April is National Financial Literacy Month. To mark the occasion, MarketWatch will publish a series of “Financial Fitness” articles to help readers improve their fiscal health, and offer advice on how to save, invest and spend their money wisely. Read more here.
After Allison Baggerly got married and found herself pregnant soon after with her first child, she realized that along with her husband, the couple had over $111,000 in debt, mostly in student loans and car loans.
The Houston-based couple, who were both teachers, had debt payments of over $1,400 a month — excluding their mortgage. They sat down to have their first conversation about money because they realized that daycare expenses would soon blow up that cost.
Four and a half years later, they managed to pay it off on their teacher salary, and added one more addition to the family.
“I couldn’t afford to stay at home, and during that process, budgeting became very freeing for me,” Baggerly, a former elementary school teacher, told MarketWatch. She has since become a personal-finance influencer and wrote a book called “Money Made Easy,” published April 4.
“I still struggle with impulse spending — I’m not going to lie,” she added. But she’s seen built up a wide array of coping mechanisms.
“Digital wallets and currency blend all types of spending, from paying business expenses to daycare fees and restaurant bills. It has made budgeting and saving a lot trickier.”
She is one of many Americans who have found themselves in similar dire circumstances. In a forgotten era, budgeters used to portion cash in envelopes as “mad money” to spend on whatever their hearts desired.
Today, that habit has disappeared as digital wallets and currency blend all types of spending, from paying business expenses to daycare fees and restaurant bills.
With the rising cost of living and rising interest rates making budgets tighter for many families, what can people do to rein in their spending? MarketWatch asked three personal-finance experts.
From forcefully tackling bad habits to letting your head and not your heart direct you, they shared strategies that have helped them and their clients.
Do you have red lines or boundaries that can’t be crossed?
The biggest strategy that really made a difference in her spending, Baggerly said, was adding boundaries, and in particular, friction. In other words, making it artificially harder to click through and purchase items.
Many websites and companies try to optimize and make online shopping as frictionless as possible. But adding layers of friction can slow down your pace of spending, Baggerly said.
Particularly during festive periods, like the holidays, spending can be seductive. “I crave spending money” during these periods, Baggerly said, “because I have saved up this money all year long and I get to spend it.” Recognizing that craving and then adding an artificial hurdle of forcing herself to check in and get the greenlight from her partner helps her get out of that spiral, she said.
“I tell my partner, I will not spend on this credit card unless we agree to spend it,” she said. “For me, having that accountability and that very clear boundary in place removes the temptation for me.”
Other tactics can include placing items in an online shopping cart and waiting a period of time before going back in to check out. Or saving items for later on Amazon and waiting a week before checking out.
While buying items one-off can be easy and look like small purchases, having them all added up in one basket can show one the total impact of their spending.
Is spending truly making you happy?
Our society sets us up to access credit relatively easily, from student loans to credit cards. Not to mention the fact that “spending feels good,” Lindsay Bryan-Podvin, a financial therapist based in Ann Arbor, Mich., told MarketWatch. Her work involves blending mental health and money.
Spending releases chemicals in the brain that feel good, she explained. “We get a chemical hit of things like not just dopamine, but also endorphins, serotonin and oxytocin, things that we all need and we all crave — and shopping is a really great predictable way to get those types of chemical needs met,” she explained.
But examine your spending closely: Are you spending on something meaningless that gives you short-term pleasure, or can you focus on something that keeps you happy for longer?
Tom Shepard, who runs his own financial-planning firm from Maine, said that after a big splurge, some of his clients feel a sense of guilt.
“It’s like a high-low kind of experience,” Shepard said. Shepard is also an author of “Money Isn’t Everything, Everything is Money,” which will be launched on April 24.
He recalled a female client in Manhattan who worked in retail and spent too much money on shoes. After analyzing her budget, her income, savings, and investments, he found that she wasn’t exactly overspending on shoes — she just felt like she was.
“So we gave her permission to spend more money on the things she really wanted to spend money on,” Shepard said. The client went on a vacation, did a spa treatment, joined a gym and hired a personal trainer — instead of spending it all on shoes.
“‘I was trying to spend money to create a beautiful home so he felt at home, but what he needed was time with me, and for me to listen openly to his fears and frustrations.’”
“After six months, she wasn’t spending any money on shoes because she was spending it on the things that brought better feelings into her life instead of this habit of retail therapy,” Shepard said.
Baggerly had a similar experience, where she described overspending after moving into a new home several years ago.
“I mean, Amazon
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boxes were arriving in our house every other day,” she recalled. Hitting the mental brakes on her behavior, she realized she was spending money to make the house more welcoming and cozy for her elder son since he had to move schools and was having trouble adjusting.
