The back-to-front money cycle

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We’re all accustomed to spending money that we don’t actually have; buying something now and paying for it later.

Think about your money with the analogy of a water tank; water comes in at the top and drains out the bottom. So to keep your tank nice and full, you want more coming in (and staying) than going out. Makes sense if you think about your bank account.

With a water tank you’re physically limited with what you can use as it obviously empties out at some point. But as you know, we have options when we run out of money and it’s so easy that the term “credit” even sounds positive and seems like something good. We can essentially access  water (money) when our tank is completely empty and instead of this happening only in times of drought, it’s a monthly norm for many. No-one would waste essential water in times of drought but we seem to think differently when it comes to money. (On a side note, read about my insane water saving measures at home)

The monthly money cycle

Imagine having no debt and being able to decide how to use your money when you receive any income. So when your salary comes in, you decide how to spend it and how much to save or invest. Sounds perfectly normal.

In reality though, many people are using their current salary to pay for things that they bought in previous months and their money cycle is back-to-front. Instead of receiving money and spending it going forward, they use their income for past month’s spending and there’s often nothing left to live off. And so the cycle continues.

Cash flow - instead of paying for last months expenses now, pay it forward
Cash flow – instead of paying for last months expenses now, pay it forward

A turnaround strategy

There’s unfortunately no easy way to change the cycle and depending how much debt you have it could take several months or years to deal with. Changing your habits and decisions is relatively easy, but staying focused can be hard. Especially when it feels that you’re not winning.

Here are some steps to take in order to change to a “forward spending” cycle.

Assess your situation

Start by finding out exactly how much debt you have. List all credit cards, store cards, loans and any other debt.

You may need to go through your statements and make some calls to find out the total owed, interest rate, monthly payment & remaining period.

Use a budget

A key aspect of personal finance is that it is “personal” so you can decide on exactly how you do things. There are many resources on budgeting and some great apps to make it easy, so find something that works for you.

Having a budget isn’t enough though, you need to actively use it and track your progress.

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Prioritise your debt

You’ll need to make a plan of how to pay the debt off. Decide on one debt that you can focus on in order to pay it off sooner. Often choosing the smallest debt is a good starting point and paying it off quickly will give you motivation to tackle the next one. You’ll also progressively have more money to tackle debts once you’ve paid some off.

Make sure that the first goal you set is relatively easy to achieve as you need this plan to really work for you in order to keep motivated.

Put on the brakes

Make a decision to stop creating any more debt. Now!

A great way to do this is to hide your cards and start using cash. If you really don’t have money in your bank, maybe allow yourself one credit card in your wallet for absolute essentials but you need to be paying off more debt than what you create.

Learn about frugality, budgeting & making wise money decisions

This is the fun part! There are so many great blogs, Twitter accounts, YouTube resources and books. Spend time learning about how others manage their money, pay off debt and make investment decisions. Follow those who you can relate to and just keep questioning, learning and improving your financial situation.

To end

Using your current months income to pay for previous expenses is a little back-to-front and can add a lot of stress when you can’t make ends meet. Changing your mindset and habits and paying off past debts is certainly not easy, but the reward of being debt-free is immense!

If these tips seem too simplistic for you though and you’re really struggling with debt then you should definitely consider meeting with a professional debt counselor. Instead of being embarrassed about the situation and pretending that you’re okay, take a step towards empowering yourself and fixing your debt situation.

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