52% of consumers in the U.S. admit to maxing out their credit cards at some point. To be more specific, this group of consumers is made up of 58.8% of Generation X’ers, 50.3% of Millenials, and 39.3% of Baby Boomers.
It’s obvious America has a debt problem. And, it all comes from our habit of overspending.
If you’re on the way toward maxing out your own credit card, you could save yourself from that mess before things get completely out of hand. You could try what’s called a “spending freeze”.
A spending freeze is not one of those highly technical formulae for managing your finances. Rather, a spending freeze is extremely simple and straightforward.
What is a Spending Freeze?
A spending freeze, is a commitment to use your money only on essential stuff. The challenge itself is usually temporary, as it runs for a predetermined time period – within which you’re expected to strictly avoid all unnecessary spending.
You can think of it as a form of financial “fast” that cuts essentially everything, apart from your basic living expenses. That means you’ll be allowed to pay your bills, maintain the utilities, and keep your household fed.
In the meantime, you’ll cut out entertainment, restaurant meals, gym memberships, travel, gifts, clothing, etc. Every unnecessary thing should be completely eliminated during the spending freeze period.
What’s the Point of a Spending Freeze?
A spending freeze is meant to change your perception towards money and savings.
You see, normally, people tend to consciously and subconsciously justify all their expenses. Your mind will come up with flimsy excuses for unnecessary purchases. That’s how you gradually lose sight of your savings goals and end up accruing mountains of debt.
A spending freeze attempts to reverse this by giving you insight into how much you’re really capable of saving. It’s only by witnessing the resulting savings that you might reset your thoughts about money.
Once you’re done – a $3 cup of coffee, for instance, ceases being a negligible purchase, and you start appreciating the real value of each dollar you spend. With time, you entirely transform your spending habits.
5 Rules To a Successful Spending Freeze
It’s worth noting, that the impact of a spending freeze depends on how you execute it. To help you get started, we’ve prepared a guide that highlights the 5 basic rules to an effective spending freeze.
1. Set a Specific Time Frame, But Keep It Reasonable
A spending freeze runs for a limited period of time, which you should set based on your financial goals.
You could commit to a month-long spending freeze to discover the impact it would make on your monthly finances. Alternatively, you could try a 2-week spending freeze and then work out the monthly figures by doubling the resultant savings.
If you’re a beginner, don’t start off at the deep end. A month would be a bit of a stretch. You’d be better off freezing your spending for about a week or so, before trying longer periods.
2. Strictly Limit Yourself to Necessary Expenses
This might seem like a no-brainer, but as it turns out, people often try to bend the rules when the going gets tough during a spending freeze.
You should do everything you can to avoid this. You’re only allowed to spend money on basic living expenses and bills.
One way to stick to this play is to outline all the necessary expenses ahead of the challenge. And while you’re at it, you might also want to freeze your credit card, as well as cancel all the subscriptions that renew automatically.
It’s also advisable to stick to cash payments during the challenge period, as it limits your access to extra money.
3. Get Your Household Members on Board
Sure, you can do the spending freeze alone. But, for the best possible results, it’s always a good idea to bring everyone on board.
But, not to take part in the challenge per se. Rather, you could have your family members, friends, and spouse act as supporters and third-party observers. That should keep you motivated, as well as help you stay on track throughout the spending freeze period.
With time, you could even consider scaling things up to make it an all-inclusive household spending freeze. That means inviting your entire household to participate directly. This will give you more conclusive results on the amounts you could all save cumulatively as a household.
4. Find Yourself Free Sources of Entertainment
Entertainment, has always been one of the principal consumers of disposable income. On average, this alone takes up about 5.6% of the overall American household expenditure. Hence, you could say entertainment accounts for the single biggest spending after you deduct living expenses and bills.
With that in mind, it’s obvious that entertainment could make or break your spending freeze. How you choose to handle it will significantly determine your final outcome.
As such, you might want to eliminate all the entertainment activities that cost money. Movie tickets, DVD rentals, music concerts, health club memberships, parties, Netflix, and video game purchases are a no-no during your spending freeze.
But, don’t get me wrong. I’m not pushing you to bore yourself to death. You could, instead, indulge in outdoor activities, field sports, and home workouts. You’d be surprised by all the adventures you could try out for free.
5. Keep Tabs on Your Progress
Remember, the whole purpose of a spending freeze is figuring out how much you stand to save, plus identify where your money has been going.
Make no mistake about it, though. Working out these figures is no easy job. You have to account for all your expenses and savings, down to the last penny.
So, you should consider tracking your progress accordingly. Ensure that you consistently record both savings and spendings in a digital spreadsheet at every step of the way. In the end, you’ll appreciate all the accurate insights you’ll get regarding your financials.
Spending Freeze – Final Word of Advice
Keep in mind that while a spending freeze could understandably be used as a short term fix if you’re seeking to urgently raise funds, the primary focus here should be the long-term impact. The whole activity can only be termed as successful if it permanently changes your spending habits.
And with that, we’d like to wish you all the best in your spending freeze. Enjoy your transformation journey!