Trying to stop spending money is hard for just about everyone. At times, we all like to splurge and use borrowed money to pay for items. While it may seem fun at the time, we can be setting ourselves up for failure. Instead, take these seven steps to stop spending money and start making your money work for you.
In short:
- Start with drafting a budget
- Buy cash or use a credit card?
- Think about it overnight
- Have a special savings account and set up automatic payments
- For the love of God, cook! (this is mainly for me and my wife)
- Stop comparing your life to others
- Prioritize healthy living and spending habits
Start with drafting a budget
In order to stop spending money, the first step you must take is to draft a budget. You need to know exactly where your money is going, and how much monthly income you have. While doing this budget, add up all of your debt as well. Make sure to plan for retirement as well. Use an Excel or Google spreadsheet to categorize your spending between what is essential and discretionary. While drafting your budget, ask yourself some of these questions:
- What are the absolute basics I can live on?
- How much am I saving per month? And how much am I saving per year?
- Do I have an emergency fund?
- How much debt do I have and what are the interest rates?
- Am I contributing to my 401K?
- How long will it take me to be debt-free?
I’d like to take a second and focus on how important an emergency fund is. Oftentimes throughout my life, I have relied on credit cards to bail me out of unexpected situations. This led to me getting more in debt and continuing to borrow more in the future. Please don’t do this, you can make a stressful situation even worse. I’ve been there and done that and it’s only going to hurt you. Use it as a last resort method only. Dave Ramsey recommends saving a 1,000 dollars at first for your emergency fund. I highly recommend this advice as it has not only helped me, but also because most Americans can’t handle a $400 dollar unexpected expense. Having this cushion can start a success spiral instead of a recurring cycle of debt. Pay off debt that is going to free up cash,
In addition, when looking at items that are not necessary, use The Demotivator calculator. Essentially, you can add up your expenses by week, month, or year. It’s a fantastic tool to realize how much eating out is really costing you, as well as other items. It definitely helped me stop spending money.
Buy with cash or use a credit card?
Cash is king, everyone knows this. If you want to stop spending money, it might be best to carry around only cash. Humans have a greater emotional attachment to the tangibility of cash. If you have trouble with swiping your card over and over again switch to cash. Not only are you not going to be spending money you don’t have, but you’re less likely to spend that money on impulse purchases. Paying in cash is a psychological boost to helping you stop spending money. However, that doesn’t necessarily mean you should totally stop using credit cards.
Even if you plan on never using a credit card again, you should still keep those credit accounts open. Why? You’ll have a longer-established history of credit that lenders can look at, and you’ll have a larger amount of credit to borrow with. Banks and lenders are going to reward you more for having a long history and a bigger balance.
Side note: Every time you open a new credit card your “average age” of credit will drop because you opened up a new line of credit. It is technically an advantage to open multiple accounts when you are younger so you can build more credit over time. However, giving multiple credit cards to an 18-year-old may not be the best idea.
If you are still looking to stop spending money you don’t have, but also still build credit, you can do this. However, you can only buy things that you have saved up for. Essentially, when you buy an item on your credit card you need to immediately pay it off. You should already have money set aside for the item that you plan to buy. One time payments and paying your balance in full are going to boost your credit score. In addition, you won’t have to pay extra interest on your purchases. You also get the added bonus of building your credit for bigger purchases like a house or car.
Think about it overnight
When considering making any financial purchase it can be best to sleep on it. Give yourself time to think about whether or not you truly need this item. You may sleep on it and find that you really don’t need the item. In truth, this is also a great way to fight impulse purchases. I have a habit of scrolling through Amazon late at night looking for things like a new Bluetooth speaker. I’ll get so excited about making a new purchase and how this new speaker will help me be the life of the party. However, before buying I always sleep on it. What I’m left with in the morning is the fact that I already have a Bluetooth speaker and I should probably just use that even if it isn’t the loudest. Try this technique when you want to stop spending money on miscellaneous items.
Have a special savings account with automatic payments
“Outta sight, outta mind”; that’s a motto me and my wife use with our money. We set up a special high-interest savings account that holds our money we are saving for a house. It’s with an entirely different bank than the one we normally use and we have an automatic payment set up throughout the month. For us, this helps us not touch the money and get the most out of the cash we put in. If you have trouble staying away from money that you’ve saved up, try opening a special account with automatic payments. Also, you can try using a CD (certificate of deposit). A CD requires that you put in money at regular intervals and at specific amounts. The catch is if you decide to withdraw all that money before maturity it can result in heavy penalties. I’ve personally never used one, but I have heard the penalties can be quite effective in warding off anyone who wants to use that money.
For the love of all that is holy, cook! (this is aimed at myself)
I am not a good cook. In fact, I’m very bad at cooking. However, I found that I can save hundreds of dollars over the course of the year by just simply eating at home. In America, it’s a cultural touchstone to go out to eat with friends, but it can sure add up. Let’s say you spend $40 dollars a week on eating out. For a full year of eating out, you would spend around $2,000 just on eating out. That’s the baseline. That’s not including special occasions for birthdays or going to the bar. What if instead of putting that money towards food, I put it in my Roth IRA? To stop spending money I’ve had to make some compromises, and so have my friends.
For starters, my wife and I have turned cooking into a time of getting to know each other better and learning about each other. We’ve discovered new recipes together and have found that our communication skills are better when having a goal to complete. We’ve also listened to books together while cooking, and even force each other to listen to some of our favorite albums together. I’ve finally hooked her on Leon Bridge’s album Coming Home. I’m not saying River is the perfect song to set the mood, but I’m also saying that it is the perfect song to get cozy with your significant other.
My friends have also joined me in my endeavors to stop spending money as well. Instead of going out and eating in a restaurant, we will do a weekly potluck where friends come over and bring food they made. Not only has it saved us money, but it’s also helped our friends save money as well. We switch houses every other week, and it’s helped us get to know each other better.
Stop comparing your life to others
I can’t count how many times I’ve been on Instagram and have seen someone on an exotic beach, which led me to start looking up vacations. Don’t do that. My wife is also notorious for doing this with makeup products. Don’t do that either. Instead, stop spending money because of comparing your life to others on social media. Everyone’s in their own lane and at different stages in their life. Focus on your life goals like:
- Being financially independent
- Having 6 months of an emergency fund saved up
- Contributing to retirement
- Paying off debt
- Improving your people skills
- Doing actions to show love to people rather than buying them things
Prioritize healthy lifestyle habits and eating habits
I’m a big believer in doing things that are going to make you mentally healthier and physically healthier. When planning on where to spend your money and budgeting your non-essentials, a gym membership is definitely still on the table. Doing things like working out, reading personal finance books (and other books), and taking professional development courses is only going to help you in the future. Prioritize spending on miscellaneous things that are going to make you a better person. If you’re choosing between a yoga class subscription and spending $200 on eating out, it’s in your best interest to choose the yoga class. It doesn’t mean that you can’t splurge, but setting yourself up with healthy habits has a domino effect on both your personal and financial life. Cut out the fat and stop spending money on things that aren’t going to make you a more thoughtful and caring person in the long run.
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