Money! It's a gas.
June 25, 2012 9:24 AM   Subscribe

What got you over the psychological hump from struggling with money to becoming financially stable?

I'm a 28 year old single professional living in a high cost of living city, making about 55k per year.

I'm looking for psychological or motivational advice (as opposed to practical tips) on how to start converting my earnings into sustainable savings, and generally getting my act together financially. I have a real disconnect between where I find myself today vs. where I think I should be, and am looking for help getting to the root of the problem, as opposed to playing along the margins.

The good: Excellent job security, can count on a modest raise and bonus annually, potential to earn more on a freelance basis (or get a second job), my rent is WAY below market price, I spend less than average on essentials such as groceries, etc. I consistently contribute to my retirement plan which has matching funds. Have automated most of my finances and I have good credit. Not adding to any debt at this point.

The bad: Plenty of intractable expenses to service including student loans, CC debt, car payments and insurance etc. Inability to sustain even a minimal emergency savings account, inability to stick with a budget for more than a few months, discretionary spending routinely exceeds targets with eating out, travel, etc. Big spending social group, family was not great with money.

I quite often read personal finance blogs like The Simple Dollar and I Will Teach You to be Rich and have implemented many of the ideas there which have helped enormously BUT....

...I still feel like I'm really struggling, that after working for 4 years I should have something beyond my measly 401k balance and what seems like never ending debt payments to show for it. At this point, especially in my current location, home ownership is a laughable fantasy, and even renting my own place (sans roommates) would probably tip me close to insolvency.

My question is: What can I do to change my relationship or mentality towards money? Did you find yourself in a similar situation in your 20s or 30s? How did you overcome it?

My question is NOT about specific personal finance tips such as carrying cash with me.

posted by the foreground to Work & Money (21 answers total) 34 users marked this as a favorite
Best answer: Getting small wins towards debt reduction helped me enormously. I didn't buy any the books or attend any of the classes, but the Dave Ramsey approach towards this sort of thing (also called snowballing) worked for us. Once there was some breathing room - even just a little - w/r/t to debt and income, we were able to become a little more (stand by for the cliches) proactive, and a little less reactive. Then you've got to stay the course, which can be difficult. Long-term goals worked for us - X% of the mortgage paid off by mm/dd/yyyy, cars paid off by whenever, etc.
posted by jquinby at 9:32 AM on June 25, 2012 [3 favorites]

I would read the book, The Millionaire Next Door. It talks about the characteristics and general habits of financially successful people and the mindset you need to accumulate wealth.

It is more of a psychological primer on accumulating wealth although there are some general tips.
posted by JohnnyGunn at 9:32 AM on June 25, 2012

I sure wish I had taken better care of my money when I was your age. I recommend Dave Ramsey. I'm not at all about his politics, but his envelope system, and Debt Snowball are awesome!

Keep contributing to your retirement fund, mine got eaten when MCI went belly up and I had to start all over again. (I've started over again a lot of times.)

It's never too early or too late to get it together.

As for eating out and vacations, I totally get it. What is it that causes you to spend when you know you shouldn't? Is it the social aspect? Laziness? Or what? Perhaps eat dinner at home, but meet your friends out and just have a drink. If you're lazy, develop some quick and easy meals that you like, or find a cheap take out place.

I guess the best thing for getting your head in the game is to have a goal and to work towards it.

Budgets aren't punishment, they're just a way of deciding how you want to spend your money. Absorbing that will go a long way to change how you view managing your finances.

For example, do I spend $100 on this pretty pair of shoes that only go with 1 outfit, or do I save that towards that road trip I want to take next year?

I'm not perfect, no where near, but I am SO much better than I used to be. Celebrate your incremental changes!
posted by Ruthless Bunny at 9:33 AM on June 25, 2012 [3 favorites]

Are your debt payments really never-ending or do you know when they will be paid off? Are there any you can quickly knock off, or others with too high a monthly payment you can spread over a longer period? Except for the discretionary income overspending (I am assuming by tens or a few hundreds of dollars a month rather than thousands per month) maybe it is the case that your income simply isn't high enough to service your debts and also afford you a comfortable life. $55,000 isn't a huge amount, once you take out taxes and necessary expenses (debts, rent, food).

