If you are in debt, you are likely thinking about money all wrong.
And it’s been causing you to get deeper into debt. It’s literally costing you money.
The good news is, you can easily change how you approach money.
People who focus on their end goals - who see being out of debt, or saving a certain amount of money - are less likely too save. This seems counter-intuitive to conventional advice which is have a goal and work towards it, but studies have shown that type of thinking isn't effective.
If you are stuck in debt, that's an elephant of a problem!
Let’s say you want to pay off $10,000 of debt. You know it’s going to take a while, but you feel optimistic. Let’s say you pay $100 off. It’s easy to think that you haven’t really gotten anywhere since there’s still so much left. And, since there is so much left, it’s easy to put it off today with the intention of catching up later.
Focusing on the end goal, striving for the future, is called Linear thinking. Focusing on the whole elephant is overwhelming and we put off what overwhelms us.
How You Need To Approach Money
Instead of thinking about the whole elephant, make smaller goals based on what you can do now. People who think like this are called Cyclical thinkers. And they know how to eat their elephants… bit by bit.
People who break down their savings goals into cyclical time frames, like weeks or months, save 78% more money than people who solely focus on a far-off future goal.
Cyclical thinkers focus on what they can do now, in this pay cycle.
The difference between Cyclical and Linear thinking
What do I want to save today?
Focus on what you can do now.
Considers saving an everyday task.
What is the big goal I want later?
Focuses on the end goal.
More likely to put things off until the future.
Get Started Now
Make you money mantra “What can I do today?”. Every time you get overwhelmed notice that you are focusing on the long term, rather than what you can do now. Think of it as setting a schedule, rather than setting a deadline.
If you haven’t already, check out our last post, Budgeting Or Bust: WhyYou Need A Budget To Get Out Of Debt. We talked about the amazing budgeting software YNAB. One of the reasons YNAB is so effective is that it moves you from thinking about money on a linear time line, to working on a monthly cycle.
Do you want to take control of your money so you can get out of debt or save for the future?
Whether you are in the process of credit counselling, consumer proposals, bankruptcy or just want to be better with money, a budget can help you to save hundreds, if not thousands of dollars a year.
Without a budget it’s hard to know where money is spent
People who don’t budget their money often play catch up for what they have already spent. This can quickly spiral out of control.
It’s easy to forget what you’ve already spent money on especially when you are using a credit or debit card. You over spend and little by little and then unexpected expenses pop up. The bigger the gap gets, the harder it becomes to manage.
A budget helps:
Cut back unnecessary spending.
Save money on bills.
Tackle your debt.
Prioritize your money goals.
Save for the future.
An effective budget is about the present and the future, not the past.
A good budget helps you manage your monthly expenses now, while getting you ahead in the future by paying off debt, allocating money for unexpected expenses and savings.
Budgets aren’t necessarily about being frugal, they are about living better.
When you manage your money, you plug the holes where money is leaking out unnecessarily. This can mean that you save money you didn’t know you had. You still can spend money intentionally on things that are important, but you can also rest easy. No more sleepless nights worrying about money.
YNAB - The Best Way To Budget
You Need A Budget, or YNAB for short, is an amazing piece of software that helps you stop living from month to month, helping you to get out of debt and save money.
YNAB has found their users on average are $200 better off in their first month and $3300 better in 9 months.
This is because they don’t just have a piece of software, they have a methodology changes how you manage money. This is based on 4 rules:
Rule 1: Give every dollar a job. This makes it harder to spend money without thinking. Every dollar has a purpose.
Rule 2: Plan for bigger, less frequent expenses. By breaking your larger, less frequent expenses into smaller chunks, you’ll have the money when they come up.
Rule 3: Roll with the punches. As you spend money, make adjustments. You can move stuff around and still make it work.
Rule 4: Live on last month’s income. YNAB helps you to get to the place where you have a monthly buffer. You’ll stop living month to month and start being ahead. You might not get there straight away, but you’ll be on the road to changing how you manage you money.
Get started now
By making small changes, over time you’ll see big results. By starting to budget now, no matter what your financial situation is, you’ll be taking steps towards better financial wellness.
YNAB has a free 9 day money mastery course that’s worth taking, even if you don’t get the software. You can apply the principles on paper or in a spreadsheet. The YNAB software has a free 34 day trial.