The 5 Phases of Overspending

by Marian Nguyen, RN, BSN | Jan 24, 2020 | Family and Life Skills, Money Management, Money Skills

If you’re reading this, I’m guessing you fall into one of two categories. Either you’re on top of your finances but you’re a little curious to learn more about the five phases of overspending or you know you have some spending issues and you want to figure out where you fall within these five phases. 

If you want to get ahead of your finances, you absolutely need to be aware of these 5 phases of overspending. It’s crucial that understand the impact that moving through these phases will have on you and your family if you aren’t on top of it.

I modeled my 5 phases of overspending to the 5 stages of grieving.

They are:

1. Denial
2. Frustration
3. Bargaining
4. Depression
5. Acceptance

Let’s break it down and jump into each of these phases one-by-one.

Denial

Those who are in denial think, “If there’s money in the bank, spend it.” The denial phase is full of over spenders. If you are an over spender, it’s time to take a hard look at yourself in the mirror. You may be in denial.

People in this phase don’t have a care in the world about what they spend. They spend like crazy with no limits or worry. The denial phase is characterized by a buy now and deal with it later mentality. 

If you’re in this phase – you need to wake up! This is the worst place you could be. 

Frustration

Eventually, you get to the point where living paycheck-to-paycheck no longer works. There are bills to pay but you don’t have the money to pay them. You’re 2 days away from payday but you have a bill due now. So, you need to go to a check advancing place or you need to borrow money from friends and family. 

This is frustrating. It’s frustrating because you don’t have the money in your bank account but you know it’s coming.

You may cycle through the denial and frustration phases for a while because once you get the money and pay the bill, you will move right back into the denial phase. Something needs to give.

Bargaining

Here, you know you have cycled through denial and frustration for a while. Then payday comes around. Now you’re bargaining with yourself. You know you should pay back the money you owe or pay down your credit card debt, but you convince yourself that you need to spend the money on something. You convince yourself that you’ll pay everyone back with your next paycheck. You have the money and you really want to treat yourself so you do. You tell yourself it’s okay to spend the money because you have it. You can always pay off your debts later. 

Depression

After all of the denial, frustration, and bargaining, you’ve spent too many nights lying awake reflecting on your life and why your accounts are empty at the end of the month. The constant cycle has put a strain on your relationships because you are always fighting over money. You’re going to work to earn money but you aren’t happy. It isn’t paying enough.

This endless cycle continues every month and you ultimately start feeling the stress. You start feeling sad, helpless, and depressed about your financial situation and it starts to bleed into other areas of your life. This is not where you ever pictured you’d be and you hate the way it feels. 

Acceptance

Finally, you get to the acceptance phase. You accept the fact that you have money issues, that you need help and that you are ready to do something about it. You’re sick and tired of being frustrated and depressed about your money situation. You finally get to a point where you’re fed up with living paycheck-to-paycheck, having no money and/or being in debt. You’re now ready to make some drastic changes to get yourself out of the mess you’ve made. 

This is when you really begin to turn your life around. Stop living paycheck-to-paycheck. Pay off debt. End the constant rat race. 

For our family, it took hitting this stage to finally decide to take action to eliminate our debt through research and seeking help.

Be real with yourself and accept where you are at right now so that you can do something about it. If you’ve reached the acceptance stage and you’re ready to take action, check out our Free Family Monthly Action Plan. This Monthly Budgeting Action Plan, offers step-by-step instructions to guide you through the exact steps you need to take to set up your own family budgeting plan. 

Cash Envelopes vs. Digital Budgeting. Which is Right for You?

by Marian Nguyen, RN, BSN | Jan 18, 2020 | Family and Life Skills, Money Management, Money Skills

As moms and parents, there are so many decisions to make every day and if one of your New Year’s resolutions is budgeting, the question, cash envelopes vs digital budgeting, which will work better for you? Do you do better with a DIY approach to budgeting or should you seek technological assistance? 

So many choices, so many decisions, but at the end of the day you need to pick what works for you. Some people need to see the money and feel it, in order to truly understand its value.  Others just like the convenience of not having the cash physically in their hands, but having it conveniently located in the cloud or in apps that are more conducive to their busy lifestyle.

