Money + Lifestyle Part II: Curbing Unhealthy Money Habits

About the Episode

In part II of our Money + Lifestyle mini series, Cristina and Will interview returning guest Karina from Addition Financial and first-time participant Dr. Elliott Jaffa, a behavioral psychologist. They cover how to address those hard to shake unhealthy financial habits, like impulse purchases and lifestyle inflation. Learn strategies on how to identify any financial “don’ts” and how to turn them into “do’s” on this episode of Making it Count!

6:45

Cristina asks Question 1: “Dr. Jaffa, what are some signs to tell if you’re overspending or impulse spending and what’s the best way to stop doing it?”

Dr. Jaffa responds: “How to tell if you're overspending is when you don't have enough money to pay your bills on time – you may not have enough money to cover all your bills each month. Also, look at your credit card debt. You shouldn't have to pay interest because it's a function of your own behavior.”

“And then there's impulse spending. Let me ask you a question, Will. You're an impulse guy – is Starbucks one of your haunts?”

Will responds: “I do like Starbucks, but I have to say I'm pretty good about it. It's a time thing for me – I don't really have the time to stop at Starbucks on the way to work. So for me, Starbucks has become a luxury on the weekend.”

Dr. Jaffa follows-up: “Okay, so where is your impulse spending – who's getting into your wallet?”

Will responds: “I have pinpointed it through budgeting to the entertainment category because we live in Orlando and there's the theme parks and endless things to do. Eating out used to be a big problem, but we've tapered that down. If anybody hasn't realized, eating out is way more expensive than it used to be. I mean there's no cheap place.”

Dr. Jaffa follows-up: “Right! I mean, you walk into your local diner and two eggs, hash browns, and a couple pieces of bacon is $10.”

Will responds: “Yeah your 401k is getting broken all of a sudden. So really, entertainment for me. That's something that we're looking at canceling – some theme park passes.”

Dr. Jaffa follows-up: “It comes down to working on stopping buying things you may want, but don't really need.”

8:50

Will asks Question 2: “Speaking of debt, it can be unhealthy to carry debt and not have a plan for paying it down. Karina, what are some things people can do to get a handle on their debt?”

Karina responds: “This is something that I always highlight whenever I give presentations on credit scores. Your credit score is made up of a couple different factors, but one of the main ones is how much you owe. That makes up 30% of your credit score. So whether you owe a ton or a little bit, that is going to positively or negatively impact your score in the long run.”

“For people who are wanting to start paying off debt, I always encourage them to start with the balance that has the highest interest rate because those are the ones really eating into your monthly budget. So start with the highest interest rate, not necessarily the highest balance and work your way down.”

“Also make sure you're setting a plan that's manageable, but also realistic. lf you know in your budget you can't afford to pay $700 worth of debt every month, then make it realistic to what you can do. That way when you start to reach those goals, you feel better about yourself. It encourages you and gives you that push to keep going.”

10:15

Cristina asks Question 3: “Another unhealthy financial habit that can contribute to both overspending and credit card debt is a lack of budgeting. Dr. Jaffa, can you please speak to how creating a household budget could be part of a larger behavioral program to bring things better under control?”

Dr. Jaffa responds: “This is probably going to be one of the most important things we are going to talk about during our session: behavioral budgeting. The key thing is to write down everything you buy. Now I do this to this day. I've been doing it literally since I was a teenager or maybe since I started college.”

“But the key thing is to start with: Where is your money going and come up with your categories. So if you mentioned food, that's a category, subdivided into grocery stores and eating out. Next category might be anything to do with your car: gasoline, insurance, license tags, etc. That's another category. Where else do you spend your money? Anything else to do with your home, that's a category. Anything to do with health care, doctor appointments, medicine, and things with your health – another one. Then there's entertainment. There's no one chart for everybody, but develop your own.”

“Now what do you do with this? To this day, if I go into the grocery store and buy $50 or $20 or $5 worth of groceries, I write it down with paper and pencil. When you do it on your phone you're going to forget things and it's been my experience that people who I've worked with who've had money problems do the same.”

