When working with people on their finances it is all too common for me to find they have Credit Card debt on one hand and savings sitting in a bank account on the other. Usually not enough to pay off the Credit Card, but a significant amount nonetheless.
This never fails to amaze me
Why would you pay 18% or 21% (or higher) interest rate on the money you borrowed via the ‘plastic’ while earning maybe 3% or 4% on the cash in the bank?
This is NOT a good strategy for successful home budgeting!
It just does not make sense at all. These people are going backwards by the difference between the two interest rates on that money. In this case something like 16%. Why would you do that?
To answer the question, we need to look at what makes people tick.
We are all human and have weaknesses. I’m sure you have heard someone say: “I’m only human you know!” We all know and have to accept that as humans we do stuff we shouldn’t do for no good reason.
Try this quick experiment:
If you were to draw a line on a piece of paper and on the left-hand end of that line write the word ‘Logical’ and on the right end write the word ‘Emotional’ — where on that line would you draw a mark to identify where you sit when it comes to managing money?
The opposite of logical is emotional. Do you make money decisions based on emotion or logic?
People who have money in the bank while they have Credit Card debt are operating near the emotional end of the line. Money in the bank makes them feel secure. If there were no money in that account it would be too scary!
The fear of having the debt is less than the fear of having no money. This is most likely because banks and finance companies (and our society) has really made us see debt as being OK, and it is so easy to go get more debt.
On the other hand, simply getting more cash is easier said than done.
Of course, having no money isn’t pleasant, but if you allow the banks to have a 16% feeding frenzy at your expense for no good reason then you are likely to face this problem more often than if you pay off as much of that debt as you can with the money in your savings account.
And that will make it harder to pay for the long-term things that make life better. Things like a bigger house for your family, an investment property, and financial security.
If you can control your emotions you can control your money and make better financial plans. It’s that simple.
If you realise that your emotions are causing you a lot of money stress (emotional pain) then it is time to do something about it.
Here’s how to do it:
- Start to keep a record of all the money you spend and the money decisions you make over a period of time (maybe a few weeks)
- For each one, try to identify the main emotion behind these transactions
- Keep a small notebook for this purpose, and when you look back at expenses ask yourself which ones were needs and which were wants
There are lots of emotional reasons why we spend money, such as:
- To gain popularity
- To satisfy the need for comfort
- To be liked or admired by others
- As a pick-me-up when feeling down
If you can identify the emotions behind your spending, then you can plan to deal with these emotions in other ways than spending money when they occur.
For example, if you buy yourself something nice to make yourself feel better when you are feeling low, ask yourself how else you could deal with that emotion without it turning into an expense. Perhaps ‘phone a friend’; perhaps play your favourite ‘up-tempo’ music (there is nothing that cuts through emotions like music).
Ultimately, you will need to identify the emotions that are costing you money and then find ways to deal with these.
You may not immediately have all the answers to these emotional issues but if you can identify what is going on you are more than halfway to fixing the problem.
Take Control of Your Finances
If you can take control of your spending by making some of the little changes above, you’ll put some breathing space between you and your money stress, allowing you to relax and start building a stable financial future for your family. How many expenses do you accept in your day without question, and where could you reduce your weekly outgoing money just by changing a few habits? If you just can’t get your head around that and/or you are tired of money stress and have decided it’s time to take control, talk to a Spending Planner to find out how you can break the cycle. BOOK A FREE CALL
You have nothing to lose and lots to gain. Spending Planners are non-judgmental professionals who are trained to help. A short relationship with a Spending Planner will provide you with tools and training that will benefit you for the rest of your life!