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Back to Our Pre-Recession Ways, Americans Are Spending More and Saving Less

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Americans appear to be back to their pre-recession savings habits. The personal savings rate in the U.S. dropped to 3.1 percent in September 2017, according to the Commerce Department — the lowest level since the Great Recession took hold.

Meanwhile, Americans are spending more (household debt is at a 10-year high) and consumer confidence has risen to its highest level in almost 17 years, according to data released Tuesday through The Conference Board, a global, independent business membership and research association.

3 reasons we’re saving less:

Household debt is on the rise again. Total household debt increased to $12.84 trillion in the second quarter of 2017, up $114 billion, or 0.9 percent, from the same quarter last year, the Federal Reserve Bank of New York reported in August. This was a new high since the third quarter of 2008, the peak of the mortgage crisis. People may feel they can get access to funds by borrowing when it is needed, rather than holding money in savings, said Andrew Opdyke, economist at the First Trust Advisors.

But incomes are up and we’re spending more. While personal income rose 0.4 percent in September, consumer spending surged 1 percent, the fastest pace since 2009, Commerce reported.

Hurricanes don’t come cheap. The Commerce Department Bureau of Economic Analysis (BEA) said August and September estimates of personal income and spending reflected the effects of Hurricanes Harvey and Irma. Millions were displaced by the hurricanes, and experts say the spending jump was driven by a hurricane-induced uptick in auto sales and increases in gas and household utility prices.

Year

Personal Savings Rate

Total Household Debt

Consumer Confidence

2007

3.0%

$11.85 trillion

99.6

2008

4.9%

$12.60 trillion

97.3

2009

6.1%

$12.41 trillion

98.1

2010

5.6%

$11.94 trillion

97.9

2011

6.0%

$11.73 trillion

96.8

2012

7.6%

$11.38 trillion

99.0

2013

5.0%

$11.15 trillion

99.0

2014

5.7%

$11.63 trillion

99.8

2015

6.1%

$11.85 trillion

100.4

2016

4.9%

$12.29 trillion

100.4

2017

3.7%*

$12.84 trillion

101.1

Sources:

U.S. Bureau of Economic Analysis


*as of Q3

Federal Reserve Bank of New York

Organisation for Economic
Co-operation and Development

It’s not exactly news that Americans aren’t the greatest savers. The Federal Reserve reported that in 2016, 44 percent of Americans could not come up with $400 in cash to cover emergencies.

But should we worried that we’re saving less and spending more than we have in a decade?

Economists say that as the economy is humming along, consumers are feeling more confident that they can spend and borrow more without putting themselves in financial distress. It’s no coincidence that Americans saved the most in the same year (2012) that consumer confidence was comparatively low.

Brian Wesbury, chief economist at First Trust Advisors, writes that rising debt levels aren’t so alarming when you factor in overall income growth. Household incomes grew by 3.2 percent between 2015 and 2016, according to the Census Bureau.

“Yes, consumer debts are at a record high in raw dollar terms, but so are consumer assets,” wrote Brian Wesbury, chief economist at First Trust Advisors. “Comparing the two, debts are the lowest relative to assets since 2000 (and that’s back during the internet bubble when asset values were artificially high.”

How to calculate your personal savings rate

Take your total monthly income from all sources (salary, retirement account, etc.), less taxes and money spent on everyday expenses, including debt payments.

Next, divide your monthly savings amount by your total income. Then multiply by 100 to get your personal saving rate.

There’s no magic savings rate to aim for. A good rule of thumb is to save 10 percent of each paycheck for retirement, and establish an emergency fund covering at least three to six months’ worth of basic living expenses.

Evidence suggests that many Americans are just getting by, shouldering record levels of student loan debt while grappling with rising fixed costs. The Consumer Financial Protection Bureau in September reported that 43 percent of American adults struggled to make ends meet in 2016.

But savings is key to achieving financial security. The CFPB study found that adults with savings and financial cushions had a higher level of financial well-being than those who didn’t have a safety net to fall back on.

7 strategies to boost your savings:

  1. Automate. Many employers can set up automatic deposits of your income into multiple checking or savings accounts. You can have a portion of your paycheck automatically transferred into a savings account so that you will be less inclined to touch that money. It makes easier for you to resist the temptations to spend.
  2. Make retirement a priority. If you are not able to set aside 10 percent of your income, you should try to contribute enough to capture the full company match for your 401(k), if your employer offers one.
  3. Track your spending. You will be surprised by the amount of money you spend on groceries or Starbucks once you actually track the money coming in and out. The more you know about your finances, the better off you’ll be. A simple app to track spending patterns is a good place to start engaging in day-to-day money management and establish a habit of saving and budgeting.
  4. Get rid of high-interest debts. Debts are anti-assets. It makes more sense to pay off high-interest debt, such as credit card debt, than to save. Here are four tips to help you pay down debts.
  5. Avoid lifestyle inflation. Lifestyle inflation means people spend more as their incomes increase. It is one of the ultimate budget-killers.
  6. Don’t keep up with the Joneses. Forget them. The key to being satisfied with the state of your finances and your life is focusing on your needs and goals rather than comparing with your friends and co-workers
  7. Find ways to help break your negative spending habits. Here is a simple $20 rule that can help break your credit card addiction. We’ve also written about other strategies to break bad money habits here.
Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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6 Bad Money Habits That Could Wreck Your Finances — and How to Break Them

