That’s surprising, especially to financial planners who would tend to say more debt is the norm as we try to maintain a comfortable lifestyle or “keep with the Joneses.”
Deseret Mutual Certified Financial Planner Shane Stewart says our money woes have to do with human nature and psychology.
“You spend on credit not because you think you have the money to pay it off, but because you think you will have the money to pay it off in the future,” says Stewart.
If you have a lot of credit card debt and your savings are low, Stewart says the first step to move it the other direction is controlling your spending.
“I think you start with delayed gratification, meaning there probably are some things that you can do without, and tighten the belt a little bit because you have to stop the flow of spending and debt before you can then address the result of that spending.”
He says writing down what you spend is a good starting point.
“I’m a financial planner and I’ll admit I don’t really like to do that, but it’s necessary periodically to find out what you really are spending and make sure what you’re spending is at least the same or less than what you’re bringing in.”
Online tools like Mint.com will track your spending for you or, but Stewart says just jotting it down on the back of an envelope will do. He suggests doing anything that will help you understand where your money is actually going.
“When I look at a person’s budget, dining out is much bigger than they thought it was going to be and the reason being is because that’s so variable. McDonald’s or any other fast food restaurant doesn’t send me a monthly bill that’s always the same – and that can get away from you if you’re not careful.”
Beyond just stopping the bleeding when it comes to spending, Stewart says you should also establish goals for reserves.
“Most financial planners will tell you a good reserve is three to six months of what you spend,” says Stewart.
But how do you save up that much when money is already tight?
Stewart suggests that if you already use direct deposit, change up where the money automatically goes by putting a set percentage into your savings account. That way it’s out of sight and out of mind.
And remember, cutting the cable bill or packing your lunch, and redirecting your money into savings isn’t an inconvenience that will necessarily last forever.
“If you do that well, it’s really only a temporary thing,” says Stewart.