“But you want to write down everything you spend – it's a step by step strategy. You're probably saying to yourself, ‘This sounds like work. I don't have the time for this.’ Well you're in trouble. You're using the world ‘unhealthy,’ but this kind of behavior is like cancer. It's like something that's going to kill you because it's really going to change your style of living if you don't get it cleaned up.”

“So the important thing is when you write this down, have fun with it and challenge yourself. Say, ‘Can I go today without buying an impulse item? Can I go to the mall and just shop with my eyes rather than my credit card?’ Turn it into a game for both yourself and your spouse, and get your children involved. You want to get the whole family into tracking where that money goes.”

13:40

Will asks Question 4: “Let’s shift to bad saving habits. We’ve talked about emergency funds on this show before. Karina, is it financially unhealthy not to have emergency savings?”

Karina responds: “Yeah, I would say so for sure. I think part of the reason why so many Americans are in debt is because for anything that comes up or pops up in life, they have to use a credit card. They have to get a loan for something because they don't have that emergency fund. So I think that greatly contributes to their debt at the end of the day.”

“If anything, the pandemic has shown us the lack of Americans having that savings account. But it's important because you never know what life is going to throw at you – it's not always going to be rainbows and butterflies. Even if you don't have a savings account today, don't be discouraged. It's okay. You can start today or tomorrow, and it can even be a small amount – whatever it is that you can afford.”

“Creating those habits is what's going to set you up for a better financial future. That's what I always tell the younger kids when I talk with them. Even if it's $10 that you can afford to put away, it's the habit that you're creating in saving. That way when you're 23, just graduated college, and you have that first job, you have that habit – the principle – of saving.”

15:25

Cristina asks Question 5: “Not saving for retirement is a risky thing, especially considering how easy it is to outlive your savings and how short Social Security payments can fall when it comes to paying expenses. Dr. Jaffa, before the show you told us how you hit your goal to retire from the traditional world by age 35. What steps did you take to achieve this goal?”

Dr. Jaffa responds: “Okay, let me give you some background: I'm cheap or frugal. If you call me that name, you're not insulting me, I take it as a compliment. Because at age 21 I hired a financial mentor. Now it's something 21 year olds don't typically think about. But I met a person, he told me what he was going to do, and I asked if I would be able to retire at age 35. He said yes under three conditions:

You're going to own a home, but you're not going to have a castle in Spain.
You'll be able to drive any car you want, but those cars are not going to be expensive.
You'll be able to take two respectable vacations a year, but you're not going to be on a cruise ship sailing around the world.”

“So I said fine and he put me in investments. He explained everything he was doing, walked me through the steps, and ensured the strategy was conservative and secure. So every paycheck that I got went into savings. And sure enough by age 35, I did not have to walk out of the house again to a job. Since then I've been doing what I want, when I want it.”

“But along the way, if I was with people who wanted to go out and do things, I turned them down because staying home and cooking a meal myself wasn’t a big trade off. It allowed me to make smart purchases.”

“So I recommend Millennials and older adults get a financial mentor or a wealth manager. Now wealth management companies want the person who has the $500,000 minimum to invest, but obviously 99% of people don’t have that much to invest. It requires some thinking, it requires a little bit of reading and research. But get yourself that financial mentor who could put you in a better spot to buy that condo, buy that home, or buy that new car.”

Listen Now: Retirement Strategies for People Under 40

18:40

Cristina asks Question 6: “One thing that I know a lot of people do is something that can lead to overspending and to less savings is increasing their spending when they get a new job or a raise. What can you tell us about lifestyle inflation, Karina?”

Karina responds: “Yeah, this is a good question because, I'm not even going to lie, this has happened to me before personally. It's a little tempting when you get that extra boost in your salary to go get a new car or get a nicer purse or computer. But you're tempted to do those things when you're making a little bit more money. And it's totally okay to treat yourself, to splurge every one and a while – there's nothing wrong with that.”

