financial freedom.
Article by Edward Mullen
Host of The Edward Mullen Podcast