Dear Dollar Stretcher,
I really struggle with the discipline aspect of saving money. I have heard of companies who put your money in a trust, pay the bills and give you an allowance to live on. Do you or any of your readers know anything about how these companies work or if anyone has had any bad experiences with these?
Mary has a problem that's probably more common than we care to admit. She has trouble controlling her spending. And, to her credit, she wants to regain control.
But, I don't recommend that she use a firm to pay her bills. Three reasons why I don't.
First, not all of these firms are legitimate and responsible. Signing up with the wrong company could have disastrous effects. Not only could you lose your money, but your credit rating could be destroyed.
Secondly, why should Mary want to pay someone to do what she can do herself? These firms will work with her to create a budget. Once she has a budget made they'll collect her paycheck and allocate it to her various monthly bills and give her an allowance for incidentals.
She can do that herself. You can find all kinds of budget worksheets by doing a web search for 'making a budget' or look for info here.
She can set up a special checking account to be used for routine bills, like the electric bill. That account will only be used to pay those specific bills. In fact, if she can set it up for online payment and not even have any paper checks, that would be best. Less temptation.
Individual debit cards can be used for things like her groceries and food shopping. One for each category. For instance, she can add the amount that she has allocated for food each pay period to her food debit card. When she's grocery shopping she uses that debit card. Since she can only spend what's on the card, she's effectively stopped when the money is gone.
She'll probably have some incidental expenses that aren't easily put on a debit card. She can set aside a certain amount of cash to cover those expenses each pay period. Again, when the cash is gone the spending must stop.
Anything beyond that goes towards an emergency fund or long-term savings.
Mary may find that her income doesn't cover her expenses. That means that she must reduce her spending or increase her income.
She doesn't say, but past debts might be part of the problem. If she has a large amount (typically $10,000 or more) of credit card debt, she might want to check out a reputable credit counseling agency. She'll want to find a credit counselling agency that's a member of one of the two associations: Association of Independent Consumer Credit Counseling <aiccca.org> or National Foundation for Credit Counseling <nfcc.org>
The third reason that I don't recommend these firms might be the most important. Hiring someone only deals with the symptoms. Unless Mary addresses the root cause of her spending problems she will always struggle with spending issues. That will be true no matter who has control of Mary's charge cards and checkbook.
Mary needs to understand why she's spending money. Often people who have problems controlling their spending are trying to fill emotional needs. For instance they may feel loved or powerful when they buy something. What they're buying is only important to them as it relates to fulfilling that psychological need.
There are a number of clues that could identify that she has that problem. One is if her head says "stop" and she buys anyway. Another is if she feels out of control when she's shopping or enjoys a shopping 'rush'. Perhaps she feels remorse after a purchase or hides her purchases from her spouse.
If Mary has that problem it's good for her to be responsible for paying her bills. Being closer to her financial transactions could help her understand her buying motives. As she pays her bills a good question would be "why did I buy this?"
Mary may find that she can't figure out what's triggering her actions. In that case she'll need to seek out a counselor who can help her work through the emotions.
In any case, Mary should be proud of herself. She's identified a problem and has taken the first step to solving it.
Keep on Stretching those Dollars!