Melissa Hammel, a Certified Financial Planner (CFP®), and a temporarily Licensed Professional Counselor/Mental Health Specialist, serves as managing Partner and Principal Financial Planner at Hammel Financial Advisory Group, LLC, a financial planning and Registered Investment Advisory firm located in Brentwood, Tennessee. The firm specializes in providing holistic Fee-Only® financial planning and asset management for individuals and families. As Principal Financial Planner, Melissa leads the financial planning process by offering clients broad based financial planning, counseling, coaching, and wealth management services. She emphasizes the importance of reviewing retirement plans, asset and liability protection, and cash flow management. Through her studies and practice as a therapist, Melissa has developed knowledge and understanding of the psychological aspects of money, spending, and communication issues within couples and families. She offers a unique ability to view her planning work from both a quantitative and qualitative approach.
Q: How can I work to get out of debt when I’m barely making enough to keep up?
A:One of the first steps you may want to consider prior to looking at the numbers is how you developed the debt over time. Many times, in looking at reducing debt, this important step is overlooked. Why is it so important? For many folks, spending can be a coping tool, one that is somewhat similar to eating when under stress, or drinking to help yourself relax every night. When spending becomes a habit to cope with feelings of stress, unhappiness, or it can become somewhat habit forming. Within the field of financial planning, tackling the debt is a big goal. However, if the issues underlying the cause of debt are not dealt with, then it may be unrealistic to think that one can permanently “fix” the debt issue. There are counselors who specialize in spending issues, as well as financial advisors who specialize in behavioral issues around money.
Once you have considered the issue above, it may be helpful to list out all your fixed expenses, including minimum payments on debts, and then any flexible expenses such as eating out, travel, and clothing. Many times, it can be helpful to pay the minimums on all debts, and then make an extra payment on the smallest debt you have. Paying off that debt assists in helping motivate the process of moving to the next debt and so on. In addition, in order to keep your head above water, so to speak, it is very important to make sure you build into your spending plan money that pays for things important to you. For example, if it is really important for you to go to the movies, then make sure that you have money set aside to do something fun in addition to all the “required” stuff like rent/food/car payment. Otherwise, feelings of deprivation can overwhelm and send you right back to square one and into over spending again.
Q: Am I better off buying a used or new car?
A: In most cases, if the seller offers a history of the car and the opportunity to purchase a warranty on the car, then a used car with low mileage is a better bet. The value of the car does not depreciate as quickly as a new one. However, it is not appropriate to make blanket statements such as this in all situations. For example, if you are considering a used car that has higher mileage, it may be important to consider upcoming large repairs such as tires, transmission, and air conditioning. These repairs and expenses can be costly and it may be easier financially to have a steady payment that is a bit higher on a new car and fewer large ticket repairs.
Q: What’s the best way to start thinking beyond the budget?
A: In some of my training out at Onsite, a therapeutic workshop organization in Cumberland Furnace, we have found that referring to money and a spending plan tends to trigger fewer negative responses than “following a budget.” Many folks associate budgets with a negative connotation – something in concrete and inflexible and somewhat punitive. For many folks, this inhibits their ability to begin adding structure or goals to their way of spending. As a wonderful time management expert, Cindy Sullivan, shared with me several years ago, it is important to create a plan that fits you rather than trying to fit yourself to a plan already established. This is very true in spending plans as well.
Let me give you an example: I have found that if I pull out a certain amount of cash each week (yes, this means I go to the ATM weekly) and spend that on my eating out, I naturally watch what I am spending. I learned that if I solely use a credit card or debit card for those purchases, I end up spending a great deal more money. That is one of the only items for which I pay cash. The remaining items that I purchase (groceries, gas, supplies) I used checks or a debit card. Those purchases don’t seem to cause problems for me.
Another example is clothing. I do not shop for new clothes weekly. I tend to be a twice a year big shopper. So I set aside so much money each month within my checking account for new clothing and twice a year, I buy large orders of clothes from catalogs, then I pay them off immediately. For me this works because it is the way I buy clothes and the way I like to shop. For other people, it works best to buy clothes monthly.
My point is that with the help of an accountability partner, I have been able to find the way I spend and work up a plan that fits me. It does not work for me to spend all cash all the time. And it does not work for me to use a credit card for everything. I have a blend of steps that fit my spending style and they keep me from over spending, or creating financial stress for myself.
One key point that is VERY IMPORTANT – when I do hit times of difficulty (a decrease in income, large unexpected expenses, etc) I work with another person to be accountable and I revise some of numbers. In other words, a spending plan changes regularly. It changes to fit circumstances in life. It is a tool not a task master.
Have a question for our expert? This line is open until Friday, August 12th. Our expert will then answer the top questions and we’ll post their answers right here and on our Facebook page.