How To Stop Hemorrhaging Money

Hemorrhaging money is a place nobody wants to end up in. Even the word “hemorrhaging” sounds a bit nasty.

Once you begin hemorrhaging money, it becomes extremely difficult to get your finances back on track, and what once felt like not such a big deal is now a helpless and hopeless problem.

If this is starting to sound like you, you’re in the right place. 

What Does Hemorrhaging Money Mean?

When you hear the word “hemorrhage,” you likely think of blood. That’s because a blood hemorrhage is used to describe blood flowing from a broken blood vessel. In the world of finance, hemorrhaging money means losing significant sums of money, AKA “bleeding money.” 

Just like you don’t want to be hemorrhaging blood, you also don’t want to be hemorrhaging money. The problem is the hemorrhage starts small and can quickly grow. For example, buying a car with a high monthly payment, going out to dinner every night of the week, endless Amazon Prime orders, and so forth. 

How YOLO & FOMO Trading Hurts Portfolio

Anything with YOLO (You Only Live Once) or FOMO (Fear of Missing Out) in front of it is likely not a good idea. Trading with the mindset, “I only live once, and I can’t take this money with me!” Or “All my friends are buying crypto, I don’t want to be left out” are two sure-fire ways to begin hemorrhaging money.

These mindsets don’t even have to apply to a trading situation. They happen in everyday life too!  

Exhibit A: Leo decides to go to Las Vegas and gamble away his nest egg of $50K because “you only live once.” (YOLO)

Exhibit B: All of Isabelle’s girlfriends are going on a girl’s trip to Nashville. Isabelle was committed to curbing her spending but doesn’t want to feel left out. (FOMO)

Did you know that FOMO is so bad that nearly 50% of millennials report spending money they did not have and going into debt to keep up with their friends?

YOLO and FOMO may have cute acronyms, but they are anything but cute. Too much YOLO and FOMO can derail your life, savings, and retirement, leading to a life filled with work and being unfulfilled. The mindsets can even stop you from being able to purchase a home, start a family, and do other kinds of long-term planning.

No Budget Translates To Hemorrhaging Money

You may be thinking, “I don’t have a YOLO or FOMO mindset,” so I don’t have to worry about hemorrhaging money. But, what if you heard that if you don’t have a budget you’re at a much higher risk of hemorrhaging money?

When you have no budget, you don’t track your spending closely, and you don’t even realize how much you’re spending. You may think that because you don’t make large purchases, you don’t really need a budget. But, the little expenses — the coffee on the way to work and the panini at lunch — can be budget busters that add up way faster than you realize.

What’s more, overspending tends to lead to more overspending. Even though you spent $450 on a new Golf Putter last week, you spot an ad for a $300 golf club that you just HAVE to have. You think to yourself, “Oh, I already spent too much this month; what’s one more thing? I’ll start saving next month!”

If you’re still not convinced that you need a budget to prevent and stop hemorrhaging money, ask yourself this question, “how can I manage something that’s not being measured?”

You’ll never be able to tell if you’re overspending or where you’re spending too much if you’re not tracking it. Budgets let you know exactly what you need to spend, therefore making any excessive charges blatant. 

Budgeting these days has never been easier, thanks to apps that notify you when you’ve overspent, or you’re reaching your limit.

How Inflation Can Hemorrhage Money Long-term

Inflation is currently spiraling out of control worldwide. In the United States, inflation recently reached 7% — a 40-year high.

During periods of high inflation, things start to cost a lot more, from the grocery store to the gas pump to your kids soccer registration fees and even your mortgage payment!

When things start costing more, you’ve got a lot less left over for your savings, and things that used to cost just a couple of bucks can double, causing you to lose much more money.

How Credit Card Interest Can Bleed Your Dry

One of the fastest ways to start hemorrhaging money is via credit card debt.

Credit cards have notoriously high interest rates, meaning you’ll not only owe what you paid, but the interest can double or even triple the original purchase price — depending on how long you let interest collect.

Warren Buffett has famously compounded wealth at 20%+ per year but interest rate charges rise as high as 29.99%, meaning unless you’re 50% better than the #1 investor in the last half decade at creating wealth, you will likely end up in the red from too much credit card debt.

How To Stop Hemorrhaging Money

If you’re ready to take back control of your finances, follow these expert tips:

Pay Off High Interest Debt

Interest payments can leave a trail of financial ruin and devastation behind. As a result, paying off your high interest debt immediately is a must.

Pro tip: you can negotiate a lower credit card interest rate. Simply call up the company and tell them you’re struggling to pay off the bill because of the high interest rate.

Then, explain that you’ve found other companies that will do a balance transfer with a 0% introductory rate and then a much lower rate than your current rate. This lower rate will help curb your interest charges and help you pay off your high interest debt faster. 

