Browsing Tag

Debt Free

Minimalism

17 Ways to Reduce Mindless Consumption in Your Life

Photo by freestocks.org on Unsplash

Do you buy things frequently on impulse without thought to whether you truly need something or what you will use it for? You might be a mindless consumer.

Consuming is a necessary part of life. We need things to survive and thrive and at other times consuming brings us happiness. We work hard for our money so why shouldn’t we reward ourselves with nice things? This is all fine and life shouldn’t be about constant deprivation, but there is a point when consuming can become mindless consumption  and get out of hand, causing harm that may not be easily identifiable to most.

Have you ever done the following; bought two of something when you only needed one because it was on sale, bought something you saw in a shop without giving consideration to how or where you were going to store it or bought something only to realise when you got home that you already had that item and had just forgotten or misplaced it? These are tell tale signs of mindless consumption. 

Mindless consumption occurs when you buy without thought, usually on impulse. If you mimic these behaviors you might be carrying out behaviour that is consistent with a mindless consumer:

  • You hit the shops regularly, particularly to alleviate boredom to browse the aisles or shelves to see what takes your fancy
  • You spend hours each week at the shops and consider shopping your hobby
  • you buy things on credit because they were not a planned purchase so you didn’t save up in advance in order to purchase the item
  • you buy things just because they are on sale
  • you buy new clothes when you know that you can’t fit the ones you have in your wardrobe
  • you find it hard to stick to your budget or run out of money well before pay day

If you find yourself buying things you don’t need or that you regret on a regular basis you may need to reassess your shopping habits. Mindless consumption can lead to anxiety and stress. Whether it’s from clutter in your home that makes day to day life harder, stress about keeping up with credit card repayments or buyers remorse when you’ve spent money you weren’t supposed to on things you realise you probably didn’t need.

If you want to change the cycle and learn to be a more mindful consumer check out these 17 Ways to Reduce Mindless Consumption in Your Life.

  1. Learn to be content with what you have

A large part of our consumer culture is trying to fit in with the people around us. Whether that be having a newer car, most recent fashion, or the most awesome looking holidays. We often compare ourselves to others we see on social media that seem to have perfect lives, disregarding the true picture. It’s unrealistic to compare our lives with others when we don’t know their financial circumstances. Compare apples with apples not apples with oranges!

When we look at others and what awesome things they may have we need to remember that we don’t their income, what expenses they have, how much they save each week or how much debt they have taken on in order to fund their lifestyle choices. Unless they tell us their most intimate financial details we can’t possibly know and we shouldn’t need to worry as we all have our own financials to worry about. Maybe they earn good money and saved up for their car over a period of years or maybe they are living week to week and bought everything on credit. Comparing our lives to others when we don’t know the full picture gives us an uneven viewpoint and takes valuable time away from our own goals worrying about others.

If you don’t have a new car and are driving your regular old car be content that you can get from A to B and not have a car loan to pay each week. If you’re always wanting the next designer handbag or latest Nike runners you will never find happy. With the current weekly fashion cycle there will always be something new and more in than what you just bought there to make you feel inadequate – if you let it. Step outside of the consumer rat race. Make decisions that will benefit your life and increase your true happiness, not to impress others.

2. Look for happiness in experiences not things

Choosing experiences over stuff can lead to more mindful spending and increase happiness levels. Compare your thoughts and feelings about past purchases versus experiences. When was the last time you reminisced about the $500 designer jeans you bought or the must have new heels that were irresistible? Think back to Christmas two years ago. What did you get? Can you even remember? It’s highly likely that you can’t remember the awesome stuff you got at Christmas or what you bought at the mall but you can remember the experiences you had on your last holiday. That is because the memories we create, and the relationships we form and maintain are more important than the gifts that were exchanged or stuff we bought.

Reduce the focus and value you put on stuff. Having 100 pairs of heels might seem like a dream come true but could you be just as happy with 10 killer heels that you love and a relaxing holiday to explore a new and foreign destination? Instead of spending $100 a week shopping on things you will probably leave lying at the bottom of your wardrobe and forget about, imagine if you had instead saved that money and put it towards an overseas vacations with your family or friends. Or signed up for something that truly bought value and happiness to your life like joining a martial arts class, buying tickets to see your favourite band in concert, or getting those singing lessons you always dream about. These things can bring a whole new level of happiness and growth that can continue to bring contentment well after you’ve lost interest in your new purchases.

3. Get hobbies other than shopping

NY Daily News reported that the average women in America spends 399 hours a year shopping over 301 days. Alarmingly, Adweek  published results of a study by Varsity Brands that identified 80% of 13-18 year old girls listed one of their main hobbies as shopping. There is an increasing trend towards spending more and more of our time consuming.