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Bad spending habits — everyone has at least one of them. Maybe for you it’s adding “just one more thing” to your shopping cart, or repeatedly getting slapped with overdraft or late payment fees.

These bad habits may seem innocuous at first but could easily turn into financial self-sabotage.

“Breaking a habit like these can be really difficult because these habits have developed over the years, and they provide us with psychological comfort and safety,” says Thomas Oberlechner, founder and Chief Science Officer at FinPsy, a San Francisco-based consulting firm that integrates behavioral expertise into financial services and products.

Oberlechner says the key to overcoming a bad money habit lies in knowing when you’re using the impulsive, right side of your brain — as opposed to the focused, concentrated left side — in financial decision-making.

“It’s really about psychological experience. It’s about behavior. If we understand the role of emotion, then we have a chance to fix it,” Oberlechner says.

Once you understand yourself and can identify your bad habit, Oberlechner adds, then you can create a plan “that turns your impulsive or unconscious behavior into the healthy financial behavior that [you] actually want.”

Of course, breaking any bad habit is easier said than done.

MagnifyMoney spoke to financial professionals to hear how they and their clients broke their bad habit. See if any of their hacks could help you break yours.

Bad money habit #1: Spending money as soon as you get it

The solution: Automation

If you’re constantly feeling broke just a few days after you receive a paycheck, you may be guilty of this bad money habit. One way to make sure you hold onto some of your cash is to use what the behavioral finance community calls a “commitment device” to lock you into a course of action you wouldn’t choose on your own, like saving your money.

In this case, the device is automation. Automating your savings won’t help you stop siphoning money from your checking account the same day your direct deposit clears, but it can make sure you save what you need to first. Check with your bank or the human resources department at work to have a portion of your paycheck automatically sent to a savings account instead of putting the entire sum in your checking account.

You should automate your bills and credit card payments for the pay period, too. Once your obligations are automated, “you can be impulsive with your play money,” says Oberlechner.

Bad money habit #2: Reaching for your credit card all the time

The solution: A cash diet

Paying for everything you buy with a credit card can be good practice if you pay off your card every month. If you’re chronically swiping your credit card for things you can’t afford to pay off by the next billing cycle, leave your card at home and use cash instead.

When you don’t pay off your card each billing cycle, you rack up interest charges on everyday purchases, and that may cost you a lot more money in the long run. If you’re using more than 30 percent of your total credit limit each month, you may also be harming your credit score.

To break your habit, leave your credit card at home and use cash or a debit card for your purchases.

“Take a certain amount of cash and say ‘I can spend no more than that,’” says Vicki Bogan, an associate professor at Cornell University in Ithaca, N.Y., who researches behavioral finance. “If you have a huge [spending] problem, try to limit yourself so that you only have access to a certain amount of money.”

If you really want to challenge yourself, you can try going on what’s called a spending freeze, where you stop spending any money on non-essentials for a period of time. On top of helping you save money, the freeze can help you notice how much money you may be wasting simply because you’re always pulling out your credit card. After your freeze ends, you may be less inclined to swipe your credit card.

Another rule that could help you break your swiping habit is the $20 rule. The financial rule of thumb is simple: Anytime your purchase is less than $20, pay in cash, not credit. The $20 rule forces you to think about whether or not a purchase is worth swiping your card for. Chances are, if what you’re buying costs less than $20, it’s not something you’d be OK paying interest on.

Bad money habit #3: Spending beyond your means

Solution: Budgeting

If you chronically spend beyond your means each pay period, you are likely digging yourself into debt. Get a handle on this habit by understanding how much money you have coming in and how much you can afford to spend on a monthly basis. You can use budgeting apps like Mint or YNAB to make that part easier. These tools can also help you identify the spending categories that are costing you more than you might realize.

Oak Brook, Ill.-based certified financial planner Elizabeth Buffardi tells MagnifyMoney that after examining one of her client’s expenses she found the client was spending a lot of money at drugstores picking up snacks and little things after work. So the client gave herself a budget of $10 per drugstore visit to save money.

“We’ve been seeing her spending at drugstores go down steadily over the last few months,” says Buffardi.

Buffardi had two other clients who struggled with overspending because they loved to shop online. They both created boundaries for themselves when it came time to pay for the items in their online shopping carts. One client decided to buy a certain amount of gift cards that she could use on a given site.