Compare Cash Envelopes vs Digital Budgeting:

Finance software can be convenient if the app or program lets you automate savings, or access and update your information on the go. If it doesn’t automatically input and categorize your purchases or it’s hard to use, it might not add much value.

For some, pen and paper is best or a chart method that you can keep on your refrigerator. Let’s face it, some of us do come from a generation when computers were not the norm and apps didn’t exist yet.  It has actually been proven that writing things down can help you retain information and feel connected to your budget. If you’re just not comfortable with the concept of linking your bank accounts to an electronic budgeting service, a physical method can save you worry, too.

The Pros of the Cash Envelope System:

1. It works! It can really keep you on track, because you are physically holding the money in your hands every day and keeping it in the envelopes. Sometimes touching and feeling the money, makes us feel it’s worth more than when it’s somewhere online or in the cloud.
2. This cash envelope system truly forces us to be disciplined
3. You will not have overdraft charges. We know how easy it is to overdraw your account, if some additional automatic payments go through that you were not expecting. 

The Cons of the Cash Envelope System:

1. You need to carry a lot of cash. The traditional envelope system requires that you use cash most of the time for any additional purchases beyond paying bills online or with checks. If you’re forgetful this could be a potential problem when you want to buy your child an ice-cream cone or you need gas in your car.
2. Envelope budgeting requires that you stick to a very strict budget with a small grocery budget and clothing budget. If you have a Type A personality this works great, but otherwise it can be really stressful.
3. If you eliminate credit cards, you are unable to take advantage of credit card rewards. If you are the type of person who can be in control and not overspend, then credit cards have tremendous reward benefits like cash back and extra gas money.
4. Sticking with different categories can be really hard. For instance, if you go to Target and your kids want to buy their weekly gift from their allowance money, but you also saw a coffee maker you need or a new shirt, then all of these purchases fall into different categories. You have to use different envelopes for each transaction, and this could be really frustrating not only to you but everyone else waiting in the line behind you.
5. Using cash for envelope budgeting also increases the chance that you might accidentally lose money. 

For some of us, the cash system is outdated in a tech-savvy world filled with apps, credit cards, online spending and other tech-driven budgeting tools.

The Pros of the Digital Budgeting System:

1. There are a variety of different apps at your disposal, that you can conveniently download to your phone or access online to keep track of your spending. A popular app to try is Mint, which is one of the oldest and best-known budgeting apps. YNAB and Every Dollar are other helpful tools to build your budget based on your income and gives every dollar a job within your budget.
2. You don’t have to worry about losing cash on hand, if you tend to be forgetful or disorganized.
3. There is no need to write down balances or manually track your spending, because it is all done for you automatically within the apps.
4. If you’re self-employed, digital budgeting software allows you to print off category lists of expenses that you can hand over to your accountant at tax time (this will make you a CPA’s dream client.)

The Cons of the Digital Budgeting System:

1. Technology can be our best friend, and at times our worst enemy. If the app suddenly freezes, you lose your phone, or you drop your phone in a puddle and it no longer works, your digital budgeting strategy is thrown out the window. You will have to remember to write down the things you couldn’t update within your app, and remember to update it later in the digital budgeting app of your choice. You have to create positive habits to update your apps, so everything is current.
2. Many people have concerns over the security level of apps and programs that integrate with our bank accounts, even though most of these programs use high-level security encrypting. A security breach is always a possibility, which could put your information at risk.
3. As most of us know our virtual money, makes us less-inclined to see the real value of our money when it is being virtually withdrawn from our bank accounts for bills and other purchases. It makes it easier for us to buy an item online just by clicking a button, instead of actually counting out the cash and handing it over to make our purchase. We tend to spend less on frivolous items if we are seeing the actual transfer of cash.

There are advantages & disadvantages to both methods, so you have to decide what’s right for you. Unfortunately we’re not all fortune tellers by trade, and it’s hard to predict what may or may not happen when it comes to money management. We are now living in a digital age whether we like it or not. That’s not to say we can’t go back to tried and true methods that worked for generations before us…after all, Warren Buffet was a product of a former generation and learned to budget pretty nicely.

Decide what works best for you – cash envelopes vs digital budgeting. It’s your money, your budget, and your call. No matter the method you choose, the real goal is to save money and teach your family how to do the same by making you more prepared before you spend your hard-earned money.