How to conquer emotional spending without sacrificing simple pleasures like a latte. Hint: Use cash
Financial planning experts Heidi Rumohr (left) and Janine Rogan.
Giving people tips to grow their savings might sound like a lofty or delirious finance goal in 2021. We are in the middle of a pandemic after all.
According to a recent Ipsos study, four in 10 Canadians are “struggling” at best when it comes to financial health. Among those people, almost one in five feel they are “sinking” financially. Meanwhile, only one-third of Canadians say they are “thriving.”
The pandemic has been messing with our mental health and finances, and these things are not completely unrelated. Money is emotional, according to finance coach Heidi Rumohr. She, along with Janine Rogan, are helping us brace for the challenges ahead.
Rogan is the chartered professional accountant behind the Wealth Building Academy, a financial literacy program educating Canadians on how to manage and invest money. Rumohr is a financial services veteran who coaches clients to shrink debts through her company, Rumohr Financial Services.
For our NOW Money series, they already gave us tips on filing taxes in 2021 and how to pivot and adjust mortgages and investments. Now they are helping us with tips to understand spending behaviour so we can adjust our lifestyles, build our savings and feel safe during COVID-19 while not sacrificing the little things that keep us going.
Asking people to save anytime is hard, especially when we’re talking about keeping up with Toronto expenses. Having that conversation during a pandemic feels increasingly more necessary but also more difficult.
HR: Toronto is a very expensive city to live in. You can’t really escape the $2,000-plus mortgage or rent payment.
How do you increase your cash flow without cutting things? I don’t believe that, as humans, we are just supposed to go to work, pay our bills and then die. There’s a few basic steps to increase that cash flow so that you can afford to go out for dinner. Just because you have debt doesn’t mean that you have to stop doing those things that bring you joy. But we also need to put some boundaries around it.
Pre-COVID, a lot of things that I would hear especially among women is that we want to do it all. We want to have the career, raise the kids, have the clean house, be Martha Stewart and bake all the sourdough bread we possibly can. But at some point, it becomes a capacity issue. We can’t physically do it all. I know a lot of women feel a lot of guilt around hiring a house cleaner to come in and clean your house or do those meal kit services that are more expensive. You can go to the grocery store and buy all the ingredients and make that kit yourself. But if those things really take that load off for you, let’s find a way to build that into a cash flow plan so that you can actually free up time so that the connection with your kids is there. Defining those goals are really super important.
What do you think are the bad spending habits we have to watch our for specifically during the pandemic?
HR: The world is going to open up again. What might happen is you might go crazy with spending. We’re all craving to just go out and have a drink and not have to worry about social distancing.
Or go to Europe.
HR: Yeah. There are two schools of thought. There are the people that are like, “Wow, I’ve saved a lot during COVID because I’m not going out, the kids aren’t in sports or I don’t have to pay for that babysitter because they’re home with me.” Then the other school is, as soon as things opened up a little bit, people went crazy and started spending all of that money that was “savings.” And the reason why people do that is because if you don’t give your money a job to do, you spend it. We’re human. And money is very emotional.
It’s kind of like health and fitness. We all know how we should eat a certain way and exercise everyday if we want to lose weight. We know the formula. We know the formula to save money. Make your coffee at home, don’t spend your money. But we have a hard time sticking to that because it’s emotional.
Money is emotional. Our food choices are emotional. If you can really get a handle on defining your goals and then giving your money a job to do, you won’t have the excess to just blow.
HR: Have an account that you can transfer money into weekly. And that account is your debit card. The only access you have to money is through this one account. Research shows that if you give somebody money to last an entire month, it’ll only last on average about 18 days. 30 days is too long for us to manage our money. But if you did it weekly. If you transferred in $200 every week, that $200 is going to last you the week, because that’s all that’s in there. And, you know, it’s going to replenish again on Sunday. You’ll be like, “I can wait a couple of days for that to be replenished.” It’s a different way of thinking about money
Whether that money is set aside for your manicure or your latte, it doesn’t matter. It’s going into an account that you get to spend, but it’s earmarked. So the money in that place, you get to go and spend it however you want in accordance to your goals.
Janine Rogan: Cull some reoccurring monthly expenses. You might be able to negotiate your rent down. If there’s other things in your life that you can negotiate, whether that be interest on a credit card or a cellphone bill, definitely do that. Find ways to make your life less expensive.
All of those streaming streaming services probably equal the cost of a cable bill now. Do you need Netflix, Hulu, Disney+ and Amazon Prime? Can you get rid of a couple of them? Another one that comes to mind is if you’re not driving, call your vehicle insurance company and get them to lower what you’re paying.
HR: If you are an emotional eater, you reach for the potato chips every time you were stressed. The same is true with finances, if you are stressed or if you’re bored and you tend to online shop. We need to remove the trigger.
We can’t necessarily remove the emotion completely. What we can do is change the behavioural response to that. If the trigger is “I’m stressed, so I spend” you need to recognize that. You need to understand that and try to remove the trigger. If your trigger is Amazon Prime, delete the app. You can also unsubscribe to emails from brands. The 40 per cent off and the enticement of free shipping is all designed to have us buy. If I know that that’s my trigger, I need to remove the trigger.
HR: Our access to money is very different than a generation ago. Electronic payments is a big part of that. I know people are very hesitant to use cash during the pandemic, but actually I have not stopped using cash. For my groceries, unless I’m ordering it online, I go to the grocery store with cash. And you stay within your boundaries. It only takes one time getting up to the register and not having enough money that you’re like, “whoa crap, this is embarrassing.”
You are much more mindful of that. You create lists. You meal plan differently when you have that mindset. Because there’s an emotional response to handing over $200 cash, rather than tapping your card. You get to put your card back in your wallet. I give $200, I’m not getting it back. It’s a very different transaction emotionally.