“I was trying to spend money to create a beautiful home so he felt at home,” she said, “but what he needed was time with me, and for me to listen openly to his fears and frustrations.”
But at the same time, don’t approach cutting off your expenses with the same zeal that some people have towards starting a major diet. Be intention and gradual, Bryan-Podvin said, so it’s sustainable.
People may end up saying they will never eat out, but when a friend says they want to celebrate something with them, that “diet” dam breaks and they fall into thinking they are bad at money, Bryan-Podvin said.
“Give yourself the space to go out to dinner once or twice a week, and that is far more sustainable,” she added.
Do you know your hidden bad habits?
Examine your financial behavior, and see if you spot any bad habits. Rope in your significant other, or a friend, to help you see your blind spots.
Even though some people have flawless credit scores and hefty savings and investments, some have strange habits with money that may end up hurting them down the line.
“‘Mr. $500’ started out as a college student spending his entire $500 credit limit, but later in life he ended up spending his credit limit, now $50,000, on his credit card.”
Consider “Mr. $500,” one of Shepard’s clients. When this man was in college, his first credit card had a $500 limit. But unlike what people with healthy credit habits do, he spent it all — and then paid it back in full.
That credit limit kept rising and he kept the same habit of spending to the maximum limit. Shepard met him when he was spending $50,000 and, yes, paying it off.
“That’s the pattern that you have now created in your life, is this reward system where you experience the value of money and attach it to paying off credit-card debt,” Shepard recalled telling him.
“The next thing I’m worried about is your next credit fiasco is going to be $500,000,” he added. He worked with the man to push him to invest money instead of engaging in a “binge-and-purge approach.”
What exactly are you paying off?
Focus on cutting back on your biggest expenses first, Bryan-Podvin said. If it’s possible to negotiate your rent down, then push your landlord for that. Or work on trying to reducing the interest rate on your auto loan.
If negotiating with your landlord is off the table, then go back and examine your outflows. “You have to get pretty ruthless about cutting back on other areas,” Bryan-Podvin said.
For others who have their expenses worked out, try to understand your goal. Is paying off your 2% mortgage rate more important than saving $0 towards your retirement?
“Financial planner Tom Shepard said that one of his clients had been so focused on working two jobs to pay off his mortgage with a rate of 2.5% that he did not contribute to his retirement. ”
Shepard said that one of his clients had been so laser-focused on working two jobs to pay off his mortgage with a rate of 2.5% that he did not contribute to his retirement account.
Another psychological tip: Change their background on your phone and computer to reflect your goals, Bryan-Podvin said.
For instance, if a person is planning a big spend on an expensive handbag, use that photo as the background on your iPhone as inspiration. The fact that you keep seeing it whenever you look at your phone it’s a big in-your-face reminder of your financial goals.
Does that sound odd? Maybe, but keep in mind that we check our phones an average of 352 times a day, a report from cellphone insurance company Asurion said in 2022.
Are you a victim of false altruism?
Be mindful of when you’re being too mindful, Bryan-Podvin said.
While some people may be motivated to spend because the brand they’re buying offers a sustainability goal — such as donating a pair of shoes or sunglasses to someone in poverty — try to see if you really need that item.
Sometimes items that are sustainable carry a hefty price tag. Younger generations are particularly susceptible to this issue, Bryan-Podvin said.
“They’re much more likely to buy the bottle of water that also gets a bottle of water to a person in need, which can be great, but it also can lead to a kind of false altruism,” she explained.
Put bluntly: “You’re consuming a lot of goods thinking you’re doing good in the world,” Bryan-Podvin added. Donating to a local charity may be more effective and be a healthier way of managing your cashflow.
And for some younger consumers, watching consumer-oriented videos on social media can also fuel bad spending habits, she said. “Those tend to be pretty popular, and now you can just shop through the tap of a button.”
Do you have a ‘fun money’ fund?
About those envelopes full of cash: They can be useful, if they’re used for a specific purpose. In fact, Bryan-Podvin has a bank account that serves as a fund she can tap on for fun like facials or treatments.
Similarly, Baggerly said she has multiple “sinking funds” for travel, children’s clothes, and more. She contributes regularly to these funds, and amps it up when she anticipates big expenses, such as when her kids are going back to school.
She also has wish lists, much like a registry, for her and her children, for special occasions. “When it comes to birthday time I can send that out to grandparents or family members, and then they feel like they are actually buying them something that they want, which is also nice,” she said.
The takeaway: cutting back on your spending can bring out your ruthless side, but being strategic about your spending — and rewarding yourself — can also be fun.
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