For ages I was in the same boat, trying to figure out what was wrong with ME that I couldn't balance my budget until I realised that almost every dollar I earned was already pre-spent on necessities leaving me scrambling for crisises like birthdays, being hungry and car repairs. Perhaps you are spending more on eating out with friends because your current living situation does not allow you to socialise cheaper at home with them, or your transportation costs are high because of where you choose to live. If you are spending to match friends they are most likely coasting on parental/spousal largesse of one type or another. Although you are pinning your hopes of future raises, keep in mind future expenses are also going to cost you more too.

There are therapists that work exclusively with financial issues, maybe a few sessions will help with your goals.
posted by saucysault at 9:46 AM on June 25, 2012 [2 favorites]

Best answer: Realize that reducing your debt/income ratio is the key to freedom. We found that we were in a situation similar to yours and realized we were spending a huge proportion of our income on interest payments to various loans, credit cards, etc. There are lots of schemes, but the bottom line is you must bite the bullet and find ways to reduce your debt. We found that the biting of the bullet was reinforced by relishing the increased freedom we felt with every "bill" that was eliminated from our burden. Cutting up a credit card...the best feeling in the world. Enjoy living within your means. It's a victory in life to devise a vacation you can both afford without debt and enjoy. We are now nearly debt free (mortgage only) and are happier than ever. Good luck!
posted by txmon at 9:50 AM on June 25, 2012

Pay yourself first. Automatically send a percentage of your salary to some sort of savings/debt repayment vehicle. If the money doesn't spend any time in your current account, you don't get used to having it and you don't miss it when it's invested for you. When you get a pay rise, don't take a lifestyle rise as well, bank the increase. Over a lifetime you'll probably make millions in total - try to hold on to more than a trivial percentage of it. Prioritise getting out of debt.
posted by MighstAllCruckingFighty at 9:59 AM on June 25, 2012

You're asking for more emotional advice, so: whatever you do, do not completely cut out fun and entertainment altogether. That's like the fiscal equivalent of someone who decides they're going to go on a diet and spends a few days trying to stick to this incredibly austere menu where they only eat salad and maybe the occasional poached chicken breast, and then after about a week they totally snap and eat an entire Entemann's pie in one sitting because they can't take that degree of austerity any more.

It's actually been proven that people have a lot more success sticking to a healthier eating plan if they allow themselves the occasional treat; it helps you stay on course for the rest of the trip, and your life isn't all gray and bleak and nothing.

You deserve to be financially stable, but for God's sake you also deserve to enjoy yourself. You're trying to find a balance between the two, not cut one out entirely.
posted by EmpressCallipygos at 10:05 AM on June 25, 2012 [2 favorites]

Best answer: Honestly? The thing that most helped me get myself financially stable was a ~30% pay jump (when I changed careers and took a part-time job). So consider taking some of that freelance work or that second job and putting that money towards your goals: emergency savings, debt payments, whatever. The extra work doesn't have to be forever.

And speaking of GOALS - I think having clear goals helps a lot. When you're not on the homeownership track for whatever reason, you don't have that excellent mid-range goal to shoot for. Because retirement. Jeez, retirement is far away.

Sometimes my goals are just number goals - I want to have $X,000 in this account by July. Sometimes they're about paying off a specific debt (I am debt-free except for student loans, so this isn't a big deal for me right now, but it is SO satisfying to completely pay off a debt). Sometimes they're fun goals, like "OK, I can buy this frivolous item/go on this expensive vacation, but I have to put money in a jar/savings account especially for it."

Sounds like right now debt is a major problem, so maybe you should set some debt-reduction goals. Could you *temporarily* live super-frugally (and/or take on that extra work) and devote all the extra money to a specific debt (either high-interest or low-balance)? This is probably only worth it if you can make a noticeable dent in your debt in a short time, since, as EmpressCallipygos points out, you can't sustain that super-frugality over the long term.
posted by mskyle at 10:20 AM on June 25, 2012

Best answer: For me I guess it's about lifestyle.

If there's a supermarket on the way home from work, or walkable from my house, then I'll eat out less.

If I live somewhere close to my friends, with room for them to come over, then I'll spend less on going out.

If my house is a pleasant place to hang around then I'll spend less on trying to find ways not to be in it.

