Luckily, I came to a point where my online business went belly up. I ended up with no money, no income, and a load of debt. I had to move back to my home country and devise a way to get back out of the hole I’d dug for myself.
This was a good thing because it made me reassess what I was doing and change the way I handled my finances.
It wasn’t big changes. I took little steps and cultivated new habits to get me on a better path.
If you’re looking for a way to regain control of your finances, I recommend starting with the following five steps. They helped me immensely on my path to financial stability.
The first step to understanding why I was broke was understanding where my money went.
I never kept a budget, so I had no clue how much I was spending on what. I only knew about the big batches like rent or credit payments.
When I started analyzing, I was amazed to see the amount of little monthly payments draining my account.
Subscriptions to apps, newspapers, gym, or Amazon rate payments can sum up to a surprisingly big lump.
If your bank or credit card issuer offers a tool to categorize payments automatically, use it. It will allow you to see into which categories your money goes very quickly.
One look at my spending over the last few months showed me that I spent more money shopping online this year — than I paid on rent and energy.
This is something I will have to look at more closely. It’s surprisingly easy to fall back into bad habits. Impulse shopping when bored is one of mine.
To get more detail on what goes into each category, I tracked my expenses in an app over a couple of months. This helped me zoom in on the money-draining habits.
I logged all my expenses religiously for two months. Yes, it was tedious. However, I found it eye-opening to see how little expenses turned into large sums.
Snacks, coffees, bottles of water, ice cream, cinema tickets, all the little conveniences added up to hundreds of Euros.
The app I used was Monefy. It made logging my spending as convenient as possible. It’s easy to use and has predefined categories for everything. You can log into different accounts for credit card and cash spendings.
The free version had everything I needed to get a good idea of what I was spending money on.
I’m not saying you shouldn’t splurge on yourself. I love ice cream way too much to stop buying it. But I ditched a lot of wasteful habits. i.e., I stopped buying water and budgeted how much I could spend on certain things per month.
Looking at the records, I realized there were at least 50–100€ per month to put in an emergency fund.
“Look everywhere you can to cut a little bit from your expenses. It will all add up to a meaningful sum.”
— Suze Orman
Unlike younger me, lots of people have enough money to buy new stuff constantly. This means they need to get rid of their old stuff.
I started utilizing the huge second-hand marketplace. I went on apps like Shpock, where you can get barely used clothes, shoes, appliances, or furniture for a fraction of the cost or for free.
I warmly recommend using your local community: swapping, buying second-hand, investing a little time instead of money. Pick up stuff from someone across town. Not only is it cheap, but you also get to meet a lot of lovely people.
With some patience and time, you can furnish your entire flat with beautiful, free furniture or even dress completely for free.
I have a friend who dresses entirely in second-hand clothes; she always looks stunning.
In my town, there are a couple of Facebook groups that share cooked food or surplus groceries for free if you go and pick them up. If this is too intimate, look for initiatives and apps like Too Good To Go.
Buying second-hand not only saves tons of money, but you’re also helping to conserve resources and protect the environment.
Eating out with friends is one of my favorite activities. And take-away is super convenient after a long workday. Unfortunately, both habits contributed to a rather big amount of my spendings.
I’m not willing to completely stop going out with friends. Mental health is just as important as financial health. But I know how to cook, so I grudgingly went back to cooking regularly.
Take a look at the balance sheet. A take-away for two from our favorite Italian restaurant costs about 25€ without drinks.
I can make pizza with all my favorite toppings for 5€—Spaghetti Carbonara for two with free-range eggs, pancetta, and a lovely pecorino for 8€.
Either way, there will be money left for saving or a really nice bottle of wine to go with it.
Apart from saving loads of money, cooking with my partner is a great way to wind down after a long day and spend some quality time together.
If on top of that, you and your friends replace some of the dinners out with joint dinner parties at home, you will be amazed at how much money is left at the end of the month.
Cook your own food. It’s cheaper, and as an added value, you know exactly what you’re putting in your body.
There are great channels on YouTube to teach you how to cook. Tasty and Kitchen Stories have apps to give you ideas and make sure you never run out of recipes.
The short version is: Don’t spend money you don’t have. It will come back to haunt you.
Banks and credit card institutes will come to you and offer you “cheap” money. There are lots of incentives to buy things you can’t immediately afford on a payment plan. Even Amazon will try to make you “treat yourself” with rate pay. Or you might want to lease new appliances or a laptop instead of paying for it fully.
The problem with living on credit is that you need a constant income stream. As long as more money is coming in than you’re spending, you’re good. If you lose your job, get ill, or if there is a pandemic, your income stream can dry up abruptly.
While you can cut all kinds of individual spendings to save money, you have to keep paying off your debt at the same rate as before. If you can’t, you have to default, things will be reappropriated, and your credit score goes bust. Or worse, you have to take on additional debt to cover for the old ones.
This is a vicious cycle leading into a deep financial hole you may never recover from. Taking on debt should be a last resort.
There are exceptions like investing in real estate.
But even if you invest in a home, take an honest look at your income. Calculate exactly how much you can pay back each month. Have a contingency plan in place for situations where your income dries up.
Use a credit card but pay it off fully every month.
Most importantly, if you have money left over, pay your debts before investing or saving. It doesn’t matter how much “cheap” money the bank wants to give you.
I found it’s so much easier to leave a job, switch careers, and say no to things you don’t want if you have no fixed installments to pay every month.
Not having debts is incredible freedom.
I always thought there was no point in saving only 20€ because it’s such a small amount. And compared to my irrational spending, it probably was.
The thing is that saving little amounts of money every month will add up in the long run.
In combination with a healthy budget, putting away small amounts of money makes a lot of sense. Especially when you’re younger, time is on your side. Interest on the money you save will accumulate over the years.
Unfortunately, putting money in a normal savings account doesn’t make financial sense anymore. The interest rates are so low you will lose money over the years.
My recommendation is to look into ETFs that contain collections of stocks. They are a low-risk way to invest in the stock market. Personally, I don’t have the time and will to watch the stock market to find out which stocks will be my best bet.
ETFs are the best way to benefit from the gains possible on the stock market without putting all your eggs in one basket.
“An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies.”
I use Trade Republic to invest my money. For me, it’s the cheapest way to buy and hold stocks and ETFs.
You can even set up a savings plan that will automatically put your savings in the ETFs of your choice. The investment volume starts at 10€.
There are similar apps out there that make trading ETFs affordable. Look around for the one that suits you and has the best price point.
The biggest change I made was a mindset shift.
I acknowledged that my finances needed attention. Money is a necessity. There is nothing wrong with wanting a sustainable amount of it.
Like physical and mental health, financial health should be something that you focus on early in life. But it’s never too late. Like you can turn your lifestyle around and get fit later in life, you can start working on your financial fitness at any age.
It might need a little more effort if you’re older, just like building muscles is harder later in life, but it’ll always pay off.
For me, it took about five years. After that, I was debt-free and had some money saved. I now have a grip on how much money is going in and out of my accounts. I’m able to save money every month while enjoying my life. I’m no longer anxious about unexpected events.
Having a clear idea of your income and spending — and a financial cushion — gives you freedom. You can concentrate on and invest more energy in your other life goals.