Build Better Spending, Saving & Investing Habits 

Here are some simple changes you can make to start building better spending, saving, and investing habits.

• Minimize credit card debt
• Make a budget and stick to it
• Track expenses and spending
• Review your budget and spending regularly
• Review all billing statements 
• Negotiate your interest rates and bills
• Use coupons
• Invest in ETFs or REITs for a more diversified, lower risk investment
• Contribute the maximum to your 401K or Roth IRA account
• Save three to six months of expenses in an emergency fund
• Conserve your utilities 
• Pack your own lunch, coffee, and snacks — yes, even at the movies!
• Stop discretionary spending
• Meal plan and prep
• Wait 30 days before buying things you want
• Pay cash for all purchases. This allows you to only spend what you have with you, curbing your ability to overspend and making it impossible to spend what you don’t have and accrue debt

Automate Your Savings

An unprioritized, willy nilly, wait-til-the-end-of-the-month savings plan will not get you as far as automated savings. That way, there’s no thought involved, and you come to expect the automatic withdrawals, so you will eventually know that money is not available for your discretionary spending.

You can automate your savings by setting an auto-withdrawal for a certain percentage of your paycheck or use automatic savings tools such as apps that round up to the nearest dollar on every purchase you make with a debit card and send that to a savings account. Acorns is among the most popular apps for automated saving.

Invest In Passive Income Funds

Passive income is an excellent way to generate extra cash flow to help you pay off your debt faster and have more money with which to invest. The top passive income investments include:

• Real estate: Despite fluctuations in the market, real estate is the preferred choice for investors looking to cash in on long-term returns. Rental properties, in particular, can produce for owners a regular and passive stream of income. People who don’t want to deal with the headaches of managing rental properties can invest in real estate investment trusts (REITs), which pay out 90% of their taxable income via dividends to their investors. 
• Dividend stocks: One of the easiest ways to create passive income is through dividend stocks. As public corporations generate profits, a portion of the earnings is funneled back to investors via dividends. Then, it’s up to the investor to decide to keep the cash or reinvest it for additional shares.
• Index Funds: Index funds are mutual funds or ETFs that are tied to a specific market index. Their goal is to mirror the performance of the underlying index they track. 

Boost Your W2 Income

Ways to boost your income include:

• Starting a side hustle or two.
• Doing freelance work.
• Asking for a raise.
• Finding a new job with a higher salary.

You could also consider downsizing to a more modest home and taking the profit from your current home to pay off debt or invest. 

Create SMART Financial Goals

Following the SMART financial goals method can help you make your financial goals, hopes, and wishes a reality. Here’s what SMART financial goals stand for and entail:

• Specific: Your goal must be specific because when you clearly define your goal, it’s easier to track your progress and stay motivated. 
• Measurable: Without measuring your progress, you’ll have no idea whether or not you’re actually taking the right steps to stop hemorrhaging money. Use clear numbers to express your goals so you can always know where you are and when you’ve succeeded.
• Achievable: It’s great to be ambitious. But, you also have to be realistic. If you set “pie in the sky” goals that are impossible to accomplish, you’re more likely to become frustrated and discouraged fast. Take small, actionable steps towards your goal, and don’t forget to praise yourself each step of the way.
• Realistic: In the same vein, you need a goal that you can realistically accomplish, given your current circumstances.
• Time-based: Giving yourself a time frame to achieve your goals will encourage you to follow through with them while keeping yourself accountable and curbing procrastination.

Here’s an example of how SMART goals look in action:

Isabelle has made a new year’s resolution to finally stop overspending and start budgeting so she can create an emergency fund. Here’s how she turns her plan into action with the SMART system:

Specific

Isabelle has a specific number she wants to save — $10,000. She also has a monthly budget to stick to so she can save as much as possible for her emergency fund.

Measurable 

Isabelle took the advice that an emergency fund should cover three to six months of expenses and came up with the $10,000 figure. Each month — or even week — depending on her saving schedule, she can check her account to see where she is and how close she is to hitting her 10K goal.

Achievable

Isabelle used a budget calculator to figure out how much she should save each month based on her pay and expenses in order to reach her goal.

Realistic 

Isabelle is 23 years and working at an entry-level job making $50K/year. In order for her goal to be achievable, she can’t set her monthly savings goal to be too large a portion of her monthly take-home pay, or she won’t have enough to live on. Attempting to save too much or an amount that you don’t even make is not realistic.

Time-based 

Isabelle wants to achieve her savings goal by the time she turns 25. This gives her two years to save $400 per month and get to her goal.

Hemorrhaging money is a situation that can escalate extremely quickly. But with a little bit of planning and preparation, you can stop bleeding money in its tracks and start making wiser financial and investment decisions to set yourself up for a bright future.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.