So far this week, I’ve confessed I’m a recovering shopaholic and I’ve outlined signs to recognize if you are a shopaholic. Today, I’ll discuss the steps I followed to control my addiction and get out of debt. Hopefully this will help you too if you are in or heading toward the same situation!
I already recognized the problems: I was in major debt that kept increasing, had no savings outside of my 401k, and kept caving in to my shopping cravings aka “the bug”.
Step 1 in solving was to understand why I had a problem; the underlying reason as to why I had to give in to the bug. Like I said in the first post in the series, I was savvier about shopping because I had limited time and money. That went out the door after I graduated college. With steady income and a credit card, I no longer had as limited time and money. I basically could shop whenever I felt like it. Part of the reason I shopped a lot was because my family didn’t have a lot of the nicer things growing up. I was never under-privileged and my parents pretty much got us what we wanted (not that we wanted extremely expensive things. I always just wanted Barbie’s!), but not without struggle. My parents would dream of driving a Mercedes Benz and my mom always talked about wanting a Gucci purse. I defined success by having those nicer and expensive things without struggle. I came to the realization that all these things weren’t necessarily making me happy and successful, and that I was indeed struggling.
I can’t say I followed this step first in my journey. This was actually the last step I followed in my recovery. However, I think performing this step first may better help you implement and maintain the solution. Do you have a skewed idea of success like I did? Maybe your income doesn’t reflect the lifestyle you grew up having? Maybe you’re trying to fill a void with all the things you buy. What is that void?
Step 2 was to identify goals. Goals coincide with fixing the problems, so mine were to diminish my credit card debt, build an emergency fund, and control my addiction.
Step 3 was to figure out what was wrong with my budget and make adjustments. I already showcased my spending habits in the last post (with beautiful graphics, no?). I broke down my budget percentages with the helpful tool of an excel spreadsheet:
- 60% Living Expenses (Kind of ridiculous, right?)
- 20% Credit Card Payments
- 20% Miscellaneous
What I realized is I needed to break down Miscellaneous further so I had a better grasp of how much I could actually spend for shopping. “Wait, what?” you say. “You’re still going to go shopping?” Well, yes. At the time, I thought I needed to. I concluded that the splurges were the major issue. I don’t like feeling deprived (of shopping and with diets) so if I allowed myself to dedicate a certain amount for shopping then I wouldn’t feel the need to splurge and max out my credit card again. So I adjusted my budget to look more like this:
- 60% Living Expenses
- 17% Credit Card Payments
- 2% Gas
- 3% Savings (Yes! I started to think about this too.)
- 3% Food
- 15% Miscellaneous with the majority dedicated to shopping
You’ll notice that I decreased payments to my credit cards. Remember, I needed to eliminate my splurges and avoid using my credit cards which meant having a greater cash flow. Research shows I should a savings once the debt was eliminated. I budgeted for a savings, but most of the time, it went toward paying out my debts.
I worked out a plan thanks to this Snowball Calculator, which outlines a payment plan with the priority going to the debt with the highest interest rate. I had two credit cards and the one with the highest interest rate was also the one with the greatest balance (another stupidity in my part), so here’s an example of a similar payment plan:
I borrowed money from my parents too, which isn’t demonstrated in the plan or budget percentages above, but the numbers are to give you an example. (In retrospect, I sort of regret borrowing money from them because I still heavily fed to my addiction. I probably would have learned my lesson sooner if I did it on my own.) Besides a mortgage and what I borrowed from my parents, I didn’t have any loans, but if you have student and/or car loans, you could definitely include them when using the calculator to determine a plan for you. Three years can seem like a long time to get out of debt, but know that it is feasible.
Another helpful budgeting tool is Mint.com. I used this to help track spending behavior, but it can also be used for money management, to create goals, and map out a plan.
Step 4 was to STOP USING MY DAMN CREDIT CARDS. I found this fairly easy once I broke down my cash flow spending. Of course, leaving the credit cards at home and away from my wallet also helped. I didn’t cancel my credit cards. I wanted to build my credit score as I only had two cards and didn’t have much of a credit history.
Step 5 was to figure out other ways to control my spending. For one, I stopped being overly generous with gifts and getting the bill. I budget and save for the holidays as early as October. My family now does Secret Santa so we all, in fact, save during the holidays. We also practice “KKB”, which stands for “kanya kanyang bayad” and is tagalog slang for pay for your own meal. Or if we know it’ll be a pricier meal, my siblings and I will split the bill or take turns (now that we all have decent jobs). Along the way, my living situation had changed therefore having less living expenses and more toward paying off my debt.
By the time I got engaged, I was mostly debt free and able to save for my dream wedding!
Do you think these are helpful steps? What would you add or change in solving the issues? What tools do you use?
Tomorrow’s post in this series is maintenance and prevention. It is during this phase that I performed Step 1, so I’ll detail my new point of view in budgeting. Please stay tuned!