“If she spent all the gift cards in the first day, then she was done until the next paycheck. If she wanted something that was more expensive than the amount she had on the gift cards, she had to hold off on other purchases in order to purchase the more expensive item,” says Buffardi.

The other client simply removed her credit card number from her payment profiles so it would be more difficult to make thoughtless purchases. Her theory, Buffardi tells MagnifyMoney, was that if she was forced to stop and pull out her credit card before she could make the purchase, it might slow her down and give her time to think about the purchase she is about to make and — maybe — stop some purchases from happening.

Bad money habit #4: Always buying lunch from a restaurant

The solution: Plan your lunches a week in advance

If you’re losing $10-$15 a day to the local deli during the workweek, remember this: You don’t have to buy lunch if you bring it to work with you. However, organizing your day so that you actually have time to prepare and pack your lunch may be where you struggle.

Leave room in your busy schedule to pack your lunch in the mornings, or during the evening when you may have more time to yourself.

Melville, N.Y.- based certified financial planner David Frisch says he packs his lunches in the evening because he knows he runs late in the morning. He puts together everything but the dressings and sauces he plans to eat while making dinner, so lunch is already 90% done, then he adds the last 10 percent in the morning.

Frisch suggests setting a budget for how much you’d like to spend on food per pay period, then tracking how much money you typically spend on the convenience of frequently going out to lunch. Again, a budgeting app can be handy here to easily identify places where you spend the most.

Compare that amount to how much you spend on food for entertainment purposes, like going out to dinner with friends over the weekend and for your necessities, like eating lunch to fuel your workday.

“If you are spending so much money on convenience, you have that much less money to spend on everything else,” says Frisch. If you’re spending money from your food budget for convenience purposes, you may be more reluctant to go out on Saturday night for dinner.

If you’re already packing your lunch, but purchase a second lunch because you’re still hungry or you no longer want to eat what you packed, try packing a larger meal or having leftovers for a second lunch.

Bad money habit #5: Ordering out for dinner because you’re too tired to cook

The solution(s): Prep when you have time/energy; try meal delivery services

It’s easy to spend more than $50 getting dinner delivered three to four days out of the week, or buying groceries that go to waste because you’re too tired to cook. Oberlechner suggests doing some of the “work” of making dinner when you know you have more energy.

“If you’re too tired to cook in the evening, replace the spontaneous behavior by preparing dinner in the morning. So in the evening you don’t have the work of preparing anything,” he tells MagnifyMoney.

Another hack Oberlechner suggests is making a little extra dinner for the days you know will be especially long, when you won’t want to cook dinner. For example, if you know Tuesday is a really long day but Monday is not, cook a little extra on Monday and have those leftovers for dinner on Tuesday.

If cooking dinner simply isn’t a habit for you, you can try a meal kit service like Blue Apron, Plated, or HelloFresh to get interested in cooking, suggests Brooklyn, N.Y.- based certified financial planner Pamela Capalad. She tells MagnifyMoney she’s advised many of her clients to sign up for a meal kit service, then transition into grocery shopping and cooking at home regularly.

Generally, the services cost about $10 to $15 per serving and can serve up to four people.

Bad money habit #6: Letting your kids throw extra things in your shopping cart

The solution(s): Shop solo or lay ground rules early

Frisch says he and his wife solved this problem with their now 15-year-old triplets when they were four years old.

“Up until they were four we couldn’t bring them to a supermarket because it was impossible for my wife and I to watch three kids at the same time,” says Frisch. The easiest recommendation, he says, is to have somebody watch them at home while you go do the shopping. You may spend some money on a sitter, but you are also saving money without an eager child sneaking candy and toys into your shopping cart as well.

If an extra set of hands at home isn’t available, then try to set ground rules before you go to the store. For Frisch, that meant allowing the triplets to get one — just one — extra item at the store.

When a child wanted to add something “extra” to the cart, Frisch or his wife would say, “If you want this now, then you have to put the other one back.”

“Ultimately what happened was they kind of had to make a decision as to which one they would really get,” says Frisch.

The triplets quickly realized they could all benefit from working together.

“They actually started to communicate and say ‘if you get this and I get this, we can share,’” Frisch told MagnifyMoney. “They just figured out that if they all got one thing and shared, they ultimately all got more than they would have.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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1 in 4 Americans Plan on Racking Up Holiday Debt in 2016, Survey Shows

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

1 in 4 Americans Plan on Racking Up Holiday Debt in 2016, Survey Shows

In a new survey of 1,147 American adults conducted by MagnifyMoney, more than one in four (26%) Americans said they plan to rack up holiday debt during the 2016 holiday season that will linger more than a month. Among the 26% who will rack up debt, 66% expect they will take three months or more to pay off the debt.