It's hard to resist the grand forces in your life; it's much easier - in the long run - to rearrange your life so that the forces are pulling in the direction you want.
posted by emilyw at 10:33 AM on June 25, 2012 [4 favorites]

One specific method I found helpful was to sit down and calculate my interest-accruing indebtedness, e.g. credit cards, loans. I set out the length of time it would take and the total amount of money it would cost to pay each of these off at my projected monthly payments, including interest which would accrue at current rates. Then, when I debated whether to spend any "extra" funds I also looked at what the result would be if I applied all or a part of those funds to one of these debts. When you see how much the long-term savings are on an extra $X paid on your credit card this month, it's a whole lot easier to convince yourself that (whatever) is too costly an indulgence. If you can factor in how much sooner you will be done with that debt payment, it helps a lot.
On the other hand, it's sometimes easy to overdo this. Fun is important. Some say its the whole point. This helped me find a more satisfying middle ground.
posted by uncaken at 10:55 AM on June 25, 2012

Best answer: I think Dave Ramsey has the kind of tough love, kick-in-the-ass approach that you would find helpful.

I also feel like you might need to set some concrete goals for yourself. Spend an afternoon corralling up all the numbers: what you owe on various debts, what you want to have in savings, etc.

Then choose a time frame (1 year, 3 years, whatever). Then work backwards from that, to determine what amount you will need to set aside every month to meet those goals. And then live on the remainder.

It sounds like you have a vague idea of what you want, but no real motivation or road map on how to get there. Having a solid set of goals can give you the framework to really buckle down and make the sacrifices you know you need to make, in order to do it.
posted by ErikaB at 11:10 AM on June 25, 2012

Best answer: Keep in mind that most people's 401(k) hasn't been encouraging over the past four years, but the very fact that you are saving in your 20s will likely serve you very well long term. Take heart that you are doing the right thing.

In my late 20s I had a stern wake up call about this and I found that it really helped to keep score of my net worth. Basically you add up your assets (real stuff, like investment accounts and cash on hand) and subtract the liabilities (loans and cc debt) and the resulting number is the net worth. When I started to track this month by month I thought differently about prospective purchases.

More importantly, when I made an extra payment on a liability or moved a little more money into savings I could visualize the improvement. Most people put off doing the little things that add up because the mountain of debt seems too high. When you break it down into your monthly score you create a positive feedback loop.

The nice thing is that this habit grows well with you. Once you get a good cushion of savings you monitor your net worth to evaluate how your investments are doing because the number moves more with the market than it does with anything specific you do in that month. It is really a good habit worth considering.
posted by dgran at 11:12 AM on June 25, 2012

Consider selling the car unless you absolutely need it, if you live in an urban area and spend most of your time there. Cars tend to have a lot of hidden expenses (Gas, maintenance, insurance, parking tickets) and I have found I do not miss having one at all. You'll have to do the value/convenience calculus for your own life, of course.
posted by spatula at 11:16 AM on June 25, 2012

Best answer: Saucysault and Mskyle have a point - sometimes there just is not enough coming in to pay your expenses unless you live like a monk. $55K in a "super expensive" city is not much. It might be that you have accounted for every last penny and there is nothing to cut back on except if you want to live with no extras at all.

Elizabeth Warren pointed out that people don't go broke over lattes - it's the big three, housing, child care and health care, that do people in. I'm assuming you don't have children, so let's look at housing. You say your place is about the best deal for price + quality that you can get where you live. Are you absolutely tied to your city? Can you move somewhere cheaper? There are many smaller, less expensive cities that still offer a good quality of life (and a decent variety of industries).

What about your job? What are the prospects for earning more money in your field? Is it a matter of paying your dues a bit until you get a promotion, or moving to a different company in the same field which pays better? Or are you working in a field that you are passionate about but will never pay that well? In that case, can you get a second job just until your debts are paid off to give yourself more breathing room?

I must say that people who manage to live non-frugally in an expensive city with a job that doesn't pay that well usually have family money or a high-earning spouse. A lot of people don't know that when they are starting out.

However, I think you will have more breathing room once the debts are paid off. Dave Ramsey is excellent for this, and I can attest to how good the "snowball" method feels. When you pay off the little debts it really feels like things are moving and the cloud of "I'll never pay this off!" despair lifts. And the fast you snowball, the faster everything gets paid off. Then you'll feel more breathing room and maybe find that your salary and city combination is livable after all.
posted by Rosie M. Banks at 11:18 AM on June 25, 2012 [1 favorite]

Best answer: Like someone else said, it wasn't until I got a big pay increase that I could start zeroing out my multitude of student loans (using that aforementioned Ramsey approach).

