How to Shake Yourself Out of a Financial Rut
If you find yourself facing financial problems or feeling like you’re in a rut, here’s how to reevaluate and get back on track.
January 13, 2022
Many people face financial problems and challenges — from too much debt to a lack of savings to simply not making enough money to pay the bills.
And, even if you think your finances are mostly on track, it can still feel like you’re stuck in a financial rut. You’re moving, but you’re not really moving forward.
Perhaps you’re paying all your bills, but unable to set anything aside for retirement or other financial goals.
Or maybe you’re making monthly payments on your debt, but it’s barely enough to keep up with the interest expense.
It could be that things are going smoothly — until a major car repair or medical bill throws you off track.
If you can relate to any of the above scenarios, you could be in a financial rut.
Here’s a step-by-step guide to shaking yourself out of a rut and facing your financial problems head-on.
Think about your values and priorities in life
Many of us understand that we should be saving for retirement, paying more towards our debts and spending less money on unnecessary “stuff.” But if we don’t get clear on the “why” behind our financial goals, it can be difficult to actually stick to these strategies.
A particularly powerful way to confront financial problems is to think about your true priorities and values in life. Then, use the information to shape your finances and spending patterns.
Must have fine dining, learning how to cook at home (and investing in high-quality ingredients) can fulfill that need, for much less money than going out to restaurants.
Want to retire early, you’ll need to aggressively save and invest money, while lowering your expenses wherever possible. Some sacrifices may be necessary.
Have children and want to prioritize their financial wellbeing, you may need to cut back on splurges for yourself.
By asking yourself the tough questions about your values and life goals, you can zoom out to get a big-picture view of your life. This can be a powerful way to reshape your future goals, financial challenges and priorities.
Start tracking your expenses
Many people don’t really know where their money is going each month.
Sure, they know they pay $1,250 for rent, $275 for a car payment, $70 for internet, etc. — but their variable expenses can be difficult to track.
For instance, do you know how much you spend on groceries each month? Restaurants? Activities and drinks out? Spending in these categories changes every month.
When you start to track your expenditures, you can gain valuable insights into where your money is going. And often, people find they’re spending more on small everyday expenses than they thought.
This information can help you make informed decisions about how to spend and save. For instance, if you figure out you’re spending $400 on restaurants and takeout every month, it would be pretty easy to trim 25% off that expense in the future — saving you $100 a month.
How to track expenses
So, how do you track your spending?
There are two ways:
Manually: By writing down your purchases or using a spreadsheet. You can do this daily or about once a week.
Automatically: By using a tool like Mint.com or GoodBudget.com. These tools allow you to link your credit and debit cards, and each transaction is automatically tracked and categorized.
Use spending data to start budgeting
Once you have a month or two of data on where your money is going, it can be very helpful to make a budget.
A budget allows you to prioritize where you’re spending your money, and can also help reduce financial anxiety.
You know how much you’re bringing in each month from your paychecks; now it’s time to decide exactly where you want that money to go each month.
Many financial advisors recommend starting with mandatory expenses — like rent/mortgage, healthcare, utilities, groceries, etc. — before budgeting for optional categories like restaurants and clothing.
There are a few different approaches when it comes to budgeting — find the one that works well for your financial situation here.
Consider using cash
Many of us reach for our debit or credit card whenever it’s time to pay for something. But using cash has a different psychological effect.
A recent study found that shoppers spent up to 83% more when paying by credit card instead of cash. In other words, you may be almost twice as willing to spend money when you reach for a credit card, rather than using cash.
When you physically hand cash to someone, you’ll notice it more than if you simply swipe your credit card.
Plus, if you commit to using only cash for a period of time, it’s impossible to spend beyond your means. With a credit card, you can spend far more money than you actually have, possibly creating long-term debt. With cash, this simply isn’t an option.
Tackle small debts first (debt snowball method)
Debt is one of the most common financial problems for Americans. Around 54% of us have credit card debt, and that figure rises to over 80% if you include debt like mortgages.
If debt is one of the financial problems you’re trying to address, consider using the “debt snowball method.”
This method asks you to pay off your smallest debts first. For instance, if you have three credit cards with balances of $500, $2,100 and $950, and a student loan balance of $6,000, the snowball method would have you aggressively pay off the $500 balance first (while paying the minimum payments for the other debts).
The idea behind this is to provide a psychological win in completely paying off that card. This builds momentum, which can potentially make it easier to pay off other debts.
Don’t be afraid of the occasional splurge
The majority of personal finance advice tells you to avoid the pricey latte, the drinks out with friends or the fancy restaurant meal. And a lot of the time, we agree.
However, life is about more than financial progress — it’s important to enjoy yourself along the way.
Focus on keeping your spending in check the majority of the time, but don’t be afraid of rewarding yourself every now and then. Just be sure to spend intentionally, and truly enjoy what you’re splurging on!
If paying off debt is on your financial to-do list, take a look at Tally†. Tally is a debt payoff app that may help qualifying Americans get out of credit card debt faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.