How Can You Start to Control Your Money?

Dear Carrie,

I'm 28 and am trying to be smart about my money. My problem is that as soon as I pay down my credit cards, I start running them up again. The result is I can't seem to save and I feel like I'm fighting a losing battle. I know I need to change my attitude about money, but how?

—A Reader

Dear Reader,

First, realize that you're not fighting a losing battle. The very fact that you see the problem and want to do something about it means you're already starting on the solution. And you’re correct that it's a matter of attitude, because money is ultimately very emotional.

Behavioral economists talk a lot about how our psychology affects our money habits and leads us to make irrational decisions—but also how we can change. It starts with feeling in control. If you start now to believe you can make positive changes, you'll not only be able to control your current debt, you'll be able to start saving and investing for the future.

A lot of people your age think they're too young or can't save enough money to invest. But getting started doesn't necessarily require a lot of money. What it requires is a personal commitment to change not only your attitude, but also your behavior. It won't be easy at first, but once you see the results, I believe you'll be motivated to keep going. Here's what I suggest.

Come up with a realistic debt-payment plan

Living off credit cards can be an emotional roller coaster. You pay the bill and feel great. Then you run out of money, so you pull out the cards again, run up more debt and set yourself up for the same disappointment the next time a large bill is due. So come up with a realistic payment plan—one that allows you to pay your debts and still have enough to cover your current needs.

Speaking of which, take a look at your income and expenses. Yes, that means a budget, so get specific. If you create a balance between paying off debt and paying for the things you need (and perhaps a few things you want), you'll be better able to handle both. To help you stay on track, put whatever bills you can on auto-pay.

Take a credit card break

One of the best ways to break a habit of overspending is to make a commitment to cash. That may sound "old school" because so much is done electronically these days, but it's a good exercise to help you feel the impact of your choices.

Most of us know from experience that using a credit card makes it easy to overspend. So instead of reaching for the plastic (or even worse, using a 'buy now, pay later' service), give yourself a set amount of cash each month to cover what you usually spend on discretionary things like meals out, haircuts or entertainment. If you come up short at the end of the month, don't make up the difference with a credit card. Rather, put off that expense until you have the next month's cash allotment. You might even decide you don't need to spend that money after all.

Set some savings goals

Once you have your debt and spending under control, it’s time to set your mind to saving. Put an emergency fund near the top of your list (best to make it a line item on your budget), and keep going until you’ve set aside enough cash to take care of three to six month’s essential expenses (think rent and groceries, not dinners out). 

I completely acknowledge that saving for a potential emergency may not be nearly as motivating as saving for something more tangible. So once you’ve got a nice cushion, you might want to give yourself a well-deserved boost by setting aside money for a specific, personal goal. A new computer? A vacation? It can make it easier to keep saving if your money goes toward something personally significant. Here's a tip: To make it even easier to achieve your goals, set up an automatic monthly deposit from your checking to your savings account.

Put your future in focus

It’s also important to think about your longer-term future. To me, first and foremost, this means retirement. If you have the chance to participate in a 401(k) or similar retirement plan through work, do it at the first possible opportunity and at a minimum contribute enough to capture any company match. The sooner you start, the less you'll eventually have to set aside. No 401(k)? Open an IRA—at your age, a Roth IRA makes a lot of sense—and start your own retirement-savings program.

The beauty of saving in either of these types of retirement accounts is that you'll then have the chance to start to invest. Sometimes there's no minimum deposit at all to open an account. Plus, you don't pay taxes on earnings until you withdraw them—or not at all when you make a qualifying withdrawal from a Roth IRA or Roth 401(k). So over time, you have the potential to really grow your money. And while there's a lot to learn about investing, you could easily get started with a broadly diversified stock mutual fund or exchange traded fund. This way you can increase your knowledge as you increase your savings.

Believe in yourself

None of this will happen overnight—but it won't happen at all unless you believe you can do it. Be realistic and take a systematic approach both to paying down debt and taking control of spending. Focus on your goals and use them as a motivation to save and invest. Take it step by step and realize that each step brings you closer to a more secure financial future. You can do it.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.