Hobbies can provide us with many benefits; we can get exercise, learn new skills, develop our creativity, make new friends and find valuable uses for our free time that don’t include work or watching TV. Shopping can become an extremely expensive hobby with very little true benefit. There is nothing wrong with  shopping for things that we need as we need them. But when we shop aimlessly and unnecessary, whilst we are stuck in 4 walls searching endlessly for the next bargain we are missing out on other value adding activities like visiting an Art Gallery, learning a new language, spending time exercising out in nature or doing anything else that might be of interest to you. Not to mention the True Cost of all  that stuff that we walk away with including the environmental impact.

If you find yourself hitting the shops every day or very frequently, consider whether you are investing more of your time then you would like at the shops and consider alternative activities that you would enjoy over your next visit to the mall.

4. Stop shopping socially

If your only plans with friends are to go out shopping together reconsider your catch ups and change them to something more rewarding and less detrimental to your wallet. Consider going out for a coffee together instead or a river walk or join a class together. Find a new social activity to replace the regular shopping expedition. Speak to your friends about your desire to spend less time and money at the shops. You may find that they have been thinking the same thing and you can all help each other with your new found goal to reduce your shopping trips. Or if you really do love shopping with a friend, make sure you bring your list that you have built up an thought about over time to help you stick to your goals of shopping more mindfully.

5. Adopt a capsule wardrobe

Reduce the desire to shop for unnecessary clothing by adopting a capsule wardrobe. When you only have 30 or so of your favourite pieces to mix and match in your wardrobe, you will no longer feel the need to continually shop for more clothing as you will be content with what you have in your own home. You’ll also be more aware of what you do. Having a capsule wardrobe will help reduce the impulse buy clothing as you will always have something you love to wear on any given day. Set yourself a new goal, if you bring a new clothing item home that you need to get rid of something else to limit the temptation to buy something you probably don’t need. As you shop ask yourself what am I willing to donate in order to take this home? This will help you to reduce mindless consumption and help you only bring home what you genuinely need and will use.

 

 

6. Have a wishlist of things you want

Avoid walking into shopping centres with no plan or purpose. If you walk around aimlessly into store after store, you are guaranteed to succumb to temptation and purchase something you really don’t need. Instead of going to the shops regularly and to browse, only go with a well curated list of things that you need. Add to and build your list over time, this will  allow you to reduce your shopping trips and let you buy what you need in one visit. If you can get your shopping done once a week instead of in multiple trips you are going to see the added benefit of time savings, and we can all benefit from that!

7. Wait 24-48 hours minimum before buying anything

To help you resist the urge for mindless consumption it pays to pause before making purchasing decisions. The bigger the purchase the longer you will need to access the decision you are making. Stopping to think before we hand over our cash or cards can help us resist unnecessary purchases that we will regret later. It also allows us time, particularly for larger purchases to check reviews in a relaxed environment, ask friends for product recommendations and to truly think about the item before you part with your cash.

Having time to carefully consider your purchase before exchanging cash will allow you to reduce the number of items you are bringing into our home impulsively and potentially save you thousands each year. When we stop to think we can help reduce mindless consumption. The smallest pause can make a huge difference. Even if you just leave the shop and decide to think about it a bit more before you part with your cash you can always come back to the shop before you leave.

8. Be patient and wait for the right item

Sometimes we can find something close to what we want and by it only to find what we actually wanted soon after. To help avoid this and mindfully consume we need to be patient. Ask yourself what is the ideal item I have in mind for this item I am after? Think about the features you want in it. If it’s a new backpack, maybe you want something that is fold-able, has hidden zippers, a bottle holder, rain cover and is blue. Don’t grab just any bag or the one that is on special. Hold out for the one that you want with the features you need.

I wanted a rose gold necklace and found one that I really liked which was only $4. I was so tempted to put it into my basket but I wasn’t sure if it was what I truly was after. I imagined what necklace I would by without hesitation right now if I saw it and it wasn’t the one I was holding so I put it back. Asking yourself ‘is this something that I will be happy with no matter what other item I found from here’ can help you make the right purchase decision.

9. Declutter your belongings

One of the biggest reasons we are mindless consumers is because we don’t know what we already have. If your wardrobe is overflowing and your drawers are packed full to the point where you struggle to close them it’s highly likely that you probably have forgotten about what you even own. Out of sight out of mind right?

After decluttering over half my belongings, my need to consume reduced drastically. I soon realised what items I bought unneccessarily and what I wouldn’t buy again. I learnt what clothing and shoes I liked and what I didn’t. Decluttering your stuff will show you how little you need to be happy what you can live without. It has the added bonus of ingraining in you how much money you have previously wasted. Every time I sold something for $10 and thought how much money had gone down the drain was a lesson for me to change my old consumer ways! I now know that I don’t need ten pairs of great jeans and that owning three is more than enough and know I never want to revert back to my overflowing chaotic wardrobe of the past. Here’s a list of where to start!