Holiday debt can quickly spiral out of control. MagnifyMoney found the average shopper surveyed who added debt during the 2015 holiday season racked up $1,073.

Using a credit card with average APR of 16% and making monthly minimum payments of around $25, it would take that person more than five years (61 months) to get out of debt, according to MagnifyMoney’s Credit Card Payoff Calculator. Over that time, he or she would pay an additional $496 worth of interest charges.

Nearly one-third (32%) of this year’s survey respondents said they incurred holiday debt during the 2015 shopping season. People who took on holiday debt in the past are much more likely to take on debt this year because they can’t afford to pay cash, our survey found, with 74% saying they will incur debt this year. They are also more likely to feel financially stressed.

Among those respondents who incurred credit debt during the holidays in 2015 , the average shopper added $1,073 of holiday debt. And a staggering 74% said they will likely take on more credit debt again this year.

More debt = more financial stress

More than half (59%) of respondents who took on debt over the holidays in 2015 said they accumulated $500 or more of debt. Among people who said they racked up $500 or more in holiday debt in 2015, MagnifyMoney found greater trends of financial stress and a greater likelihood of incurring additional debt in 2016.

 

Check out our full survey findings below or download a fact sheet here.

Magnifymoney Holiday Debt Survey

Contact:

Kellie Pelletier, Public Relations
kpelletier@magnifymoney.com

Mandi Woodruff, Executive Editor
mandi@magnifymoney.com

MagnifyMoney’s Tips on How to Avoid the Holiday Debt Trap:

1. Steer clear of store credit cards

The holidays are prime time for retailers selling store credit cards to customers. Customers are often wooed by promises of upfront discounts on purchases, helping them save on their holiday shopping in the short term. But store credit cards notoriously have some of the highest interest rates on the market — an average APR of 23.84% versus 16.28% for regular credit cards. People with poor credit may be saddled with store cards with interest rates as high as 27%.

Store credit cards can also come with onerous deferred interest fees — they may offer no-interest promotions for a certain amount of time. But if you fail to pay off the entire balance by that date, you can be slapped with the entire interest balance in one lump sum.

If you want to get a discount on your purchases and signing up for a store credit card is the only way to get there, just be sure you have enough cash on hand to pay your bill right away. With most discounts only 10% to 20% off, you’ll actually wind up losing whatever you saved if you get slapped with a 20% or higher interest rate later.

2. Make a budget and stick to it

The downfall of most holiday shoppers is that it is incredibly easy to get swept up into the excitement of shopping. Before you know it, your budget is blown, and it isn’t until after the giddiness of the holidays winds down that you realize the extent of the damage. Avoid the holiday debt hangover by creating a budget early and sticking to it no matter what.

3. Exchange ‘Secret Santa’ gifts with family and friends

Secret Santa is a fun and smart way to drastically reduce your holiday gift-giving budget. Ask your siblings or friends to draw names from a hat rather than buying gifts for everyone individually. You can all agree on a price limit so no one feels like they over- or underspent.

Can’t draw names in person? Try a Secret Santa online tool like Secret Santa Generator or DrawNames.com.

4. Get rid of last year’s holiday debt first

The average shopper racked up $1,073 worth of credit card debt last year, our survey found. If you have credit debt left over from last year’s shopping, don’t pile on more debt and continue to let interest accrue. Consider signing up for a 0% APR credit card and making a balance transfer (check out the best ones of the year right here). You’ll buy yourself additional time to pay off last year’s debt, and you’ll improve your credit score in the process.

5. Start saving for next year’s holiday shopping today

If you felt unprepared for holiday shopping this year, it might be because you didn’t have enough time to save up. Going into next year, open a savings account and label it “Holiday Shopping.” Then estimate how much you’ll need to save — $500? $1,000? Divide that number by 10 and set up a direct deposit from your paycheck into that savings account for that amount. For example, if your goal is to save $1,000, you’d need to contribute at least $100 per month for 10 months to reach that goal.

Why only 10 months? That way you can start shopping a bit earlier than December, giving you plenty of time to find the perfect gifts for your loved ones.

Mandi Woodruff
Mandi Woodruff |

Mandi Woodruff is a writer at MagnifyMoney. You can email Mandi at mandi@magnifymoney.com

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Review: You Need a Budget (YNAB) — The Budgeting Tool That Makes Every Dollar Count

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The Budgeting Tool That Makes Every Dollar Count

You Need a Budget (YNAB) is subscription-based budgeting software available both on desktop and mobile devices. Its trademark mantra is, “Give every dollar a job.” That means as you have money coming in, you assign it a budget category. Once you have one month’s worth of expenses fully funded, you can start budgeting funds for future months.

How Does ‘You Need a Budget’ Work?

When you first sign up for You Need a Budget, you will be asked to link your checking, savings, and credit card accounts. This allows the app to see exactly how much money you have at this very moment.

