I write about money for a living, but this doesn’t make me perfect when it comes to management of money. Far from it! I am well known for sharing my stories of financial challenges but more importantly how I overcome them and learn for the future.
I can offer guidance to others on all sorts of money saving strategies or how to plan for your financial future, but I don’t have a perfect track record myself. Which leads me onto this story of my emotional spending.
I have spent a lot of time analysing my money mindset and discussing it with a couple of money expert friends. It appears that I have two of them. I behave very differently in times of feast and famine.
During 2017, money was tight. Tighter than it had ever been in my life. I was self-employed and was earning just enough to pay the essential bills. I also had a huge credit card debt. When I fully took my head out of the sand there was 16k to repay, all on 0% interest deals, thankfully, but a lot of money to repay. I decided from that point forward I would repay that debt and get rid of my credit cards forever.
This attitude and mindset switched on a level of frugality, one that I had never experienced before. All excessive spending stopped, no more takeaways, no more eating out, I did no spend months (where I spent nothing except on groceries and petrol/train for work). This excessively frugal life worked and along with my business earning more and more each month, I managed to repay £10k of the debt in 12 months.
Thinking back, this was the point where my money mindset switched; I was happy with how well I had done. £10k repaid in 12 months is a huge achievement and I relaxed. The careful money saving and watching every penny stopped. And I was relieved, so relieved, to go back to spending money as I had been before. Living a frugal life was painful, restrictive. I constantly felt like I was missing out on life through the excessive saving.
It was now early 2018. My business had a few months of doing well and I had some cash built up. Sitting there like an evil troll saying spend me, spend me every time I thought about it. And I spent it. Every penny of money sat in my business earnings was spent.
I felt so secure that my business would continue to earn as it had been doing, so thought nothing of expanding the business, investing in the business and spending the money I had built up in savings. A lot was learnt during this time. I realised that I made a lot of thoughtless decisions, I did little planning or investigation into the spend to analyse if it would work and make a good return.
I spent around £6,000 on coaching, improvements to my website, development of products and to be honest, much of it hasn’t provided a return, not a direct return that I can easily see six months after spending the money.
The household spending went right back up again. We were treating ourselves to takeaways, lunches out, clothes and much more.
The emotions of having a balance of money sat there like a security blanket, having the impact of making me relax with my spending and stopping being careful.
Consequences of Excessive Spending
Alas, my finances unravelled after the excessive spending of early 2018. I had no reserves left and then had a couple of poor Mrs Mummypenny months over the summer holidays. To survive I had to put some money back on the credit card and use overdrafts. The timing of cash flow nearly ruined me and all of this would have been avoided if I just had a safety net of money set aside. And that I had controlled my emotional spending.
How to Stop this happening again
I am now thankfully back in a good cash flow position and I have learnt from my previous failings and am ready to create a different mindset. I want a mindset that is somewhere in the middle of where I have been in the past. I want to feel like I have some freedom to spend some fun money and be in control and not to be spending beyond my means.
A safety net has been set aside for months where income might be lower. I don’t let money sit in my account where I can see it, it is moved away out of sight, out of mind. I allocate money into various pots away from my main account. Those pots include monthly bills, fun spends, credit card repayment, pension plus a few more.
I am keeping a spending diary which is really helping me keep in control of the spending in the good times. Reflecting each day on what you have spent, be that essential or fun spend is making me be more mindful about what I spend.
I still have a credit card balance, but this is the year where it will be gone.