10. Learn to differentiate needs versus wants

The next time you feel the urge to buy yourself something ask yourself is this a need or a want. Learning the difference between the two can be budgetary speaking – life changing. Buying what you want over what you need could mean the difference between a future home filled with endless trinkets and decor pieces, with the stress and time outlay that comes with maintaining your stuff, with a side of sky rocketing consumer debt. Sticking to only buying what you need more often than not can mean achieving freedom from debt much sooner and a life of contentment with only the most valuable items to you.

Maybe instead of buying that lovely aqua vase you can just admire it, accept that it is a lovely piece of decor and acknowledge that you already have a lovely vase at home and there would be better uses for that cash such as saving it rather than buying another decor piece to dust every week. If you ripped your jeans and only have one other pair, then it’s safe to say you probably do need a new pair and you can go out and replace those confident that you are mindfully consuming.

When you adopt a lifestyle of less you will start to appreciate what you do have much more than ever before and feel most content with less as everything you do have will serve a purpose in your life and hopefully bring you joy in some way.

11. Start saving and investing

Some people genuinely don’t have a plan for their earnings and therefore find themselves trying to find more and more things to spend it on. I recently heard a millenial interviewed about housing costs that said that because she couldn’t afford a house there was no point in saving any of her money. I couldn’t believe my ears? Because buying a house seemed  impossible there was no point in saving for anything. When you have no financial goals mindless consuming can quickly become the norm.

When you change your goals from what you want in terms of physical stuff and instant gratification to what your future you want a whole new change of mindset occurs. You will now have a new idea in mind for your hard earned cash. Instead of regularly blowing $200 on an impulse shop you could save or invest that money for the future. Over time watching your savings or investment increase over time will give you an equally awesome, yet guilt-free buzz!

12. Donate and help others

If you have enough cash to hit the shops every single weekend and buy every new gadget as it hits the store shelves, maybe you could consider an equally rewarding use of you cash. Helping others such as donating to charities instead of consuming can give your happiness levels a much longer lasting boost. Consider the joy you feel when buying a new top versus the joy you would feel knowing that you had donated to a worthy cause and changed someone in needs life for the better!

If you have endless time to scourer the mall and aisles, maybe your time could be better utilised volunteering to help others in need. Find a charity that resonates with you and one that you would feel pride helping. Donating our time or money can bring us a much greater sense of purpose and joy.

When we want less, we are able to give more.

13. Say no to debt and buy in cash

There is no greater way to encourage mindful consumption than to pay with purchases in cash. The simple rule is if you don’t have cash then you can’t afford it. Just because after pay is available doesn’t mean it is a good idea. And we all know it is so much harder to pay for something after the thrill of buying it is over.

If you want to truly know if something is worth buying and a mindful purchase, save up for it! Wait whatever time it takes to put that money away for it. Every time you are willing to sacrifice going out for dinner or happy to skip the morning coffee you will know that what you are saving to buy is going to add value to your life and something you are willing to make sacrifices to get.

When you finally buy your item you can truly appreciate it for the hard work you put in and know you can walk away with your new awesome purchase completely debt and repayment free!

14. Borrow or buy things second hand

The next time you are on your way to the shops to buy something ask yourself could I borrow this or buy it second hand? I recently planned to buy an electric sander which was only $80, my thought process was – oh that’s not too expensive, I will just buy it. I then considered whether I could borrow it instead and asked around and managed to borrow one off my step father for free. My last photo shoot I wasn’t sure what to wear and managed to borrow a beautiful dress off my sister in law for the day that cost me nothing! Each of this little changes to buying habits adds up and in time you can return the favour.

Ebay, Gumtree and sites like Craigslist have opened us up to more options for things we need but don’t necessarily need to buy new. By borrowing or buying something second hand we can not only save money, but can help the environment by reusing something rather than having it end up in landfill. Thrift shops are also a great option to find pre-loved items on the cheap.

15. Ignore the catchy sale signs

I used to swoop to those sale racks or tables as quick as anyone else ever did. It’s what frugal people do right, who would pay full price? Maybe so, but it’s only frugal if you are buying something you need, not something just because it is on sale. Often people get caught up in the ‘savings’ and hype of a bargain. If you bought one $50 top and got one free you didn’t save $50 you spent $50. The next time you are at a sale rack ask yourself this:

“If this was full-price would I be willing to buy it”?

If the answer is no, then maybe you are just buying it because it is on sale and you need to reconsider your decision. If your answer is a resounding yes that would show that you have made an informed decision and found the perfect item, ideally an item that you love, that sparked joy and fit perfectly and made you feel great. When you stop buying things just because they are on sale you can start buying what you really want – even if it is full-price – as long as you are sure that it is what you truly want rather than just a spur of the moment decision.

