When it comes to paying off debt, setting a budget is the easy part. Sticking to it is what’s challenging. For me, just walking the streets is dangerous. Why? Because it’s sale season! With giant red signs with words screaming “Up to 70% off” as I walk the streets, temptation is hard to avoid. I need to tell myself the colour red means stop. Red means danger - do not enter the store. So short of not leaving the house, I investigated some ways to help myself stick to my budget and avoid temptation. Here’s what I’ve found.
1. The Hourly Value
When the urge to spend hits a good way to think about your potential purchase is in hours rather than dollars.
Dealing with “hours” instead of dollars focuses the emphasis on how much effort needs to go into what you want. For example, the other day I saw a pair of shoes on sale for $150 reduced from $300. I could do with a new pair of shoes and it seemed like a great buy. But after paying tax and student loan, in hour value, those shoes are worth 10 hours work! On considering this I decided need shoes so much that I want to work over a day for them. So I resisted the urge - and felt better for it the next day.
2. Your Money Personality
A fun and light hearted way to discover why your finances are they way they are is to take the money personality profiler on Sorted.org.nz. My result is a “sensible drifter”.
I love doing quizzes and this one hit the spot as I found myself nodding as I read through each analysis. Key points in my analysis were: “Your live and let live attitude may mean you don't like to dwell on things in advance and neglect looking into your financial future. You can… lack direction and preparation for the future” The translation here for me is the $1400 overdraft I have. It was great at the time, but I didn’t set a plan in place to pay it off, so it is still lingering, and in time I’ll have to pay it back plus interest.
The other point which is very true for me “… your spending can be spontaneous and scattered rather than goal-orientated. You are excellent at making do with what money you've got. Whether it is a lot or a little, you can find ways to manage.” Very true, I cope with a little money or a lot of money – i.e. I always spend everything I have.
The quiz highlights things you might already know, but don’t want to admit. Plus by highlighting your blind spots you can become more aware of how to avoid them and are forced to face reality.
3. Carry Cash
What you don’t know won’t hurt you. A similar principle applies to money – when you can’t see your spending you don’t know the damage you are doing -until it is too late.
It is easy to overspend when you can’t see exactly how much you’re spending. This is the case with the eftpos card. It is definitely a great invention, however also potentially dangerous. For my budget I allow myself $40 sanity money each week. I thought I could do it without getting the cash out, but I ended up overspending (only by $5 but hey it all adds up).
If you have the cash, you can’t subconsciously spend more. When it’s gone its gone - there can be no miscalculations. And if you think you’ll be tempted to spend when you’re out, leave the card tucked away at home. It’s much safer that way.
The same principle also works wonders at the supermarket. You can’t overspend if you only take cash, and it will force you to stop buying those extras.
I hope these tips help you to avoid blowing your budget. So far, they are helping me stick to mine, so I'll be on track to being debt free before the end of the year.
Mary Holm: Get Rich Slow: How to Grow Your Wealth the Safe and Savvy Way
Martin Hawes: Twenty Good Summers: Work Less, Live More and Make the Most of Your Money
Liz Koh: Your Money Personality: Unlock the Secret to a Rich and Happy Life
Martin Hawes and Joan Baker: : Coach Yourself to Wealth: Live the Life You Want
Anton Nadilo and Andrew Lendnal: Budget Wise, Dollar Rich: The New Zealand Guide
Compare Credit Cards - Independent interest rate and fees comparisons for New Zealand banks.
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