Behavioral Finance Tips to Help You Manage Debt & Save
By staff columnist, Alexandra Deluise
Having a family adds a challenging dynamic to debt payoff strategies: instead of being able to dedicate every waking moment to side jobs, you may now be confronted with sleepless nights, expensive child care, and feelings of guilt at not spending enough time with your children. Not only that, but children start to eat more, outgrow all their clothes, and develop costly interests as they get older. For a solid financial future, it’s important to manage debt and save.
Yet parenthood also brings about a newfound motivation in terms of finances. Your bad decisions regarding debt or savings can now affect someone you love even more than yourself: your children. Getting into financial shape now becomes, perhaps, even more important than before.
If you understand yourself, and set up strategies that make living within your means easier, you’ll improve your financial situation.
Alexandra’s Personal Debt and Saving Story
My husband and I are pretty money-conscious, but I still entered our marriage with substantial student loan debt from my undergraduate degree. Additionally, I took on an extra $15,000 in debt to get a graduate degree in order to pursue the career I wanted. I am now happily situated in a job I love, but the undergraduate loans remain.
Despite attending grad school, working multiple jobs, changing careers, and starting our family, my husband and I have been knocking down student loan debt using behavioral finance concepts and:
- Avoiding new debt
- Being realistic about our budget
- Taking on additional work
Some of the tips below might help you to do the same.
1. Take Your Budget Seriously
Budgets sound like such a drag, but having budget meetings with your spouse or significant other can make a huge difference in your financial situation. Treat your budget like the useful tool it is, and don’t give in to feelings of resentment at having to “limit” yourself. With proper planning, you can still include things you enjoy in your budget.
If you are in a position that awards bonuses quarterly, it’s often a good idea not to factor that money into your budget at all. In fact, if possible, have bonuses put directly into a savings account or applied directly to your debt.
Behavioral finance tip: Schedule a regular family budget meeting and create an agenda.
2. Determine Your Priorities
As I said, it is possible to have fun and enjoy life while living with a budget. The key here is to be realistic with yourself by asking what you can and cannot live without.
For example, it is one thing to say that you don’t care about eating out, and another thing to actually stop doing so. Some people can cut down to the barest of essentials on their way to their financial goals, but for most of us there is at least one thing we cannot possibly give up.
This is not an excuse to spend $200 each week eating out because you are justifying it as a priority. What I really mean is this: do you value your $50/month gym membership, and actively use it? Keep it – the $600/year is worth it to you, as long as you aren’t going into debt for it. However, a sacrifice can be made somewhere else. You might downsize your weekly date night to a monthly (preferable free!) outing, stop buying breakfast on your way to work, or spend more time at home on the weekends to save on gas.
Deciding what “treats” you want to spend money on is akin to treating yourself for reaching financial goals: instead of spending money randomly and without thought because you “deserve it,” you are making intentional decisions about what makes you happy and placing financial value there. After all, if our money is not bringing us joy, what is the purpose of working so hard?
Behavioral finance tip: Write out your spending priorities and rank them. Now you have a spending guideline. Don’t break the bank on low priority items.
3. Be Intentional With Your Side Jobs
It is not enough to cut all of your expenses down to nothing if you are still not making enough money to pay off your debt rapidly. A slow debt payoff means more money spent on interest. In order to counter my student loan debt, I took on extra work freelance writing and scoring standardized tests. The money I make goes into a separate account and I apply everything immediately to my student loans.
The benefit here is twofold: first, with more frequent payments I can hit the loan principal more often. Instead of accruing a full month’s worth of interest, sometimes I make payments with only $2 going to interest and the rest to principal. This makes a difference because it pays down the balance faster and costs me less in the long run.
The second benefit is that because this money is distinctly separate from my main account, it cannot accidentally be used for other things. It ensures that other seemingly important things don’t take priority over my goal for financial freedom.
Make money on the weekends or during naptime to help pay off your debt or fund retirement. You might also try requesting more hours or projects at work to make extra money. If doing more than you already are seems unbearable, remember: this is not reality for the rest of your life, but it will affect the rest of your life.
Behavioral finance tip: Use separate accounts for specific expenses. This will keep you on track with meeting your financial goals.
4. Childcare Hack-Use Resources, Barter, or Improvise
Child care is singlehandedly the biggest hindrance to financial freedom (at least in my opinion). The costs are so astronomical that many people may actually find that staying home is the more financially sound option.
If you will be spending too much money on childcare, you have a few options:
- Use your resources. Family members are often great options for free child care. If you are lucky enough to have family willing to watch your child, if only for a day, take advantage of this.
- Trade childcare services with a friend—you put her children on the bus while she works the early shift, and she spends the afternoon with your children while you’re at work—or even swap odd jobs. Maybe a friend of yours will trade a week of child care for some help cleaning her home, doing some basic car repair, or yard work.
- There are now so many flexible job options available that something is bound to work in your situation. Whether you pick up a nanny job that your own children can come to, work opposite shifts as your significant other, or work from home during nap time, there are many options for parents to work around traditional childcare options.
Behavioral finance tip: Think creatively and set up procedures to cut your biggest expenses-such as childcare.
5. Think About Your Financial Future
The most important tip I want to share today is that you must always keep future you in mind.
What do you want your life to be? This is something I asked myself when changing jobs. Even though the answer cost me a little more in the short-term as I pursued my Masters and changed jobs, it has rewarded me with much more: I am happy and doing what I love.
My husband and I also paid off the $15,000 graduate school loan this year, knocking it down from a lingering $8,000 or so in early spring 2016 to absolutely nothing just a few months later.
It’s never too late to set yourself up for the future you want. Whether you know you need to think about retirement, or you want to be sure your children never have to pay for college, every single financial decision you make today will affect the probability of that future coming to pass.
Behavioral Finance Tip: For the most successful retirement, automate your saving and investing into a 401(k) or IRA account.
Managing Debt and Savings Lessons
In order to manage your debt and save money, remember to stick with a realistic budget that makes allowances for things that you enjoy, take on a side job or extra work to bring in more money, and keep your thoughts on your future. It is possible to reach your financial goals, even with a small family.
Staff columnist Alexandra DeLuise combines her banking experience with real-world financial advice to provide simple money tips to everyday people.