16. Educate yourself on waste and the impact on the environment 

By educating ourselves we can open our eyes to the negatives of our consumer culture and mindless consumption and it’s impact on the environment. ABC’s War on Waste recently reported that Australian’s are disposing of 6,000 kilograms of fashion and textile waste every ten minutes. Being aware of our environmental impact can help us make better decisions. Sometimes we need that extra nudge to kick us into action and make changes to our consumption behaviour.

When we realise that our purchasing decisions can make an impact on the environment or other people or animals lives that can aid us to make more mindful consumption choices. When we see the level of waste that occurs we might think a little bit more about each purchase. It could be a simple decision to buy more quality, timely pieces that last longer rather then cheaper pieces that end up in landfill in 12 months time or after a season.

17. Learn to value your time

One trap of the consumer culture is that we all seems to lose sight of the value of time. We are all so focused on getting more and more money and more and more stuff and forgetting our most important resource – time. A resource that we can never get back.

Think back to all those hours you spent shopping. Whether it be at the mall or online, or browsing Amazon. Not to mention the time spent in traffic getting to the shop, the time spent waiting in line or to try those clothes on. Think of what you could have done instead with all that time! Was everything you bought last year worth the time you spent earning it? Or even everything you have ever bought? I am certainly no stranger to wasting money on things I didn’t need and that I eventually regretted buying. In order to assess this it can be helpful to calculate our purchases in hours, that is the time taken to earn the money spent as opposed to dollars.

As an example, you earn $20 an hour and want to buy a new handbag for $120. That handbag is also costing you 6 hours. So the total cost is really $120/6 hours. Does this change your decision? In order to mindfully consume we need to take into account the whole picture for each purchase. Not just the cost to our wallet but the time lost. When you take both into account the cost seems a little less ideal – even if it is on sale! This isn’t to say that nothing is worth our money and we should never buy anything and just hoard our money but considering the time cost goes a long way to helping us make more mindful consuming decisions.

What helped you to become a more mindful consumer? What tips to you have to limit impulse purchases that might be helpful to others? Please share your experience and tips 🙂

 

Budgeting

18 Tips to Help You Break the Debt Cycle

Are you ready to take action and break the debt cycle? A small amount of planning and new habit forming can go a long way to helping your smash your debt and get on the path to financial freedom. Photo: Alice Pasqual

Being stuck in the debt cycle can seem like a never ending treadmill of stress and struggle trying to keep ahead of what may seem like never ending repayments. Once you add a mortgage, car loan and a few credit card repayments to your budget finding any spare cash can become increasingly difficult and make it harder to break away from debt and get back on your financial feet.

If you are constantly making purchases on the credit card and not paying them off in full the following month you are going to eat up a lot of your hard earned income in interest payments. Money which could be better utilised whether that be saving for a new home or your kids education, your retirement or using that spare cash for enjoyment such as holidays or seeing your favourite band in concert.

No matter where you are on your journey to financial freedom there are methods to help you get on top of that debt. Even for anyone with significant amounts of debt, their financial story isn’t over and they can potentially have the most options for action in terms of retraining their habits and living within their means. No one needs to live under a cloud of debt indefinitely. There is a way out!

Here are 18 Tips to Help you Break the Debt Cycle.

1. Think about the interest 
It can be so easy to forget that the price tag of the item you are about to swipe on your credit card is not the final price you will pay if you don’t pay on credit. If your credit cards interest rate is a whopping 19% or more, every purchase you make on that card which is not paid in full will attract hefty interest charges. That $99 dress you just charged will cost you a hell of a lot more year that you don’t pay off your credit card balance. And it doesn’t stop there, that is just one purchase – imagine that interest on every purchase you make! That sale price doesn’t look as good now does it?

2. Cut up your credit cards.

If you are the kind of person that can’t resist a good deal and doesn’t pay your credit card off in full each month it is time to cut those cards up! Stop spending money you don’t have. If you can’t show restraint, take the easy step of grabbing a pair of scissors and cutting up that card. It will only take  you a few seconds and save you a world of stress and hardship in paying off any extra debt. Don’t let it keep spiraling out of control. You can get out of this and you can start today by cutting up those credit cards!

If you are buying everyday purchases on the card and are not paying them off in full at the end of the month you need to reconsider your income and expenditure and spend less than you earn. The only reason to use a credit card is to have it as a tool to keep track of your expenses, to earn rewards points on everyday expenses and only if you are paying it off monthly! If you are disciplined enough to do this you can save yourself some serious money by keeping your day to day cash in your mortgage offset account or in a high interest savings account. Otherwise get those scissors out!

3. Stop trying to impress others

A lot of people get caught up in looking at other people’s lifestyles and attempt to keep up with them. I guarantee no one ever asks the same people they are trying to compete with – how much debt do you have? Yeah sure, Joe down the road might have your dream car but he probably also has a $200 weekly car repayment to make for the next 7 years which probably isn’t as appealing to your green-eyed monster. Yet so many people go out and buy new cars, bigger homes or brand name designer fashion to fit in with others without a thought for the struggle that is going to put on their finances, such as affording the basic needs of food, shelter, medicine or their education. Break the debt cycle!

