How to stop spending

I once knew this guy – let’s call him Rich - that seriously liked to party. We’re talking Dom Perignon and Belvedere…but by the bottle. He was moving in circles with people so incredibly wealthy, they wouldn’t even bat an eyelid at a £2-3K night out. This guy was different to them. He didn’t have the 6 figure salary and millionaire mansion on Brompton Square. He had credit cards. Lots and lots of credit cards. He was stuck in a vicious cycle of nights out, desperately trying to keep up with the Joneses and an eye-watering credit card debt. Now Rich knew my background and so came to me looking for some help to sort out the mess he’d got himself into. By the time he came to me, he had amassed just over £50,000 of credit card debt and he really needed help. He’d been sucked into a Spend Circle and was really struggling financially. We’ll come back to Rich’s situation shortly, but first….

Your Spend Circle is defined as the spend of the people that hang out in the same group as you. More often than not, people have a tendency to hang out in groups with others of a similar wealth and stature in society. You see this type of social behaviour in countries like the United Kingdom, or the United States, where money and materialism are a major influencer of your place in society. You see people gravitating towards one another simply because of the material things they own. The problem lies when you find yourself in a spend circle you simply can’t afford to be in and then, the money problems begin. Just like Rich, you find yourself trying harder to fit in.

Have you ever found yourself doing something just because you didn’t want to feel alienated or left out of a group? Think back to your school days, it was all about having the latest trainers, clothes or mobile phone to try and fit in with the ‘in crowd’. For many people, this way of life continues to haunt them, but it just gets bigger; the new Range Rover, a 4-bedroom house next to the best schools in town, crazy expensive midweek meals with friends that are way out of your budget. The desire to fit in pushes people to struggle with debt they simply cannot afford.

The truth is many people, at some point in their life may find themselves in a Spend Circle that feels like it is out of their control, with a risk of financial difficulty looming over them. However, there is always a way to take back control.

Don’t fall foul of the temptation to surround yourself with people who have all the things you wish you had. This isn’t healthy for you, or your bank account. Remove yourself from situations where you hear yourself saying, "sorry that's too expensive" or "I can't afford it" but couldn’t bear to say it to those in your Spend Circle. You want the people in your Spend Circle to accept your spend limit, or even better have the same spending limit as you. If that’s not the case, leave and leave quickly, find a Spend Circle that is comfortable for you.

With the launch of easy pay systems like ApplePay, we’re moving rapidly into a world where cash is no longer number one. Cash should be your friend. Think about it, if you take £200 cash out and leave your card at home, you are suddenly more aware of what you have available to spend and very conscious of the way in which you choose to spend that money. With a card, it almost feels limitless, you’re effectively carrying around your entire bank account. Let’s say your bank account has £2,000 or dollars in it. Now imagine that’s cash in your pocket. Even worse, you have a credit card with a £5,000 credit limit, imagine that as cash in your pocket. The fact is, that isn’t even your money

When I think back, I remember my grandparents and parents always worked with cash. Whenever my dad went to do the shopping, he would have the amount he wanted to spend, in cash, and he would take exactly that amount with him. In fact, I never once saw him use an ATM or a cash machine, he would go specifically into the bank and withdraw the cash. He never had a single credit card.

If keeping your spending in check is a struggle, try to limit yourself to only use your debit card to withdraw cash, and avoid carrying it to make transactions. A great tip is to calculate what you have left after all your automatic payments have been taken. Things like your council tax, water, gas or electric and take the rest out in cash. Just seeing the cash you have available brings about a reality that tapping a contactless card does not achieve.

If you are used to relying on credit, this is might feel hard, but cancelling your credit cards and other credit facilities may be the only route to take control of your finances. If possible, don’t leave any source of temptation. Remember, no credit facilities mean you can only spend what you have.

This is a rip the band aid off, cold turkey moment, with the aim to help fix your finances.

Unfortunately, we live in a world where the credit system generally requires you to have a history of borrowing before you can obtain secured borrowing for something like a mortgage.

Get yourself into a comfortable position where you are owning your spending, and it doesn’t own you. Once you are here and mentally in charge, allow yourself a credit facility to build up your credit rating for "good debt", like a mortgage.

The final tip is to make sure you always have a savings or investment outlet for your money. Some people spend money because it is just sat there, burning a hole in their bank account. The truth is, your money should be working for you at all times and there will be times where you’re not sure how you want that money to work for you. This is when savings come into play.

You need a suitable home to park your money until you have a job for it, like an ISA or a savings account. As a rule of thumb, the day before you get paid, you should be left with no money in your day to day or current account. Move any excess money to either a savings account or an investment.

Personally, if I didn't know what to do with my money, I would either put it towards buying a house, or put it in a low-risk mutual fund that tracks U.S. S & P 500, and leave it there until I had a specific use for it. This decision depends on you, your circumstances, and the excess cash.
However, the principle remains the same, programme your mind to get into a routine of saving and investing, you will appreciate this tip when significant changes happen in your life which require an injection of cash.

Now if we go back to Rich. I agreed to help him with a warning that he would lose access to his Credit Cards and credit facilities. Unfortunately, he couldn’t give up his lifestyle, he just couldn’t bear to lose it. Instead, he pays a portion of his staggering debt off every month, freeing up space to keep up the charade with underlying stress, trapped in the wrong Spend Circle.

He’s not a bad guy and he’s definitely not alone. If he could be honest with himself and let go, there is a solvable situation with a debt free brighter future waiting just around the corner.