How to Stop Spending Money

I once knew this guy – let’s call him Rich - who seriously liked to party. We’re talking Dom Perignon and Belvedere…but by the bottle. He was moving in circles with people so incredibly wealthy they wouldn’t even bat an eyelid at a £2-3k night out. This guy was different to them. He didn’t have the 6 figure salary and millionaire mansion on Brompton Square. He had credit cards. Lots and lots of credit cards. He was stuck in a vicious cycle of nights out, desperately trying to keep up with the Joneses and an eye-watering credit card debt. Now Rich knew my background, and so came to me looking for some help to sort out the mess he’d got himself into. When he came to me, he had amassed just over £50,000 of credit card debt and needed help. He’d been sucked into a Spend Circle and was struggling financially. We’ll come back to Rich’s situation shortly, but first….

Your Spend Circle is defined as the spending of the people who hang out in the same group as you. More often than not, people tend to hang out in groups with others of similar wealth and stature in society. You see this type of social behaviour in countries like the United Kingdom or the United States, where money and materialism majorly influence your place in society. People gravitate towards one another simply because of the material things they own.

The problem lies when you find yourself in a spend circle you can’t afford to be in, and then the money problems begin. Just like Rich, you find yourself trying harder to fit in.

Have you ever found yourself doing something just because you didn’t want to feel alienated or left out of a group? Think back to your school days. It was all about having the latest trainers, clothes or mobile phones to try and fit in with the ‘in crowd’. This way of life continues to haunt many people, but it just gets more prominent: the new Range Rover, a 4-bedroom house next to the best schools in town, crazy expensive midweek meals with friends that are way out of your budget. The desire to fit in pushes people to struggle with debt they cannot afford.

The truth is that many people, at some point in their lives, may find themselves in a Spend Circle that feels like it is out of their control, with a risk of financial difficulty looming over them. However, there is a way to take back control.

Don’t fall foul of the temptation to surround yourself with people who have everything you wish you had. This isn’t healthy for you or your bank account. Remove yourself from situations where you hear yourself saying, "Sorry, that's too expensive" or "I can't afford it", but couldn’t bear to tell those in your Spend Circle. You want the people in your Spend Circle to accept your spending limit or, even better, have the same spending limit as you. If that’s not the case, leave and leave quickly. Find a Spend Circle that is comfortable for you.

With the launch of easy pay systems like ApplePay, we’re moving rapidly into a world where cash is no longer number one. Cash should be your friend. Think about it: if you take £200 cash out and leave your card at home, you are suddenly more aware of what you have available to spend and very conscious of how you choose to spend that money. With a card, it almost feels limitless; you’re effectively carrying around your entire bank account. Let’s say your bank account has £2,000 in it. Now imagine that’s cash in your pocket. Even worse, you have a credit card with a £5,000 credit limit. Imagine that as cash in your pocket. The fact is, that isn’t even your money.

When I think back, I remember my grandparents and parents always working with cash. Whenever my dad went to do the shopping, he would have the amount he wanted to spend in cash, and he would take exactly that amount with him. I never once saw him use an ATM or a cash machine; he would go specifically into the bank and withdraw the cash. He never had a single credit card.

If you find keeping your spending in check challenging, consider a practical approach: use your debit card only to withdraw cash and avoid using it for transactions. A helpful strategy is to calculate your remaining balance after all your regular payments, such as council tax, water, gas, or electric bills, have been deducted and withdraw the rest in cash. The tangible presence of the available cash provides a sense of financial reality that tapping a contactless card cannot replicate.

If you are used to relying on credit, this might feel hard, but cancelling your credit cards and other credit facilities may be the only way to control your finances. If possible, don’t leave any source of temptation. Remember, no credit facilities mean you can only spend what you have.

This is a rip-the-band-aid-off, cold turkey moment with the aim of helping you fix your finances.

Get yourself into a comfortable position where you own your spending, and it doesn’t own you. Once you are here and mentally in charge, allow yourself a credit facility to build up your credit rating for "good debt," like a mortgage.

The final tip is to always have a savings or investment outlet for your money. Some people spend money because it is just sitting there, burning a hole in their bank account. The truth is that your money should be working for you at all times.

Sometimes, you’re not sure how you want that money to work for you. On these occasions, you need a suitable home to park your money until you have a job for it, like an ISA or a savings account. As a rule of thumb, you should be left with no money in your day-to-day or current account the day before you get paid. Move any excess cash to either a savings account or an investment.

Programme your mind to get into a routine of saving and investing. You will appreciate this tip when significant changes happen in your life that require an injection of cash.

Now, if we go back to Rich, I agreed to help him with a warning that he would lose access to his credit cards and credit facilities.

Unfortunately, he couldn’t give up his lifestyle; he couldn’t bear to lose it. Instead, he pays off a portion of his staggering debt every month, freeing up space to keep up the charade with underlying stress, trapped in the wrong Spend Circle.

He’s not a bad guy, and he’s not alone. If he could be honest with himself and let go, the situation could be solved. Around the corner would be a debt-free, brighter future.

The Real Debt Guy is a qualified financial adviser and a UK debt expert. The information in this article is considered to be true and correct at the publication date.