Do you feel the need to buy the latest fashion and accessories? You might be surprised to find that other people are probably not that interested in what you are or aren’t wearing. People are too worried about their own lives to focus on your daily outfit choices or the fact that you only spent $50 on your handbag rather than $300. I have often had handbags under $50 and constantly got compliments – no $300 designer bag necessary!

If you are surrounding yourself with people who expect you to meet some kind of designer brand level of outfit choices your probably need to reconsider who you hang out with or reassess if those friends even care, maybe it is your own standards you are trying to keep up with.

4. Avoid the shopping without a list
Stop going shopping unnecessarily! You’d be surprised how little you’d spend if you didn’t step foot in the shops at all or open the latest sales email. If you have endless emails from clothing shops or stores that tempt you constantly, unsubscribing from them can help remove that urge to buy.

Make a goal of only going to the shops when you need to and go with a list of what you need to buy and from where that you have built up over a week or more. Don’t walk down the make-up aisle if that is not on your list. This alone can help you resist unnecessary purchases as most spending occurs when you are browsing which can end up with you buying something you don’t need and will later regret.

Shopping with a carefully prepared grocery list can go along way to saving money on your weekly shop that can be redirected to paying down your debts faster!

5. Take advantage of new credit card balance transfers
If you want a leg up to pay off your credit card balances, consider a balance transfer to a new credit card that will offer you 0% on the balance for a certain period of time, usually between 6 to 24 months. This can potentially reduce the interest rate you are paying to 0% and help you get on top of your debt in a short space of time.

Only do this if you cut up the new card immediately otherwise you will end up back where you started. Also be sure you will be able to pay the balance transferred onto the new card within the low interest period. The new interest rates can be significantly higher usually starting at 19.99% post the discounted interest period so you will want to pay it back within this time frame to avoid the increased interest rates.

This can be a great way to smash that debt balance in a defined period of time at the lower interest rate. Do not under any circumstances add to the balance of this new credit card. It is not for you to spend with, but as a tool to help you get ahead and pay down that debt!

6. Ask your credit card provider for a better rate

Alternatively to the balance transfer option, call up your current credit card provider and ask for a better, more competitive interest rate. If they want to keep your debt on their books they will have to meet your request and better your interest rate. This will save you on interest charges without the time limit of the balance transfer option.

7. Always pay more than the minimum on your credit card debt
When paying off your credit cards always pay as much as you can onto them each month – avoid only paying the minimum. If you can only afford the minimum find a way to change that – cut other expenditure, get a higher paying job, or a second job to increase your income if changing jobs is not an option. Temporary pain will be required to achieve financial freedom.

By only paying the minimum repayment you can add decades and thousands in interest to the debt you are going to have to pay off. Using Money Smarts Credit Card Calculator a $2000 credit card balance paid back at the minimum repayment of $41 a month would take over 21 years to repay and cost over $6500. That means you will in effect be paying for those $2000 purchases three times over for the next 21 years! And for some people $2000 is just one months expenses. Imagine if this is being charged, month after month.

Never settle for only paying the minimum repayment. It should read “what to pay if you want to be in debt forever and pay 3X the price of everything you’ve ever bought and have no desire for financial freedom”. The only time you should utilise the minimum payment is if you are using the Snowball Method and throwing all your spare cash onto the lowest debt and slowly knocking each one to zero.

8. Ask yourself is this purchase is a want or need.
It is important to consider what our wants are versus our needs. Every time you pull out the credit card or cash, ask yourself is this a want or a need? If it is a want, something that you’d like but could live without, ask yourself is this purchase is so important to me that I am willing to be snowed under by debt in order to have it. Is it worth paying potentially 3X the purchase price of the handbag or new runners over a period of years? Or would it be better just to hold off a couple of weeks or months and save up the cash?

If it doesn’t seem worth spiraling into more debt, rethink your purchase. Sometimes we can become so desensitised by buying things with a simple tap that we forget to stop and ask ourselves these important questions. Being more mindful with everyday purchases can aid us significantly to break the debt cycle! Shops are designed to make us want to spend money, whether it be the loud music throughout the shop, the vanilla caramel scented candle wafting through the store or pushy, “extremely helpful” sales staff. Take a moment to stop and assess whether buying this item is going to add to your long term happiness or take away from it.

9. Channel your excitement into your savings
Make the decision to buy things in cash going forward. By buying in cash and saving up for highly desired items you can give yourself the time to save up money gradually for it. You will be surprised how easy it can be to save for something that you really want when you know that after all that hard work you will have that item you desire – debt free.

When you really want something, you will know if it is worth your hard earned money as you will be making the necessary sacrifices to get it. You might start spending less on eating out each week or skipping regular drinks nights in order to save to go on that first overseas holiday.

