You might have gone a bit crazy with your spending over the last week. Maybe that designer bag or hot new perfume was too hard to resist. But now you’re in a financial rut and feel really bad about yourself. It feels like a hangover minus the vomiting and monstrous headache.
A financial hangover is that sad state of affairs after having a shopping spree followed by an intense period of regret. Financial hangovers also lead to mounting credit card debt if you happened to swipe that plastic a little bit too enthusiastically in the recent past.
Unlike the alcohol hangover, its financial counterpart doesn’t go away on its own. You need concrete action to fill in the gaps in your financial life. Here are our expert tips on sobering up your finances after some reckless spending decisions.
Recovering from a financial hangover in 7 steps
Step 1: Don’t beat yourself up
It’s no use of crying over spilled milk. In fact, beating yourself up can make things worse. You’ll get a lot of anxiety from it and engage in some destructive behaviors. Like compulsive eating, drinking or overspending, which may lead to even more self-loathing.
We’re only human, and we all have our share of weaknesses, mistakes, and bad decisions. We’re perfectible, not perfect. And a drop a humility can go a long way in helping remind us of our human limits.
Step 2: Time for some brutal honesty
This step is one of the hardest, but you cannot undo the damage if you are in denial about its full extent. It is important to know how bad your financial hangover is. Take a cold, hard look at your credit balances and amount of debt. This step takes a lot of courage, but it is critical on your path to financial recovery.
Step 3. Keep a financial journal
The harm done cannot be undone at this point, but it can be prevented. You just need to know how to choose your battles wisely. Start by keeping a detailed log of all income and expenses for one or two months. It is called financial journaling.
Write down every expense along with details such as date, payment method, and seller. Also, keep track of how much time you waste shopping around both in stores and online, along any purchases during those shopping sessions.
A financial journal will give you a larger picture of the way you spend your money as some patterns may emerge. It will also help you gain some much-needed self-discipline.
Step 3: Try a no-spend week
The no-spend week is a trending topic on the other side of the pond. Successfully meeting this challenge may translate into hundreds of pounds worth of savings in your pocket. If you are a big spender, the no-spend week may be too harsh.
Start with a no-spend day instead. Shrink your spending to the bare essentials for one day. Skip that overpriced latte and bottled water, say no to lunch or brunch, and replace them with homemade alternatives. You may discover that you don’t even need to spend anything on that day as all you need is already in your pantry.
Step 4: Budgeting has never killed anyone
Budgeting may look old fashioned, but it works wonders at curbing reckless spending. In fact, not having a budget is the prime cause of a financial hangover. Use your financial journal to build a realistic budget.
Start with your monthly fixed expenses such as phone bills, utilities, and rent. You can try the envelope method since it is easier on beginners. Get as many envelopes as many categories of spending: fixed expenses, education, clothing, entertainment, savings, etc. Write the category on the corresponding envelope.
After getting your monthly pay, fill the envelopes with as much cash you need for each category based on your financial journal. If there’s leftover money, you can transfer it to your savings or discretionary spending envelopes. If you are left with debt, use the leftover or savings money.
The envelope method is often more effective than keeping a budget on apps like YouNeedaBudget or Mint.
Step 5: Pay only with cash
This step has a huge advantage: you can only spend what you have on you. So, there’s a little risk of overspending or buying things you don’t need. Cash also gives you a visual representation of how large of a gap a certain expenditure leaves in your budget. You’ll become more mindful of your spending this way.
Try paying only with cash for a month. But expect some withdrawal symptoms if you’re accustomed to paying only with plastic. As a rule of thumb, if you really need to use that credit card, swipe it only for items that will last longer than the time you need to pay the debt back.
Step 6: Put money aside for emergency expenses
With more than one third of Brits not having an emergency fund, it is increasingly hard to cover a £1000 emergency expense. If your credit cards are all maxed out and credit score hurting, you’re officially living life on the ‘hard mode’.
Fortunately, there’s an easy way out as you can get 1000 pound loans from zillions of online lenders even in such situations – just shop around for the best deal for you. And make sure that you can pay it off on time.
Meanwhile, save some money to pay off the debt and to future-proof yourself against more surprise expenses. £100 per week may not be much, but it can quickly add up.
Step 7: Get help
If you feel like staying financially sober is too much for you, don’t be afraid to ask for help. No, your well-meaning friend is neither a therapist nor a financial counselor, and overspending is a full-fledged addiction.
Let professionals from a debt advice charity like the Debt Advice Foundation help you. A therapist is also a solution as he or she can help you spot and address the underlying emotional issues behind your overspending habits. You may soon learn that adding to cart is not the answer to your existential anguish.