No matter how much debt you have, the key to avoiding more debt is to control your spending. While there is no magic bullet to getting out of debt, keeping your spending in check greatly increases your chances of living debt-free.
It may be that debt is not an issue for you but excessive spending is keeping you from reaching your savings goals, whether it’s planning a holiday, buying a new car or saving up a deposit for a home.
The following tips can help you rein in your spending and take back control of your finances.
Spending without knowing how much you are actually spending is a recipe for financial disaster. Making a budget will help you focus on your priorities.
You’ll also want to make sure you have an emergency savings account, for things like emergency car and home repairs. This prevents you from having to use a credit card to pay for unexpected expenses.
Part of the budgeting process is establishing discipline in your spending. When you look at how much you make each month and how much you need to live, you may find that you don’t have as much as you thought for things like going to movies or restaurants. You may have to cut back on spending until your debts are paid off.
And remember you can reallocate money. Instead of spending $25 a week at the dry cleaners, cut back to $10 a week and spend the leftover $15 on a movie or save it instead. This is why budgeting is important – if you know where your money is going it’s easier to reallocate your spending on things that are important to you.
By setting financial goals of where you want to be it can help you keep your spending in check. Start with the big picture. Where would you like your finances to be in 25 or 35 years? Once you have an idea as to how you want to retire, work your way back. How much do you need to save for the next 10 years to make that happen? What about 5 years? What about next year? Are you spending everything, or are you saving now? Knowing what it will take to achieve your financial goals can give you a reason to control your spending.
One trick to help you control your spending is to pay for everything in cash. Once you have a budget, set aside the amount of cash you’ll need for each expense (at least the ones that you can pay cash for). Make an envelope for each spending category: groceries, dining out, petrol etc. Once the envelope for a category is empty, you cannot spend any more for that category until the next month, unless you take money from another envelope. This budgeting exercise forces you to make choices so you are spending your money on what’s most important to you. In addition, paying cash helps you realise how much you are truly spending, so you tend to spend less.
If you know your credit card is in your pocket, then you know you have it for backup. To keep from spending, leave your credit cards at home so you aren’t even tempted to use them. You can’t add to its debt load if it is not with you.
If you find that in some months your cash flow is a little tight due to large annual payments you can consider making smaller more regular payments to help smooth your cash flow. For example, if you pay your comprehensive car insurance in an annual lump sum, look into paying the insurance premiums on a monthly basis instead.
BPAY® is another payment option that puts you in control of your bills. You can pay them on dates that are easier for you to manage based on when you are paid. If you know a bill is coming up you can set up a payment in advance so you won’t have to worry about forgetting to pay on the due date.
Make sure you pay your bills on time as late payments often incur a fee or penalty interest.
If you find you really struggle with leaving enough funds in your account to cover your regular payments because the available funds gets used for ad hoc expenses you might want to consider opening an account for your salary to go into where your regular expenses are paid from. You can then set up a regular payment to a separate account which will basically just be your spending money.
If you are having financial challenges don’t avoid dealing with them, it will only come back bigger and scarier. Act early if you suspect you are running into trouble and speak to us or a trusted advisor. It might seem like a mountain to climb but once you have broken the situation down into the basic elements you might find how easy your money can work for you.