Next, you’ll add upcoming transactions like rent, utilities, and groceries. As you add these expenses, you’ll also be prioritizing them. The ones that are most important (generally rent or mortgage payments) will go on top, and the ones that are a little more frivolous like entertainment spending will go at the bottom.

After you’ve set up transactions you know are coming, you’ll be able to establish goals. You can set up goals by a date, in which case the app will tell you how much you have to save per month to meet your objective. You can also set them up by how many dollars you’d like to allocate toward them per month, in which case the app will tell you how long it will be until they are fully funded (or in the case of debt repayment goals, paid off).

6 January screen shot 1

You’ve linked accounts. You’ve accounted for bills and upcoming spending. You’ve set goals. Now it’s time to fund all of those things! You start with the money you have, and not a penny more. You assign each dollar to a certain line item, again, starting with the most important items at the top. Once you reach the end of your current funds, you won’t be able to budget any more until you get more cash in your hands.

If you are able to fully fund one whole month, then you can use any excess funds on hand to start funding the next month. The more you do this, the happier the founders of YNAB get. Their entire philosophy is that you should “age your dollars,” meaning the further in advance you can fund a transaction or goal, the more financial stability you will have.

How Much Does ‘You Need a Budget’ Cost?

Currently, You Need a Budget offers a 34-day free trial — no credit card required. After that, you will have to pay either $5 per month or $50 per year. Students get twelve months free, after which they’ll be eligible for a 10% discount for one year. If you have a previous version of YNAB, you’ll be able to score a 10% lifetime discount on the latest version.

Fine Print

 YNAB  Budget App
YNAB is extremely transparent and seemingly ethical in their practices. They do not sell information to third parties, but may give others access to it in the course of business as they work to facilitate the software through companies such as Amazon Web Services and Finicity, which are two trusted names in the Fintech industry as far as security is concerned. Your data is always encrypted, and will be completely and irreversibly deleted upon request should you ever choose to close your account.

Pros and Cons

You Need a Budget is commonly recognized as one of the best budgeting apps around. That doesn’t mean that it’s perfect for everyone, though. Think through the pros and cons before downloading.

Pros

  • Transparent company.
  • Committed to security and positive user experience.
  • Helps you change your financial habits through a simple, yet revolutionary, process.
  • Prioritizes your expenses each month.
  • Forces you to address overspending.
  • Allows you to set goals.
  • Can be used by those who get paid regularly and receive W-2s or by freelancers.
  • There are user guides and lessons accessible to members to deepen your understanding of common personal finance principles and concepts.
  • There is a community where you can get support.

Cons

  • There is a price for your subscription.
  • This won’t be good software for you if you’re a percentage budgeter as the interface makes no allowance for that method.
  • At this point in time, there are no reports or analyses to help you disseminate your habits. They are promised on the horizon, though.

How Does ‘You Need a Budget’ Stack Up against the Competition?

YNAB is an extremely useful and user-friendly app. However, it does come with a fee and is far from the only budgeting software on the market. Here are some other options you may want to check out if the YNAB $50 annual subscription is getting you down:

Mint.com

While it may not use the “give every dollar a job” philosophy, Mint.com solves very similar budgeting problems in a very free way. It allows you to link accounts, plan for upcoming expenses, and set goals. It also provides charts and graphs to analyze your past behavior and provides your FICO score at no charge — two things YNAB doesn’t do. The biggest con to this no-cost application is that it is laden with ads.

Wally

If you don’t like the idea of your financial accounts being linked to a third-party app, another free option is Wally. When you use this app, you’ll have to be a lot more diligent at inputting your income and expense as none of it will be automated, but that’s the price you pay for keeping your bank account info completely separate.

Level Money

Level Money is a free app that allows you to link accounts, gives you insights into how much you have left to spend in any given category on any given day, and comes 100% ad-free. This app isn’t the best for the self-employed or those with variable income, and also isn’t as useful for those who make a lot of cash purchases.

Who Should Use You Need a Budget?

You Need a Budget is great for anyone who wants to get a hold on their money today, but doesn’t necessarily want to analyze their past spending. It’s developed for people who prefer budgeting by dollars rather than percentages, and comes with extra savings for students who are trying to establish good money habits at a younger age. It is time-tested, and is created by a company that has continually shown it cares for its customers.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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What Happened When I Used a Credit Card for the First Time in 7 Years

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Credit card fraud

The following story is an excerpt from “The Recovering Spender: How to Live a Happy, Fulfilled, Debt-Free Life” by Lauren Greutman.

I decided to do a little experiment. I took myself off a budget for three months and made myself start using a credit card again. I’d been successfully budgeting for more than seven years, and had successfully paid off over $40,000 in debt and half of our mortgage.

