Many small business owners dream of taking home $6,500 in a month — even a particularly good month. And a lean month of making between $2,000 and $3,000? They’d take it happily. That’s exactly the good fortune that befell Rachel, a 27-year-old “spiritual coach” from Austin, Texas.
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The young entrepreneur, who specializes in helping people tap into their better selves, found her new business doing fairly well from the start. Yet she also became mired in $80,000 of credit card debt, some of it related to her business, but more than a little of it due to poor saving habits.
Desperate to clear her debt and unpack her decidedly not Zen finances, Rachel turned to financial expert and host of “Financial Audit,” Caleb Hammer.
More Money Doesn’t Mean More Financial Savvy
In her conversation with Hammer, Rachel admitted that she’d never made so much money in her life, and she wasn’t exactly sure how to manage it. Ironically, the time she started her business coincided with her taking out her first credit cards, which led her into a debt spiral. When Hammer did the math on her take-home pay, he found she had earned about $80,000 — an amount equal to her debt.
How on earth did this happen? Despite her knowledge of yoga, breathwork, and other elements of spiritual coaching, Rachel didn’t appear to have an education in how credit works or how to organize a budget. As Hammer read out her expenses, she didn’t even recall one of the services she’d paid $100 for in a month, making it clear that she didn’t know to track every penny going out.
Worse, Rachel had a scattershot approach to paying her credit cards each month. In a perfect world, she wouldn’t have gotten herself into credit card debt in the first place. She would have maintained only one or two credit cards from the start, never spending more than she could afford, and paying her full statement balance every month.
But once her balances spiraled out of control, she should have applied an organized technique, like the snowball or avalanche method. Unfortunately, her random blitzes of payments didn’t help her to chip away at the debt meaningfully or build the financial discipline she so desperately needed.
More Money Can Lead to Lifestyle Creep
With more money, people can gain a false sense of security, spending away without being mindful — which is ironic for a spiritual coach. Breaking down Rachel’s monthly expenses, Hammer identified an overpriced gym membership and a bill for a massively overpriced phone plan that she could easily downsize for far less.
He also isolated a whole chain of digital payments and subscriptions that were probably unnecessary — certainly when she had so much debt. While some of her expenses, such as for her LLC and her website domain, were required, Hammer realized that Rachel was essentially zipping through her income nearly as soon as she made it, putting her in the position to overly rely on credit cards to get by.
More Money Means You Need to Be Saving More
Hammer bluntly articulated Rachel’s core problem: “You don’t know how to save.” Business owners like her, who are sole proprietors, need to take a more mindful approach to saving. He told her that for every dollar she earned, she needed to be putting 30 cents away in savings to at least cover her taxes. Frankly, he worried that, “you’re going to get in a bad situation where the IRS comes knocking on your door.”
When the subject of emergency funds came up, Rachel anxiously joked that she was tempted to get a safety deposit box because she couldn’t help but touch all the money that came in. Hammer was hearing none of it, admonishing her to open specific accounts for an emergency fund and not to touch any of it unless she was in dire circumstances.
She candidly admitted to being overwhelmed by the transition from barely getting by to making more than she ever had before, living on credit cards so she could embrace “a mindset of abundance.” The camera zoomed in on Hammer’s comically disturbed expression before he deadpanned: “I’m glad we’re doing things that feel good, instead of being smart.” That mindset was clearly hurting her.
To keep her finances as aligned as her chakras, Rachel would need to embrace some good ol’ fashioned thriftiness, like learning how to cook the healthy meals she loved at home.
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Rachel’s story serves as a cautionary tale: earning more money is only part of the equation — financial literacy and disciplined habits are every bit as important. For anyone navigating a significant bump in income, it’s essential to pair those earnings with a concrete plan for saving, spending, and reducing debt. After all, abundance feels a lot better when it’s built on a foundation of financial stability.
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This article originally appeared on GOBankingRates.com: Can Earning More Money Be a Debt Crisis Waiting To Happen? Caleb Hammer Weighs In
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