What helped me the most psychologically was signing up for Mint - not necessarily for the practical reasons (budgeting software) but because now instead of looking at 11 student loans, a car loan, a 401k, credit and checking account balances, all across different websites... I can concentrate on one number: my net worth.

It used to feel like my (student) debts were a bottomless pit just sucking me dry of money and would never disappear. Now, every month I can see that net worth number increase (or, rather, get less negative). My 401k doesn't feel so pitiful. My student loans don't feel as oppressive. I've never been one to make big purchases all that often, but now when I do I'm mentally tallying what kind of hit it'll take to my net worth. And I'm more invested in getting rid of the smaller loans because it gives me a bigger sense of accomplishment. Honestly, without that number I would not have known that I've paid off almost half my student debt by now.

Also, don't compare yourself to peers who are or looking to be homeowners in the near future or who seem to have way more spending money than you or just upgraded to a brand new car. You don't know what their finances are like. You don't know if they've come into an inheritance, or their parents are covering the down payment or car loan or gave them a credit card to use for food/gas, or if they are making terrible financial decisions and spiraling into credit card debt. The only thing you can do is make the right decisions for yourself.
posted by subject_verb_remainder at 11:37 AM on June 25, 2012 [1 favorite]

If you need a car, but not every day/week, it might be cheaper to rent one rather than owning one. Eliminated car expenses can pay a lot of taxis/rentals.
posted by flif at 12:16 PM on June 25, 2012

Here are few (likely to become many) random thoughts I have on the matter. This is both as a person that has conquered their own budget/debt issues and as a former personal retail banker helping people with the same issues.

First, if you have a credit card (preferably with some kind of useful rewards scheme and no fees) that you can clear the balance off of, you should be using this as your only method of payment for all of your day-to-day expenses. If it isn't a monthly, reoccurring bill, it should go on the credit card. Call them up and see if they'll change your billing cycle so that it roughly matches up with the month (IE, billing cycle starts on or around the first of the month). At the end of every month, you pay off 100% of the statement balance, every month. You MUST do this or I'll come over there and slap you for ever dollar of balance that you pay interest on. ;)

I know you're not asking for practical advice but stick with me.

This does several things for you:

1. It totals up all of your monthly expenses so you can see the cumulative affect of those new pants you didn't really need but bought anyways, the 15 times you went out and spent too much, etc.

2. It disconnects your spending from your income. You don't have to worry as much about overdrawing your account (though this doesn't sound like an issue for you).

3. It makes it far easier to manage your savings when combined with part two of my scheme.

Second, figure out a very rough estimate of your monthly expenses to the nearest $500 or so. Let's say that number is $2,500. On the first day of each month take money out of or put money into your checking account until the balance is that much exactly.

You can and should use Mint to automatically track your budget in more detail but this gives you a quick and direct way to know what you spent since your checking account will start and end at the same balance each month. Just add all of your deposits and then subtract whatever you had to transfer out to bring the balance to $2,500 (or whatever your number is).

For me, it started to really motivate me to get that transfer number as high as I could and I felt really good when I had a good month and even better when I strung a couple of months together. I also wasn't spending a ton of time dealing with my finances unless things were really out of whack and I needed to get more detail.

As long as you have available balances on your credit cards, you're probably "okay" if you don't have a lot of savings while you're working to eliminate debt since you have pretty good job stability. If there is an emergency, you can use the credit cards but this is a short term solution and you should put some cash aside when you can but high-interest debt should be the priority.

I like the snowballing idea but I would do it a little differently. I would pay the minimum balances on everything except the smallest balance and put all of your extra cash towards that until it paid off and maybe the next one or smallest balances until you have a little bit of breathing room. After that, I would keep doing the same thing but instead of doing it in order of smallest balance to highest balance, I would do it starting with the highest interest rate.

It's basically a cash-flow vs. interest rate issue. Mathematically, you'll pay less total interest if you always payoff the highest rate debt first. The problem is that you might not have enough extra cash at first to allow for some variability in your expenses. Everything goes okay until you have an unexpected expense and/or Christmas happens and you end up adding to your debt to pay for it. Eliminating the smallest balances gives your budget a little bit of breathing room.

