Getting Out of Debt (Part 3: Reducing Expenses)

Continued from Getting Out of Debt (Part 2: Developing Your Income)

In the first two installments of this series, I emphasized the simplicity of a proven formula for getting out of debt. The two parts of the formula are: developing income and reducing expenses. It never gets more complicated than that, no matter how complicated we try to make it. When you have a productive mindset for getting out of debt, and you’ve created and begun implementing a practical plan for developing your income, the next step is to focus on reducing your expenses.

I like to separate this step into two categories, the obvious and the subtle. Obvious methods of reducing expenses are just that…obvious. The trouble with anything obvious is that it tends to get taken for granted, ignored, or accepted as self-evident. As human beings, we tend to file the obvious away in the back of our minds, favoring more complicated, elusive, or even magical solutions to our challenges. Every person I’ve ever talked to about reducing expenses knows, for instance, that they should be keeping a watchful eye on their impulse purchases, that they should be brown-bagging it more often and eating out less often, and that they should conserve energy in the home to reduce utility costs. These solutions are all obvious, yet when I ask people whether they consistently do the things they know they “should� do to reduce their expenses, a common veil of shame and embarrassment often descends upon them. Smart, capable people…even those with successful careers in finance, are humbled by their own resistance to doing what they know they need to do.

In my experience, this has more to do with the nature of being human then with any specialized knowledge or ability in the area of personal finance. Human beings resist changes…even positive and constructive ones. That being the case, when it comes to embracing the obvious, the real issue is developing consistent practices or habits that lead to positive change. Out with the old ways, in with the new. The key to developing new spending habits is to create new practices and practice them consistently. New practices take time and dedication to master. Just like children learning to walk or use a toilet, new practices sometimes result in mistakes and messes, but consistency eventually leads to success.

One practice I ask my clients to adopt is to track their monthly expenses on a spreadsheet. I’ve used this practice myself with success, and I posted the spreadsheet I like to use on the templates and tools page at vervecoaching.com. When adopting new practices, simple is best. I’ve used Quicken and MS Money to manage my personal finances, but I found that for my purposes, those programs offered far more information and capability than I needed. The spreadsheet is a simple display of regular monthly expenses, payment due dates, payment types, account balances, expected income, and extremely limited (and easy) budgeting. What it provides is a complete picture of monthly income and expenses at a glance, and a structure for managing accounts and payments. I have my clients start by spending an hour a week maintaining this spreadsheet. The idea behind this practice is that over time, it creates a basic but complete awareness of their financial situation, and a compelling desire to improve it, which in turn inspires new actions and new practices that result in better financial management and more a more consistent effort to reduce expenses.

Listed below are some other practices that support some of the more obvious methods of reducing expenses…

Practice for controlling impulse purchasing:

Wherever it is that you find yourself indulging in reasonless, irresponsible, impulse spending, be it the grocery store, the auto parts store, or the jewelry shop; ask a friend to go there with you. On the way, stop at an ATM and withdraw a good chunk of cash. $500 should work nicely. Your friend’s job is to make absolutely sure that you spend nothing, and deposit all of the money back in the bank when you leave the store. Your job is to walk up and down the aisles of the store, with all of that cash burning in your pocket, and buy absolutely nothing. Then go directly back to the bank and deposit your $500. Repeat these steps at least twice a week. I know it sounds silly, but our brains work in mysterious ways. For some reason, re-creating this experience seems to help some people realize on a subconscious level that they’re in control of their spending, and that they have the mental fortitude to make responsible decisions and resist impulse purchases.

Practice for saving money on food:

If you’re someone who eats out every day, or even several times a day, try easing your way into the idea of buying groceries and cooking your own food. One way to do this is to make a commitment to prepare at least one meal a day. When you can handle that, try two meals/day, and then three. Practice buying the groceries you need ahead of time, and setting aside the time each day to cook or prepare food for yourself. This practice is particularly effective if you can get a good friend to hold you accountable for your commitment. The simple act of checking in with your friend on a regular basis will encourage you to do the right thing.

For coaching on creating or implementing new practices for reducing your expenses, please visit Doctor Dot-Connector, or consider hiring me as your coach.

This series is continued in Getting out of Debt (Part 3.5)

getting out of debt

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