When you save towards something you want and worked hard in order to acquire it, instead of feeling a sense of guilt or buyer’s regret, you will feel a sense of accomplishment and joy knowing that you worked hard and saved for something meaningful that was going to add value to your life and that you paid for in cash. There will be no looming debt hanging over your head for months or years to come.

I can’t imagine anything worse than going on an amazing two week holiday and coming back to deal with the debt that remains after the fun is over. It’s going to be a lot easier to be motivated to save leading up to that amazing experience than once it has been and gone and you are dealing with the debt consequences.

10. Buy what you can afford not what you can borrow

When we bought our first home we were surprised to see how much the banks were willing to lend us. As I did our actual budget (not the made up ones the banks use to justify lending you a mortgage at 50% of your combined wage) we could see how borrowing the larger amount was going to be a huge financial strain.

Instead we stuck to a mortgage that would be well within our budget which will go a long way to help us break the debt cycle. This included built in safe guards that gave us some extra financial security in case rates went up or in the event that we had to live off one income. Only you know your true spending habits and what you can reasonably afford to pay back. Don’t let others convince you that your borrowing power is bigger than it really is. Check out the benefits of a smaller home and mortgage here.

11. Don’t become accustomed to the mentality of having debt repayments
I have seen this happen time and time again with young and old alike. They pay out their perfectly good car after 5-7 years of repayments and immediately start talking about what car they want next.

Even though they have a perfectly functioning car, with time on their side to save for the next one, the thought of saving up for a car over time, or having a slightly older car is considered too painful, so they go out and get a another car loan.

Break the cycle! Be weird and say no to debt!

If your car is reliable and not that old and mechanically sound, it is so bad that you hold onto it for a couple years more and save up to buy your next car in cash completely debt free? Paying $100 or more a week for the next 5-7 years is a big commitment and is going to get old fast!

12. Reassess what you are willing to get a loan for
Be selective with what you are willing to go into debt for. Only go into debt for purchases that increase in value or are considered an investment. Getting a degree in your chosen career can lead to a higher salary, a house can provide a return through equity.

On the other hand shopping sprees on the credit card, holidays and a new car aren’t an investment and don’t hold their value so going into debt for items like these should be avoided. Do you want to be paying off that shopping spree years down the track after the clothes are out of style and most likely already donated to charity or sitting in the back of your wardrobe?

If you need to get a mortgage for a house that will increase in value over time, that can be considered “good debt” but a $2000 credit card balance for your new sound system is not a good idea and should be avoided.

13. Put every spare dollar that you can to pay your debts down

Most people when buying their first home are signing up for huge 25 to 30 year mortgages. If your mortgage is a 30 year mortgage, it doesn’t mean that you have to wait that long to be debt free. Aim to pay it off as fast as you can.

Are you prepared to stay in your full-time job, particularly if it is a job you don’t enjoy, for the next three decades until you are 60 to own your house? By adding an extra $50 a week to a $500,000 mortgage you can reduce your mortgage by over four years and save $65,000 in interest. A huge saving! Imagine what you could do if you could add $100 a week to it in additional repayments! Break the debt cycle and avoid letting your bank or credit card provider dictate what your repayment timeline will be.

14. Save up an emergency fund of $2000
Part of the never ending debt cycle is attributed to not planning ahead. Suddenly your car dies on the freeway and you need to put $1200 on the credit card for repairs. The hot water system goes and again you are stuck without a leg to stand on and putting that on the credit card.

Plan ahead. Budget emergencies are just as likely as the chance of rain. Find a way to save up $2000 as quickly as you can and keep it in an account for emergencies only. This does not include a nice hand bag that is on sale or last minute drinks with friends. This is only for genuine emergencies like a break in occurs and you need to change the locks or you have a severe tooth ache and need to get it looked at. Get organised and sell your clutter if you have to. 

If you have to use this fund you will need to build it up again. Next time you have a flat tyre you won’t have to panic and stress about finding the money and won’t even need to think about  bringing out the credit card.

15. Prepare a budget and stick to it.
Knowledge is power when it comes to finances. If you are aware of what your budget is you can be more mindful of your spending and more likely to break the debt cycle. If you know you have a $500 electricity bill every quarter start budgeting for it every week. Don’t wait until the bill comes and then try and figure out where the $500 is going to come from and end up paying your bill late with an added late fee.

If you own your home, be prepared to spend regularly on maintenance. Living week to week can put you in a bind when your home needs urgent repairs and you haven’t planned ahead and put away money for such events. Check out these Everyday Savings Tips to help kick start your budget and free up some cash to break the debt cycle!

16. Learn to be content with what you have
Once you realise how little you need to be happy the desire to consume more diminishes. You no long feel as big of a rush buying things. The thought of parting with your hard earned cash will make you more mindful of what you are buying.