People around me consider me very good with money, and I agree with them; I am very good with sticking to a budget. I know my boundaries and how to stay within the fence. (Remember, I wasn’t always this way.) But I wanted to see what would happen if I took myself off a budget, stopped using cash, and used a credit card instead. I haven’t owned a single credit card in years, ever since we put ours through a paper shredder. I’ve been using cash for most of the past seven years, so using a credit card again was way outside of my comfort zone.

The first thing I did was to sign up for a card that would give me a certain amount of points if I spent $3,000 in the first three months of using it. I then stopped using cash and decided to only use the credit card for those three months. My goal was to earn enough points for a free stay at a hotel for a fun vacation for my family. I wanted to see how quickly my money rules would go out the window and I would turn back into a Spender.

How bad could it be?

In the first week I did pretty well. I didn’t spend too much unnecessary money. I did try to find different ways to spend money using the credit card so that I could earn extra points. I paid a few of my bills with the card and paid them o right away online. I figured this couldn’t be bad. Two nights that week I had nightmares in which I woke up in a panic attack.

The nightmares were about moving back into our old house in South Carolina, and they were both the same: We decided to return to our old home and found it was back on the market, so we bought it again. I saw my family of six living in the same house where we had lived in during those stressful years. Not only were we back in that house, but we were also again in $40,000 worth of debt. Those dreams felt so real. They were the kind where you wake up and your heart is beating fast and you aren’t sure if you are awake or asleep. I woke up in my current house, thankful that it was only a dream. There was no way I wanted to go back to that old way of life.

Looking back, I see those dreams as a warning. Both times I woke up mid-dream in a panic attack that we were going to go back into debt. I was terrified of using the credit card again. It literally was giving me nightmares, and I found myself hating what I was doing. I could see myself going down the same path again, and I was terrified. I never want to go back to that place of no self-control, transferring balances to zero percent credit cards to stay afloat, and constantly stressed because we didn’t have the money for basic essentials.

Sticking it out

At this point, I wanted to quit my experiment; it was just too hard for me to go back to old habits. Ultimately, I decided to stick it out, because the question of whether I would fall back into my old spending habits had not been answered yet.

One day I was having a rough time with the kids. I looked at my husband, Mark, and said, “Can I just go somewhere by myself for an hour?” Being the great husband that he is, he put the kids to bed and I left the house to find something to do. I live in a small town and there isn’t much open in the evening, so I did what most people do and headed to Walmart (it would have been Target if I had one nearby). I found myself walking around the store, sick to my stomach and anxious, looking around for something to “do” and something to buy.

I picked up a York Peppermint Patty, a new curling iron, and some fake eyelashes (a total impulse purchase). I was sad, depressed, and feeling totally lost. I found myself wandering around the brightly lit store without a plan or goal. It was a very lonely feeling, but I realized that living without a budget made me depressed. I had no idea how much money was in our checking account. It felt horrible! Ironically, that feeling of depression over not knowing what was going on led to more spending because of boredom.

Three months later

At the end of my experiment, three months later, I was a complete mess. I had spent $3,000 on the credit card but paid it off in full every month. Yet I had somehow managed to spend an extra $2,000 on that card and didn’t know where the money had gone or what I had spent it on. I was anxious because I had no idea what we had in our bank account, and I was stressed out to the max. Here I was, seven years later, sitting on that same bed in our much smaller master bedroom. I knew that if I continued to use credit cards this way, I could end up dead broke again.

This was a huge milestone for me in my journey to financial independence. I realized that I will never “arrive” at being good with money. I will forever be in “recovery” as a Spender, and one of the things that I need to continue to do to keep myself in recovery is to stay within my fence.

I know that staying inside the fence works for me. I know that if I use cash and set a budget with Mark, I stick to it and feel safe. I don’t know why I always try to play with fire, but whenever I do, I certainly get burned! As a well-known expert in the field of frugal living, it’s hard to admit that I still have the ability to overspend. But how helpful would I be if I said I was perfect?

A common reason that Spenders continue to spend is that you lie to yourself—you tell yourself that you can stop spending, but the spending continues. You feel out of control, and that feeling leads you to spend more, and you continue to feel out of control.

If I were to tell you that I have it all figured out, I would be defeating the entire purpose and message of this book. I know that I will always be a Spender, but after seven years of successful budgeting and not owning a credit card, I thought I was strong enough to have one.

The reality is that I am not, and I’m not sure I ever will be. But what I do know is that if I set a budget and make sure I am safe within my fence—I do amazingly well! I got us into over $40,000 worth of debt, and I got us out of over $40,000 worth of debt. I got us in debt by using credit cards, and I got us out by not using credit cards.

Life inside the fence

I decided to run this experiment on myself to see if I am strong enough to live outside the fence, to see if so many years of good financial habits had changed me. Unfortunately, the conclusion is that despite my excellent financial habits and new ways, it’s dangerous to reintroduce some of my old temptations, because I fall right back into my old ways.

