Managing your money leaks is something that I believe everyone should be doing on a regular basis. But as well as the practical steps involved in this, it’s also about learning what causes you to overspend in the first place.
Financial education is not the answer, in my opinion, to overspending. Understanding how to manage debt and how to budget is not the answer; we need to understand our patterns of behaviour first to be able to release those money blocks, to create new habits, and then to create the strong financial foundations which we can learn about through financial education.
Find your money leaks and stop overspending
Tip 1 – Manage the emotion, then manage the money.
One of the first steps to manage those money leaks and stop overspending is to really examine how you feel about money. Have you ever wondered why you know what to do but rarely actually stick to it? This is why!
When you believe something about money you do things that reaffirm this belief. Here’s an example;
You believe that you have to work hard to make money, Perhaps you heard this growing up. Then that belief is something that you hold in your subconscious, so you create a situation where you are constantly working very very hard. You believe that if you take time away from your business, or take any time off, that you won’t be making enough money. You then go into the cycle of negative feelings of guilt and shame.
When you believe something, your brain will look for ways to reaffirm those beliefs through your actions. It’s those beliefs that are tied to our core values.
So the first thing to think about is what are your core beliefs around money? What did you hear growing up? What are you telling yourself about money? We’re not born with pre-set beliefs, everything is learned. We learn from our parents, our environment, our friends, religious beliefs, and social media influence even.
We put a huge amount of pressure on ourselves to make big changes with money, because money is emotion driven. We want to have more money because we perhaps want to be seen as successful, want to be more liked, don’t want to be judged, and more. So there are huge things influencing us to wanting to make big changes.
We here are about small steps, big wins. So putting things off today might not really matter, but if we put them off for too long that’s when things start to go wrong and negative patterns start to occur. So focus on those small steps.
One of the things we’ve discussed previously is anchoring those small steps. So anchor the change you want to make to an existing activity – perhaps checking in on your accounts straight after brushing your teeth in the morning. Anchor the new activity to an existing activity you’re already in the habit of doing.
Confidence is a big barrier to managing money. Here is a small self limiting belief exercise you can do. Grab a pen a piece of paper, and write down everything you can for each of these headings:
Thinking about the beliefs that you currently have;
- What do you believe about money?
- What did you hear about money growing up?
- What are you gaining from having this belief and how is it serving you? Make sure you come up with a positive, because there will be one in there!
- Is the belief actually true? What evidence do you have (if any) to support this belief?
- What is the challenge of having this belief?
- What would happen if you thought the complete opposite of this belief?
- What would you need to be saying to yourself instead?
Think of this as your new positive money mantra, and choose a time when you will say it to yourself every day.
Tip 2 – Awareness
Being prepared with money will help you cope with financial shocks. Unless you know what you’re spending, you can’t really identify your money leaks in the first place.
Financial shocks is a big topic, and we’re going to cover this more on the podcast this year. But essentially, dealing with financial shocks can be something like a change in health, job loss, a relationship change, or going through a break-up or divorce.
Getting into a place of stability and safety is so important. Think about the emotion involved and how you would feel if you were in that place of stability and security. It’s all about focusing on creating those strong financial foundations, emotionally as well as practically.
Here’s an exercise you can do around this. Once again, grab your pen and paper. And this time you’ll also need either your bank app or paper statement. If this makes you nervous, just focus on your latest statement. If you’re raring to go and want to get stuck in, then the advanced version of this take is to focus on the last 3 months.
This task isn’t about judging your past decisions or feeling guilt or shame for past mistakes. We’ve all made mistakes with money! This is simply about bringing awareness to your money leaks and looking at your spending habits.
Look at your statements and identify one area of over spending.
This could be Amazon, books, or food for example. In fact, food is the most common one I see! So one thing you can do is here is to identify that area of over spending, and decide to cut it down. For example, you might decide that this week or month you’re going to shave £20 from your food spend. You then need to decide where you are going to redirect that money to. If you don’t redirect it, you’re not actually saving any money.
Perhaps you’re working on paying off debt or building an emergency fund – redirect that £20 per week towards those debts or into that emergency pot.
If you’re feeling more advanced, then look back over 3 months of statements, and as well as identifying an area of over spend, spend some time categorising your spending and then reviewing each of these categories. Are these spends that are necessary, or bringing you joy and happiness? If not then they are likely money leaks and need to be plugged.
Tip 3 – What is the direction of your sail?
In order to manage money, you need to understand how much money you need to have available in order to create stability, safety, and enjoyment.
Expected expense are easier to manage, because you know what they are going to be every month. If you sit down and work it out, you know exactly how much all of your direct debits are each month.
But it’s the sneaky variable expenses that cause us the most financial stress! So it’s important that we start to think about giving every £1 a purpose. Imagine that money, or that every £1, is an employee, and you have to give each employee a job or role.
It’s time to grab your pen and paper again!
Divide your paper into two halves, one headed ‘expected costs’ and one ‘unexpected costs’.
In each half draw some circles. These circles will be your ‘pots’ – give yourself one pot for every expected cost. These could be your mortgage, food, or petrol (for example), and fill all of those in on the first half. Then move over to unexpected costs, and think of all the types of variable expenses that crop up, and give each one a pot. For example car expenses, birthdays, dentistry, and Christmas. Some of these are expected costs, but they’re variable.
You can even give each pot a goal amount that you think you’ll likely need throughout the year. You may not have enough money to fill all of these pots from day one, and that’s okay. Getting started is actually more important than filling those pots on day one.
Tip 4 – Where are you heading?
Having no intentions with money is like having a ship without a rudder.
Again, small steps. So what one intention are you going to focus on with money for the next 30 days?
I want you to think about one short term intention, that you’re going to anchor to an existing daily habit – where are you heading in the next 30 days?
It can be helpful to find an accountability partner for this – it could be a Facebook friend or a bestie. This is one of the things we do in The Money Circle that is super valuable to people. Creating a community and then finding someone at a similar stage or with similar intentions to yourself, and then holding each other accountable.
It’s also really valuable to add this intention or action to your diary, really give it a level of importance and respect that it needs by giving it a slot in your diary and sticking to that.
Make sure you also decide how you’re going to celebrate! When you reach then end of those 30 days, how are you going to celebrate forging your new habit?!
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