Millennials must use COVID as an opportunity to prepare for their future: Financial planner
Holiday spending always gets the best of me. The gifts, the food, the Christmas tree and decorations -- sandwiched between two monthly rent payments -- siphon money from my bank account. Every year I feel the sticker shock, briefly tuck my tail between my legs, then carry on like it never happened.
But this year I'm trying something different. I'm committing to a no-spend January. That means I'm freezing spending on unnecessary purchases this month to build my savings back up. Goodbye, mindless Target-app browsing. See you later, desserts.
I'm not the only one to emerge from the holiday season in less-than-ideal financial shape. More than half of 2019 holiday shoppers (55%) took on credit card debt, according to NerdWallet's 2020 Holiday Shopping Report.
If you're looking to shed holiday debt, boost your savings or simply manage your money better, a spending freeze can get you on track. Here's how to embark on (and stick to) a no-spend month.
A "no-spend month" sounds strict, but there are no hard-and-fast rules. Obviously, it's about reducing spending. But resolving to spend no money whatsoever is unrealistic. There's no need to take it to an extreme, especially during a pandemic when many of us have already scaled back our spending.
Everyone has expenses they can't go without, like groceries and electricity. You get to decide which categories are untouchable and which ones to cut.
Start by defining your discretionary expenses, known as "wants." For many of us, those include restaurant dinners, alcohol or frivolous online shopping. Leo Marte, a certified financial planner based in Huntersville, North Carolina, suggests using a budgeting app to easily identify your nonessential spending categories. Then, pick which ones to pause.
Next, choose a time frame. A no-spend challenge can last a full calendar month, 30 days, four weeks or whatever period you prefer. Some people schedule a "Frugal February" because it's the shortest month. If that still seems too long, start with a week and see how it goes.
KNOW YOUR MOTIVATION
Before diving into a no-spend month, really think about what you're trying to achieve, says Kristin Larsen, who runs the blog Believe in a Budget. Are you planning to pay down holiday debt or student loans? Do you want to start an emergency fund or save for a trip?
"If you're just doing a no-spend month because it's fashionable or because you thought it was a nice idea and somebody shared it with you on social media, you're not going to stick with it," Marte says.
Attaching a specific goal can create a stronger emotional connection and inspire you to carry on.
FIND A SUPPORT SYSTEM
A no-spend challenge can feel daunting if you go it alone. Telling family and friends about it -- or better yet, encouraging them to join -- gives you a "built-in accountability system," Marte says. Your squad can provide crucial tips, reassurance or even constructive criticism when you need it.
Making your journey public on social media networks or other online forums takes accountability one step further. It shines a spotlight on successes and failures, which is exactly what some people need to stay the course.
"Maybe every time you make a meal at home and don't go out to a restaurant, you post it on Instagram. And your tribe gets excited and gives you those kudos and that recognition you need to stick it out," Marte says.
When Larsen goes through a no-spend period, she looks for no-cost resources to fill the void. She downloads free audiobooks through her library to get her entertainment fix. Instead of grabbing food to go, she uses a website that suggests recipes based on ingredients she already has in her pantry. (Try SuperCook or MyFridgeFood.)
Many expenses have free alternatives. See what clever workarounds you can come up with.
BUILD IN A BUFFER FOR CHEAT DAYS
Mistakes and surprises happen. Planning for them will help you avoid feeling shame or throwing in the towel.
"You could decide, `I'm not going to eat out at any restaurants this month, but I'm going to put in the budget for a takeout night in case we have a bad day at work and don't want to cook,"' Marte says.
It's also OK to set aside a little reward money in your budget for when things go well. But it's important to set limits in advance so you don't go overboard.
"If you're earning money or you have some money to spend, you should be able to enjoy it," Larsen says. "But I think there's definitely a difference between binging or splurging versus treating yourself."
Creating a "cheat day fund" rather than scheduling a specific day of the month to spend willy-nilly can curb a major setback.
It's up to you to decide whether you want to return to your regular spending habits when the month is up. If a spending freeze works well, try to keep the momentum going.
I'm ready to crush it. Are you?
This column was provided to The Associated Press by the personal finance website NerdWallet.