In 2015, after a five-year tenure as a fashion editor, I’d racked up around $14,000 in credit card debt, mainly on clothes and socialising. I didn’t have any savings, and I was living hand to mouth, pay cheque to pay cheque. After I disclosed the extent of my ongoing spending problem to my parents, I decided to hand my finances over to them and started what I called the “Pocket Money Savings Plan”. My full salary was deposited into a bank account in my parents’ name; my bills were direct debited and I received $200 a week in ‘pocket money’ to pay for food, transport and entertainment. Here’s how I discovered my inner thrifty saver...
STEP ONE: SEVER CREDIT
Credit was the petrol in my spender’s engine, so I opted out of that ticket to ride. I was not the sort to pay o a credit card at the end of each month, so I no longer have one. The first aim of the Pocket Money Savings Plan was to eradicate debt. I cut up my credit card and allocated an amount every week to erase the debt as quickly as possible. At first, I set aside $200 a week to pay down the credit card. By the end of the first year, I had rid myself of that debt.
STEP TWO: BUDGET
How much can you subsist on? Subsistence is the key. Reduce your life to the basics: food, transport and shelter. Instead of putting aside a set percentage of your salary, make a commitment to live on the essentials. Allocate a little for enjoyment – a glass of wine with friends or a takeaway dinner on a tired Friday night. Some simple pleasures will keep you on track for the long term, but consider removing beer, coffee and dining out twice a week from your budget. Going to the cinema once a week costs $1500 per year.
STEP THREE: PRIORITISE
Ask yourself, what are your non-negotiables when it comes to spending? A gym membership may not be a luxury – for you it might be a necessity. The majority of my pocket money goes towards good groceries, with a little set aside to be social with friends, including two coffees a week.
STEP FOUR: KNOW YOUR WORTH
By limiting access to my money, I was able to pause and consider the reasons why I was overspending, and work on diluting that poison. The root of the problem, for me, was the way buying stuff made me feel. Whenever I felt low, acquiring something I desired was a jolt for my self-esteem. Now that I ration out my daily expenses, I have come to understand that the highest points in my life have been unrelated to material possessions. It sounds stupidly simplistic, but you have to start small to rebuild.
STEP FIVE: FIND A FINANCIAL HERO
The gatekeeper is the account holder into whose name your salary is deposited, and who then rations out your pocket money. The person should be someone who can
be brutally honest with you. Their role is to reinforce your savings goal, question your spending decisions and discuss your finances openly without judgement. They are your voice of reason as you learn to respect and value your salary.
This is an edited extract from How to Buy a Home: From Debt to a Deposit by Emily Power (Penguin Random House, $29.99), out now.