Curbing Impulse Spending When You’re In Debt

I wanted to expand a bit more on the post I wrote recently about curbing impulse spending.  An out-of-sight, out-of-mind tactic has always worked well for us.  We move our money into various savings accounts as soon as we get paid, so that we never miss it and never feel like we have “extra” money lying around waiting to be spent.  We have our municipal bond fund where we put money that is designated for eventually paying off our mortgage – that’s where the bulk of our savings goes each month.  But we also have 529 accounts for each of our boys, an emergency fund in an online savings account, and our retirement plans.  The emergency fund, municipal bond fund, and the 529 plans are automatically funded.  We put additional cash into our retirement plans a bit haphazardly – but we generally max out those accounts by the end of the year.  Those are the cash management solutions that work for us.

But what if you need a bit more structure?  What if you have more bills, or a significant amount of debt?  We’ve been there too – back in the days when we were paying off the debt we incurred while starting our business, we were putting barely anything into savings since nearly all of our income was going towards debt repayment.  So maybe you’re not transferring a whole lot of cash into savings accounts.  Maybe instead, you’re paying off debt or just covering your day-to-day expenses.  In that case, I would say that it still makes sense to organize where your money is going to go as soon as you get paid.  Let’s say you have a car payment, rent or house payment, a couple credit cards with revolving balances, a student loan, and your recurring expenses like utilities, gas and groceries.

As soon as you get paid, if at all possible, try to direct at least a small amount of money into a savings account.  Even if all you can save is ten dollars from each paycheck, it will add up over time and every little bit helps.  If your employer offers a pre-tax retirement plan, you should also be putting money into that if at all possible – especially if there’s an employer match… that’s free money!

Once you’ve set aside a little bit of money for savings, you can designate money for each of your bills right away.  You know how much you need for each fixed payment, and can estimate things like utilities and groceries based on past experience.  So as soon as you get paid, transfer enough money to cover all of those bills into a separate account (an online checking account works great for this, since you can pay your bills from it automatically).  Once you do that, you can see what’s left over.  You might be surprised to see that you do have money left over after you’ve covered all of the bare minimums.  If so, you can start to get a little bit ahead and move some additional money into the bills account.  Designate it as an over-payment on whatever debt you want to eliminate first (highest interest rate makes the most financial sense, but the smallest debt is another good strategy, since paying it off will give you an emotional boost).  Make a note to yourself about where the additional money is going, and when that bill comes due later in the month, make sure the additional payment is sent.

The key is to make sure that you’re mapping out your spending as soon as you get paid instead of just leaving all of your money in your checking account, paying bills as they arrive, and whittling down the balance along the way with impulse debit card purchases and ATM withdrawals.  Once you’ve set aside enough money to pay your bills for the month, you can see exactly how much money you have left to get you through until your next paycheck.  If you want extra protection against impulse buys, move nearly all of your money into the bill-paying account and then commit to using cash or a debit card rather than credit for whatever incidentals come up during the month.  If the money isn’t in your account, you can’t spend it.

These tricks are basically what we did in order to dig our way out from under almost $40,000 in debt that we racked up during the first few years we had our business.  It worked because it was simple and because there was no other option – the money was already “gone” as soon as it came in, because we earmarked it for various debt repayments right away.  It forced us to avoid impulse spending, because the money just wasn’t there.  Since my last post about avoiding impulse spending focused mostly on stashing money into savings, I thought it would also be good to address the same issue from the perspective of someone who is digging out of a debt hole rather than building savings.  We’ve been there too, and although it’s not as much fun as growing a savings cushion, it’s still pretty satisfying to see the debt numbers slowly dropping.

If you’re currently more focused on paying off debt than building savings, what are your favorite ways to avoid impulse spending and maintain focus on your financial goals – especially if meeting those goals is a multi-year process that requires a lot of dedication?

Consideration was given to this article.