That's My Bix!

I’ve just read a post from yet another blogger who is bemoaning money woes and it has officially made my head explode. I’m going to get preachy right now. You have been warned.

Look, I know that money is complicated. I know that it’s an emotion-laden subject and a lot of people deal with money the same way that they deal with food or gambling or addictive substances: they don’t. I get it. I’ve been there. Really. And I fixed myself.

One of the biggest common issues, it seems, is the simple credit card. It’s a huge trap! They allow us to engage our inner Veruca Salt and get it now, leaving Future You to foot the bill, again and again and again, usually justifying it with lies to yourself about why you need to spend the money. I firmly believe that every one of us should be striving daily to make this world a better place, but if you are spending irresponsibly, you are preventing yourself from being able to financially help charitable causes. Think of how much money goes to Master Card and Visa annually in the form of interest and fees and now think of what it could have done to help your favorite causes! Millions of dollars could have gone to end illiteracy, clean up the Gulf, figure out a clean energy source, cure breast cancer, you name it!

Let’s turn aside a moment on how ridiculous this is, because not everyone is fortunate enough to learn the skill of money management. For instance, I grew up poor and it took until my late twenties to understand that money is a simple cause and effect relationship. Money In must be greater than Money Out. Simple as that. Credit cards blur the line, because it feels like Money In, since you can spend it. Math is hard, right? I get it. So if you want to take a serious step at ridding yourself of debt, there are a few easy things you can do to take on this very scary process:

Read five steps to get control of your finances and six mental tricks to help you get there, after the jump.

1. Make a spreadsheet of your current debt, including every balance and interest rate. I have made several of these for friends, and there are a bunch of them available if you Google. Of course, if you send me an e-mail, I’d happily ship you a very pretty pink version that isn’t even the teeniest bit scary.
2. Using a Debt Snowball approach, rank them based on whatever your preference. Some people prefer to concentrate on blowing some little annoying debts out of the water quickly, just for the mental joy of making progress. Other people (myself included) feel that it makes more sense to tackle based upon interest rate and whether something is tax deductible or not. For instance, I will keep a mortgage on my house until it is the very last debt I have, simply because I can deduct all of the interest, whereas I cannot deduct the interest on a credit card.
3. Sign up for Mint and attach it to all of your online accounts, using it to track spending so that you can analyze where you are hemorrhaging money. It’s eye-opening, particularly the graphs that compare the simple MI:MO formula.
4. Decide whether maintaining your current spending is worth paying off your credit card for 15+ years (or never) and then decide what is more/less important than the goal of getting debt free. It usually helps to play with the numbers in the spreadsheet a little bit so that you can see how a tiny little increase in a payment snowballs down to decrease the term and interest paid over a long period of time.
5. Put the money you save toward debt and don’t justify new purchases because you deserve it since you stopped going to Starbucks daily. That’s called denial.

Then there’s the psychological part of not spending money, which is where the problem really lies for most people (come on, I know that you’re smart enough to have thought about using a spreadsheet before):

• Think about what you can do now with what you have. Stop thinking about what you don’t have. Think about what you DO have. We live in the most flush country in the world and chances are you are in the top 5% of the richest people in the world (if not higher). Yes, those new iPads are sexy but ten years ago you probably would have pined away longingly for your current phone or laptop! If there’s something you really really want, sell some possession(s) on Craigslist or bring in extra income to cover the cost.
• Reduce clutter. Wait, what is this doing in a money tips list? I don’t know what it is, but it seems like the people who have a messy financial house usually have a lot of visual clutter too and I think one might cause the other. I’m horrible about clutter (I told you that I’m speaking from a place of experience) but I’m getting better and it definitely helps you feel as though you have your life in control. Besides, how many times have you needed to purchase a second or third whatsit because you couldn’t find the one you already owned?  (PS. If you read this tip and had an immediate fantasy about a shopping trip to The Container Store, please reread the first bullet in this list)
• Practice saying NO. No, I can’t buy stuff from your son’s Boy Scout fundraiser. No, I can’t go to New York for your bachelorette party. No, I can’t loan you money. No, I can’t pick up the tab for lunch. No. No excuses needed. Just “No, I couldn’t possibly do that.”
• Figure out why you spend money on non-essentials. Lots of time, people justify expenses through a series of mental leaps that make a lot of sense at the time, but crumble upon closer examination. Remember: anything that makes something easier, more convenient, saves time or just looks pretty is usually really purchased because of the simple reason that “you wanted it”. No, don’t argue. Yeah, sure, you’ll wear that new suit to work but unless it’s a uniform or a replacement for another suit that requires dry cleaning (and the new one doesn’t). The other side of this column are those expenses that were avoidable. For instance, there are no groceries in the house and you’re so starving that you end up going out to eat, or you didn’t get your DVDs back to RedBox in time and got charged extra. When you spot those instances, make a SMART goal (more on that later) to avoid those situations in the future (because let’s be real, it’s probably going to happen again).
• Money doesn’t buy the friends you want. Remind yourself that you don’t need to spend money to impress people or keep your friends. I have a friend who threw several parties for friends, footing the bills, each more than several hundred dollars, because she wanted to help celebrate her friends’ accomplishments. Ok! You know that celebrating is totally free, right? And just because someone registered at Pottery Barn or Williams & Sonoma doesn’t mean that you can’t buy them something from a less expensive store or make it yourself. If they think less of you for it, screw them! You’re smart and creative and can think of other ways to make people feel special without spending a single penny. The most expensive thing you can buy into is your fear and oddly enough, the more money you throw at it, the more expensive it gets to shut up the inner voices, so just put a stop to it right now.
• Make SMART goals. You can’t succeed unless you figure out an action plan to support the five steps above, so make a list of some goals and use the SMART principle. So, in other words, saying that you’re going to “pack more lunches” or “go to Starbucks less” is awesome, but it needs to be really specific. How much is more? What is “less”? For how long do you do this to consider it a success? You have no way of measuring it unless you define it. Vague goals are the reason that so many people have problems with New Year’s resolutions. They decide to run toward some ideal but since it’s so far on the horizon that it never seems like they are making progress, so they give up or slowly just stop doing the things that were supporting their goals, which ends up making them feel like they failed. Support your goals by doing a little tracking and you’ll see what an awesome rock star you are and the progress that you’re making!

How about you? What are your tips for getting your mind in a place of financial freedom?