“But definitely something that I have learned personally, and that I do personally in my own finances, is even when I get a raise, if I know that I can live off of the money that I was making before, I try to keep it that way and just increase my savings. So that's something that I really do strive for. Every other Friday when we get paid, I just put it away.”

20:40

Cristina asks Question 7: “That last question leads us right into financial goals. Dr. Jaffa, is it unhealthy not to have financial goals?”

Dr. Jaffa responds: “You need financial goals. Let me give you another must: anything that you buy yearly (your auto insurance, your home insurance, your healthcare insurance, etc.), before your current policy expires, call them up. Fib a little bit about being able to afford the cost and ask about how to cancel your policy or subscription. They might offer you discounts to stay with them. You can also call them up to ask if there are any discounts you might be missing – like if you bundle your home and auto insurance together or if you pay in advance.”

“But you definitely need a financial strategy. Finances are the most important part of your day. We think about money constantly and those who don't find themselves tuning into this podcast. And the important thing is that like Karina was saying, put that money aside. Whenever you don't think you need it, get it into a bank until you can turn it over to your wealth manager to put it to work faster for you. But make that money work for you. Don't you work for your money. You do that when you go to the office. But when it comes to savings, make your money work for you.”

23:30

Cristina asks Quick Question 1: “Karina, if you had to recommend one thing for people to do to get on the right track financially, what would it be?”

Karina responds: “100% making a budget and I really do mean that. Making a budget was what transformed my finances maybe like 5 years ago – and sticking to it. Not just making a budget for fun and wasting 30 minutes of your life to never look at it again. Actually sticking to it.”

“Also when you get paid on those Fridays or whenever you get paid, knowing where your money is going is key. It sometimes boggles my mind a little bit knowing that there's people out there that just hope that they can make whatever payment they need to make instead of knowing exactly what they need to do in order to make that payment. So making a budget is super important. Sticking to it because making a budget is going to reveal how much we waste our money on things that we shouldn't. So making a budget 100% is key.”

24:20

Will asks Quick Question 2: “Dr. Jaffa, what’s one unhealthy financial habit we haven’t talked about that you think is important?”

Dr. Jaffa responds: “I think we covered a lot of them. But to reiterate, anytime you get a receipt, anytime you purchase something, or even before that ask yourself, 'Do I want this or do I need it?' Need is important, but want is not so much. You have to actually talk to yourself out loud. People standing around you will think you're nuts. That's okay, too. But it's your money, not theirs. Say to yourself before you get to the cash register, "Do I need this or do I just want it?" And put it back on the shelf if you just want it.”

“But the important thing is to control that impulse buying and when they ask you if you would like a receipt, say yes. So you take that piece of paper home and transfer it to your written budget system under whatever category it's going to go under and review that and see how much you're saving or what we need to work on next week or next month.”

25:50

Cristina asks Quick Question 4: “Karina, how can people curb impulse spending if that’s a problem for them?”

Karina responds: “Yeah, this is definitely something that I used to struggle with a lot. I do like to shop for clothes and things like that. But definitely as a recent example, anytime I go to a store, if I'm not absolutely in need of the item, whatever it may be, you're totally okay. You'll be fine if you go home without it. Another thing that I do actually do is if I just want to shop online, I'll just go through some websites that I like. I'll make a cart and I'll exit out of it. I never actually buy anything. And I think it's good. I just leave it there. And the same with the stores, I just dip out before I make a mistake.”

29:00

Karina can be found at AdditionFi.com. She wants you to check out all the great educational resources available under the Financial Education tab. She is also available to come to your classroom, office, or organization and present on whatever topic you need. Her email is Krodriguez-Penalver@additionfi.com and her LinkedIn can be found here.

Dr. Jaffa can be found on LinkedIn here.

32:20

This episode, Cristina and Will shared Addition Financial’s best financial advice all on one page. They distilled all the great nuggets of information from their financial blog into one easy to download and print or save PDF.