This is why this book is called The Recovering Spender and not The Recovered Spender. To be in recovery, you must constantly be trying to better yourself. If I were recovered, I would be able to use a credit card and not overspend.

I am in recovery, which means that I am in a constant state of trying to better myself and improve my spending habits. I realize that one bad turn can lead me down a road that I do not want to travel. One bad financial move can turn into a financial disaster for anyone who is a Recovering Spender like I am.

If you find something that works and helps you stay inside your fence, by all means continue doing it! Despite how much time you’ve been inside your fence, there is always danger on the other side. I much prefer to stay within my fence, stay out of debt, be happy and financially fulfilled by keeping a budget, and live the rest of my life as a Spender in recovery.

Lauren

Lauren Greutman is the frugal living expert behind the popular money saving blog laurengreutman.com (formerly iamthatlady.com).

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Strategies to Save

3 Reasons You Earn More But Still Feel Broke

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

3 Reasons to Earn More

If you’re earning more but still feel like you’re living paycheck to paycheck, there’s a likely culprit: lifestyle inflation. Lifestyle inflation is the ultimate budget-killer — a widespread phenomenon that occurs when people spend more as their income increases. Before they know it, that raise or bonus they earned slowly but surely disappears … right into that cell phone upgrade, a bigger apartment, or those few extra takeout orders each week.

Any financial planner can offer sound, reasonable methods for avoiding this problem: Stick to a budget. Automate your savings. Bump up your 401(k) contribution. The solutions seem easy enough, but no matter how much more you earn, you still feel like you’re living paycheck to paycheck.

We’ve come up with three simple reasons why you might still feel broke — even though you’re earning more — along with strategies on how to overcome them.

You don’t know what you want from life.

One reason many people struggle to keep their spending in check as their income increases is that they aren’t intentional about how they spend their money, says Meg Bartelt, founder and president of Flow Financial Planning. Bartelt encounters this problem every day with her clients, who are mostly women working in the tech industry who earn healthy paychecks but live in expensive cities.

When people are clear about their reasons for earning money and the goals they hope to achieve with those earnings, it becomes easier to avoid the kinds of incremental spending increases that can quickly consume their budget.

“Ask yourself why you worked hard for a raise,” says Bartelt. “Was it so that you could eat out more or buy fancier clothing or have a better streaming subscription … or was it so that you could make a meaningful change in your life?”

Goals — whether it’s being able to retire at 45 instead of 65, sending your child to college, or buying a home — give workers a reason to keep an eye on their spending from paycheck to paycheck.

To help figure out your financial goals, Bartelt suggests asking yourself a specific set of questions:

What do you want out of life?
What do you want to do, have, or accomplish?
How much money is it going to take to get you there?
And how are you going to get that money?

Taking this approach may also make the concept of budgeting more palatable. Saying “no” to a few upgrades in your life will feel less like deprivation, and more like a positive step toward the future you imagine for yourself.

You compare yourself to others.

Nothing can threaten a healthy budget like a serious case of “FOMO” — fear of missing out.

It can be hard to keep long-term, big-picture goals in mind amid the constant stream of filtered photos of international trips and nights out posted on social media. “It’s a huge contributor [to lifestyle inflation], especially for younger generations,” says Stephen Alred Jr., founder of Atlanta, Ga.-based financial planning firm Ignite Financial. Constant, real-time coverage of internet acquaintances’ adventures can make people feel worse about the state of their own lives and distract them from what they really want or need. Then, when a raise or a bonus comes into play, they are more likely to spend it on something that fits into that picture of what they think they should be doing, rather than what works best for their future goals.

It’s important to remember that you won’t get the full picture of someone’s life by looking at their social media profile — for example, you won’t know that the friend who took the tour of Italy last summer is still paying off the resulting credit card bill a year later, and you won’t see that a person only ordered appetizers at that fancy restaurant she went to last week, says Alred. Focusing on your own needs and goals, separate from those of the people in your life and in your social network, is critical to being happy with the state of your finances and your life, now and in the future.

You haven’t addressed negative spending patterns.

Once your financial goals begin to take shape, the hard part isn’t quite over. If you have a pattern of spending money as soon as it’s in hand, it’s going to take a while to change that behavior. Alred calls this a “behavioral barrier” — something people do every day with money that prevents them from reaching their financial goals.

It’s calling Uber every time you’re at the office later than 5 o’clock. It’s using your credit card to pay for even the smallest purchases. It’s grabbing a $15 salad for lunch every day.

These behaviors can crush financial goals, whether a person earns $30,000 or $300,000. Getting the right habits in place now will not only help combat lifestyle inflation this year — it will help down the road as income (hopefully) continues to grow.

Come up with strategies to help break those negative spending habits. For example, we’ve written about a simple $20 rule that can help break your credit card addiction.

