3 steps to curb out-of-control overspending
By Erica Sandberg
December 17, 2015
I am hoping you can help me with this. I knew I was overspending because my credit card bills just grew every month even though I am paying. I make good money, but you can say I’m a shopper to the core. I grew up very poor, with very little money to do anything. Now it’s like I can’t get enough, but here I am feeling poor again!! My credit cards are to the max, and I can’t charge any more. I have no savings and live paycheck to paycheck. I’m ready to change. What is my first, second and third step. I do feel overwhelmed. — DelRay
While I will gladly give you my professional opinion, I’m sure you know that real change can’t come from the outside. It is incredibly tough to overcome the past. When you were young, your parents struggled with being able to provide for you, and that hardship leaves an indelible mark. Now as an adult, you shop for comfort. That’s fine if you have the means, but disastrous if you don’t. Which is where you are — and you’re right. It must stop.
Here are my three must-dos:
Step #1: Create a livable budget.
Take this budgeting process seriously — it takes time and consideration to craft a budget.
- You can use a computer spreadsheet, though paper and pencil work just as well. Form three columns, and title each with Expense, Current and Proposed. In the Expense column, list everything you spend your money on each month and add the cost for each in the Current column. Rent, utilities and car payments will be easy as they’re fixed, but groceries will fluctuate a little, while things such as car repairs, clothes and plane tickets will vary quite a bit. For accuracy, review your credit card and banking statements. Amortize bills that come up every once in a while. For example, haircuts might be $100 every four months, so divide that number by four, equaling $25 a month. Find out what your minimum debt payments are today, and total those numbers. That will be your steady debt payment for now.
- Add everything in the Current column up and subtract that figure from your net (take home) monthly income. Since you are already aware that you’re spending more than you make, you know there will be a deficit.
- Now return to the Expense column and start claiming control over your spending. Analyze every line item and decide which will remain unchanged, and what you can reduce (clothes or shoes, maybe?) or even eliminate (mani-pedis?). In the Proposed column, list the new costs. Now total the Proposed column.
- Where do you stand? If you’re still in the red, keep going until you’re not just in the black, but have about 10 percent of your income available for savings. That way, you can put that extra money toward your the debt payments.
Step #2: Put the plastic down.
It doesn’t make any sense to keep adding to the debt while you’re trying to get out of it. Put yourself on a charging diet until the balances are at zero. This will be very hard for you because you’re accustomed to borrowing for what you want when you run out of money, but it’s time to face facts — you’ve hit a wall and you can’t keep going. Commit to sticking to your budget.
Step #3: Get great guidance.
You are in luck! Nonprofit credit counseling organizations are at your service, ready to help you with budget development at no cost (in case you need more hand-holding) and possibly a debt repayment plan if you’d like something more structured. If you believe you might be a compulsive shopper, I urge you to visit Debtors Anonymous. Meetings are open to all, and the support they provide is out of this world.
Lastly, educate yourself about money and credit. The more you know, the more powerful you will become and more apt to make wise decisions. While most of the information on the Internet is free, only use well-regarded sites (like this one, of course). Most personal finance podcasts are also free and perfect for when you’re on the go. And let’s not forget the public library for countless self-help financial books. Many times you can even download them onto your e-reader at no cost.
I see no reason in the world you can’t overcome your past and create a fabulous — and totally secure — future.