Learn to be content with what you have. This alone can go a long way to break the debt cycle. Do you really need a brand new $35k car on finance on your $50k salary when your current car works perfectly fine? Are you willing to pay x dollars every month for the next 60 plus months? In good times and bad – when you are unemployed, when you are trying to live on one income, when you decide to cut back hours at work to study for a new career – that debt is going to still be there.

Maybe having that spare money each week could allow you to go on an overseas holiday each year, cut back your work hours to spend more time with your family or allow you to retire earlier. Sometimes more stuff is not the answer to contentment.

17. Find new past times that don’t involve shopping.
If you are finding yourself constantly browsing online shops or at the mall you may need to pause and recognise the habit and ask yourself – Is there something more valuable I could be doing with my time? How often are you shopping, for how long and how much are you spending? Keep note of it.

Gradually retrain yourself to stop the automatic habit of logging into your favourite stores site or browsing aimlessly on your lunch break. Think about all the things you could be doing instead of shopping; reading a new book, going for a walk, meeting a friend for coffee, learning a new skill or hobby, catching up with family or seeing a new film.

If you have friends who you shop with regularly make a suggestion to do something different together. There are plenty of things to do that are more enjoyable and often free that you could be doing instead of shopping and wasting money.

18. Review your credit card statements 
In order to break the debt cycle and get your finances back on track you need to establish where you are spending your money and wracking up debt. Check your credit card statements monthly and analyse them. When you know where you are spending your money you can become more mindful and take action to stop it. Is it at Kmart on clothing and homewares? Are you spending too much on eBay or Amazon?  Are they stores you are visiting in your breaks for something to do? Is your spending occuring on the weekend because your friends work and you don’t know what to do with your spare time?

Work out where you are spending and place yourself on a ban of going to that shop or buying from that shop online for a month. Just pick one spending problem area. If your weakness is buying makeup avoid shopping for any new make up for that month and see how you feel after a month. Maybe you can stretch it out for two months without too much pain. Then you can add another store to the ban list until you can retrain your mindset to shop as you need things not as a past time or unconscious purchase.

What are your debt goals? Do you have a plan in place to break the debt cycle? Are you using the debt snowball method to pay down your debt? Share your goals and wins to achieve financial freedom below 🙂

Don’t forget to sign up to the Minimise With Me Mailing List for your free copy of my ebook “101 Ways to Save Money Whilst Still Living Awesomely!

<span data-sumome-listbuilder-embed-id=”22788773a7cdca4a3191e4c2207865aed1331569ded8116d0a5d81c91f455545″></span>

 

Budgeting

How the Debt Snowball Can Get You Debt Free Faster

There is no faster ticket to financial freedom than being debt free. Having  debt can weigh us down and keep us from making changes in our life for the better. Whether that be freeing up money to add to your retirement savings, taking a new role that you love but that involves taking a pay cut or even the improvement in your health from the reduced stress that comes with being debt free.

About a year ago I came across a book called the Total Money Makeover by Dave Ramsey. It was here that I first came across the Debt Snowball Method for reducing your debts. I’d always considered focusing on the interest rate the smart way to go about debt repayment. It seemed more financially savvy to me to focus on the dollars involved and interest saved. If you are paying more interest on one debt over another, why would you pay the one with the lower interest rate out first? Since discovering this new method I can see the advantage in paying off debts from the lowest to highest balance over focusing on the interest rate.

Paying off debts is a hard slog. When you see how many years and repayment periods are left it may seem like there is no light at the end of the tunnel and you will be paying them off indefinitely. The key to the debt snowball is building momentum. Building new habits is tough and we often need instant rewards in order to keep us working towards out goals.

When we want to lost weight we join a gym and closely watch the scales. It can be hard to stay motivated when those scales don’t budge in the beginning. If you lost a kilo that first week, it would help you stay focused and more determined on your weight loss journey. This is why the debt snowball can be so effective at helping you get on top of your debt. It focuses on knocking down the smallest and easiest debts to tackle first. With each debt repaid, you can see your progress a lot sooner than if you attempted to pay out a much larger debt just based on the fact that you were paying a higher interest rate.

>> If you like this post, you’ll love: “10 Easy Tips Save Money Groceries Budget“<<

Before I go into the debt snowball method I want to mention another step that is equally important before starting your snowball.

BUILDING AN EMERGENCY FUND

Before attempting the debt snowball it is best for you to save an emergency fund. Dave Ramsey and a lot of other finance experts recommend having and emergency fund of $1000. I would suggest going a little bit further and aiming for $1500. In my experience if your hot water system goes or your car dies and needs an expensive repair $1000 doesn’t always cover your emergency costs. Just having that little bit more will give you piece of mind especially if two emergencies rear their head at the same time!

This $1500 is a reasonable savings buffer to help you in times of emergency when you would normally throw those amounts on your credit card. There is no point trying to pay down your debt if you are going to be wracking them up again and living paycheck to paycheck with no plan for unexpected expenses. You’re just going to end up back where you started.