But don’t be too tough on yourself. You shouldn’t deprive yourself of simple pleasures or pinch pennies to the point that you’re putting your mental or physical health at risk. Budget for the things that you know will bring you happiness, like the weekly dinner with friends you can’t miss or your daily $5 latte.

“Be clear about what’s important to you,” says Mary Beth Storjohann, financial planner and founder of Workable Wealth. “You can do it all, you just can’t do it all at once.” Once debts and savings goals are taken care of, “20% should go toward something fun,” says Storjohann. Building in some flexibility will help you avoid stress and self-loathing down the road — and will allow the occasional indulgence without throwing savings goals off track.

The bottom line:

Rigid financial rules may work for some, but will be hard to implement without a solid reason for following them.

“It’s like a diet. If you restrict your calories significantly, maybe you can last for a week or a month,” says Bartelt. “But most likely, you’ll revert to your old habits in the long run.”

 

Adrianna Gregory
Adrianna Gregory |

Adrianna Gregory is a writer at MagnifyMoney. You can email Adrianna here

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News, Strategies to Save

Spend Less Next Year With Three Steps

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Pretty Young Multiethnic Woman Holding Phone and Credit Card Using Laptop.

When it comes to your budget, the next best thing to generating more income (or getting a raise at work), is trimming back on your spending. It’s one of the simplest ways to bulk up savings, but for some reason it also seems to be one of the hardest. If you’ve grown accustomed to a certain way of life (aka Netflix at your fingertips and music whenever you want it on iTunes and Spotify), then the thought of cutting back probably makes you more than a little sad.

Luckily, our suggestions on ways to spend less next year have less to do with giving up the things you love and more to do with taking action on extraneous interest and fees.

Check out these three ways to spend less next year without cutting back on the things you love most.

1. Renegotiate those monthly fees

Start by making a list of things on which you’re paying monthly fees (checking accounts, credit card fees, car insurance, etc.), and figure out which ones you might be able to haggle your way into lower monthly payments on. For example, with so many checking account options available, no one should really be paying a monthly fee for a checking account anymore, especially if you’re a good customer. Do a little shopping around to find better checking account options (check out these great checking account offers, or these that have no overdraft fees), and then call your bank and let them know you’d be more than willing to take your services elsewhere if they can’t help you out. (This script about negotiating credit card fees can actually be used for multiple banking scenarios.)

At the end of the day, banks really want to keep their customers, so they may be willing to work with you to lower or eliminate those pesky monthly fees — and the same goes with your car insurance. If all else fails, maybe it really is time to switch banks or insurance companies … what do you really have to lose besides those fees?

 

2. Revisit your student loans

If your student loans are weighing you down and preventing you from being able to save as much as you’d like each month, it may be time to consider a change in either debt reconsolidation or refinancing. Remember, to refinance your loan means to search for a new lender that is willing to offer you a lower overall interest rate on your loans, while consolidation typically works by combining all of your loans into one monthly payment, hopefully at a lower interest rate. While it’s easy to determine whether or not the interest you’ll pay on a refinanced loan is lower than your previous fee, you will probably need to do a little math to determine whether or not consolidation will reduce your interest rate. To get started, you can check out these 19 options to refinance your students loans to your lowest rate, and these offers for the best debt consolidation loans options.

3. Consider a personal loan or balance transfer

It’s no secret that millions of Americans struggle with credit card debt. If you’re making payments each month to a credit card that you just can’t seem to dig yourself out of debt on, you should consider two options: taking out a personal loan or doing a balance transfer. The easier of the two options — a balance transfer — allows you to roll over existing balances on a high-interest credit card onto one with 0% interest for a certain number of months, giving you time to have all your payment go to the principal debt. Just be careful — for most cards the 0% interest offer is only good on transferred money, not on new purchases. This means you should open this card, make the transfer and then put that card away. If you think this is the way to go, check out this piece about how to set up a balance transfer, as well as this one about balance transfer traps to avoid. You’ll need to do the math here, too — balance transfer credit cards almost always come with a balance transfer fee, so be sure that what you’ll pay to transfer that money over isn’t more than what you’re paying in interest on your current card.

As far as personal loans go, most offer interest rates that are much lower than the going rates on credit cards, but that may be only if you have a strong credit score. Those with high debt-to-income ratios and/or low credit scores may still be getting high interest rates on a personal loan. However, a personal loan can simplify the credit card repayment process by consolidating all the debt into a single loan with one monthly payment. Check out this piece to find out where the best personal loan rates are online, as well as this one to compare personal loan options.

It might seem like a lot of effort up front (“I have to make a list? And call people? And do research online!”), but trust us, come December 2016 you’ll be more than glad you did when you realize how much you’ve saved.

Cheryl Lock
Cheryl Lock |

Cheryl Lock is a writer at MagnifyMoney. You can email Cheryl at cheryl@magnifymoney.com

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