Write down all of your debts in the order you're going to pay them off it (whatever you've determined is best for you) and record what the payment is for that debt right now. After you pay off that first debt reward yourself. Look at what the minimum payment was when you started paying off that debt and spend that amount on something for yourself (go out to the bar, buy yourself some new toy, etc). When you pay off the next one, add that to the total. The whole time, you'll want to remember that when you've paid off all of your debt, you could afford to reward yourself that way every month! You might actually find that the sense of relief you get from successfully paying off a debt is enough that you don't need the reward. I can tell you that when you've paid off all of the debt, that feeling of relief isn't some temporary thing, you feel that way all the time.

Of course, by the time you've got all your debt paid off, you'll have so much fun saving money that you'll keep right on saving it to try and get that savings number just a little bit higher. You'll also still be used to the same standard of living that you have now so putting that extra money into savings (and following the advice you get from the your future, debt-free, self posts about what to do with the extra money) won't be a big deal.
posted by VTX at 12:33 PM on June 25, 2012 [1 favorite]

Best answer: I'm looking for psychological or motivational advice (as opposed to practical tips) on how to start converting my earnings into sustainable savings, and generally getting my act together financially.

Learn the difference between status and security, and commit to the long game.

If status means new flash car, buying rounds for the crowd, wearing $5000 suits and eating out too much, then try to focus on security.

Security means money in bank, debts going away (not disappearing, but going away) spending money only on things you really need (and you need time out, just less), and learning to feed yourself.

Strangely, getting into a close personal relationship with someone is very effective at getting you away from the madding crowd. There are never any questions; you're just occupied. Focusing on what's important other than socializing is very liberating, spiritually and financially. Security is much more alluring than status, if it's the right person.

The money you spend on status is better spent at 50, not 28. Work hard for the next twenty years on security, then you can blow 1/1000th of your net worth on drinks for the crowd instead of 1/10th of your net worth now. Don't shop at Nieman's, buy Nieman's stock.

Create your own trust fund, then hang out with the trust fund crowd.
posted by halfbuckaroo at 1:07 PM on June 25, 2012 [1 favorite]

making sure my spending habits were consistent with the things that I valued

This right here.

At some point you have to have a sit-down with yourself and think about the kind of person you want to be, what you value, and how your spending either reflects or doesn't reflect that. Consider whether you've been spending your money on things that really matter to you, or just frittering it away.

Spending money inherently involves a tradeoff: money you spend on one thing can't be spent on another. So regardless of what your values and goals are, you should be periodically reminding yourself to make it count.
posted by Kadin2048 at 1:16 PM on June 25, 2012 [3 favorites]

I watch The Suze Orman Show (full episodes available online). She does a great no-nonsense job of helping people get to the root of financial issues, make plans to get out of debt, and assess whether they're doing OK moneywise. I've learned so much from being a regular view of this show.
posted by cadge at 1:41 PM on June 25, 2012

Best answer: I gave up on trying to change my attitude toward money and implemented processes that mitigated the damage of my bad habits. For instance, I owned up to my laziness about writing actual checks and finding stamps for billpaying and just set up automagic payments through my bank. Identifying your weaknesses and problems and then finding specific solutions will improve your self-esteem about your money handling skills and eventually help you hang onto the better habits you've learned.

And seriously, you've only been working for a few years. I don't have any statistics laying around, but I don't think most 28 year olds making 55K a year have their own homes and paid off student debt. Perhaps your view of where you should be is slightly warped.

What an earlier poster said is right on: you probably have no idea how your peer group is attaining their status. For all you know they have loads of debt or generous parents. A casual observer would look at my brother and wonder how the hell he purchased his posh property given his age and annual salary--what they don't know is that he took advantage of a disastrous housing market and that he'd been saving for a down payment on a house since he was in high school. Not many 30 year-olds have already spent 15+ years saving for a house. Plus he got financial help from my parents.

Give yourself a bit of a break and stop trying to keep up with the Joneses. You already know what your problems are and your desire to be more responsible and solvent gets you halfway there.
posted by xyzzy at 9:02 PM on June 25, 2012

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