And let’s face it, there are always going to be budget emergencies. Just like it rains on the weekend, there are going to be rainy days where your best intentions to budget are going to take a hit. Do what it takes to save up your $1500 emergency fund and ensure that it is only used for emergencies. If you have to dip into it because your had to replace a tyre or you have a dental emergency, the money will be there for you. Just be sure to save up your emergency fund again as soon as possible.

Once you have saved your emergency fund you can move onto your debt snowball.

THE DEBT SNOWBALL

With a few minutes of planning you can be well on your way to paying down your debt. Here are the four steps to use the debt snowball method:

Step One:

Write down all your current debts in an excel worksheet or piece of paper (Exclude your mortgage, this will be tackled once you have paid back all of your consumer debt and saved a 3-6 months expense fund). Go back to your loan paperwork, online banking or credit card statements and work out what your current debt balances are for all outstanding debts as at today. Then, take note of what rate of interest you’re paying (for full awareness of your debt) and your monthly minimum repayment.

For the Australians out there, getting a current HELP loan debt statement is not possible as these are only sent out annually with your tax return. Instead, enter the HELP balance that was on your most recent Tax Assessment paperwork and make a note to update this when you get your next one.

Step Two:

Once you have written all your debts down, number them from  1, 2, 3 from the smallest balance to the largest. Debt Number 1, the smallest debt balance will be the one that you are going to pay off first and attack with your debt snowball. The last and highest debt balance will be the last.

Work out based on your current budget, how much extra on top of the minimum repayments you can afford to put on your smallest debt for that month. If your lowest debt has a minimum monthly repayment of $25 and you can spare another $100 a month, start paying the $25 minimum repayment plus the additional $100 repayment, or whatever it is that you can afford.

Continue to pay Debt Number 2, 3 and so on as minimum repayments. Continue to do this until Debt Number 1 is full paid off. If you get any additional income, a bonus for example, or you were under budget for the month putting that extra money as an additional top up payment on your Number 1 debt will help you knock it down even faster.

Step Three:

Once your smallest debt is repaid, take the minimum payment for Debt Number 1, in the example above, that would be $25 a month and add your additional repayments of $100 a month and add this to the minimum repayment for Debt Number 2 – your second lowest debt.

This means you will now be paying a much larger amount on your second debt – saving you significantly in interest and getting you to your debt free goal much quicker. If your monthly repayments for Debt Number 2 were $40 you will now pay the minimum amount of $40 plus the $25 and $100 you were using to pay of debt number one. Continue to do this until debt number two is paid.

Step Four:

Continue to do this for each of your debts in the snowball until the last one is paid off. For each new debt paid off you will be taking the past minimum repayments plus your additional repayment and carrying it forward to the next debt in your snowball. Like a snowball, the repayment for each will grow and pay off a bigger chunk of each debt as it grows and moves to your next biggest balance.

There are no short-term solutions to paying off debt. It is going to be a slow and difficult journey but one that will be well worth it. Imagine all the things you could be doing with your cash if you were debt free. Put a deposit on a house, go on that dream six month holiday. Maybe you want to start your own business or invest for your retirement.

Keep these dreams at the forefront of your mind! Every time you feel like giving up ask yourself if you are willing to give up on your financial dreams.

STOPPING THE DEBT CYCLE

Here are some tips to help you stay out of debt and to help you get to your debt free journey sooner:

  1. If you can’t afford it don’t buy it. Are you about to buy something on the credit card? Stop! Whatever you are buying you are paying a 19% interest amount on top each year that balance is left unpaid. Does that sale price look so good now?
  2. Cut up your credit cards. If you are the kind of person that can’t resist a good deal and doesn’t pay your credit card off in full each month it is time to cut those cards up!
  3. Stop trying to impress others. No one cares what brand clothing you wear. People are too worried about their own lives to focus on your daily outfit choices.
  4. Learn to be content with what you have. Do you really need a brand new $35k car on finance on your $50k salary when your current car works perfectly fine? Are you willing to pay x dollars every month for the next 60 plus months? In good times and bad – when you are unemployed, when you are trying to live on one income, when you decide to cut back hours at work to study for a new career – that debt is going to still be there.
  5. Stop going shopping! It’s surprising how little you spend when you avoid going to the shops unnecessarily. If you have endless emails from clothing shops or stores that tempt you unsubscribe from them! Instead of going shopping, meet a friend for coffee, read a book, watch a movie. There are plenty of hobbies that are much cheaper and more valuable uses of your time.

For tips on saving more money to help you free up cash for your debt snowball check out 11 Everyday Tips to Save Money.

What are your debt goals? Do you have a plan in place to become debt free? Are you using the debt snowball method to pay down your debt? Comment below your goals and wins to achieve financial freedom below 🙂