Just about every week I harp on some aspect of how to get rid of debt, live on a budget or do something more frugally than you previously thought you could. Many of you have told me all that stuff is fine, but asked, “where the heck should I start on all this mess?” Today is your answer! Taking content from my book, numerous other posts on this site and others, and summarizing them into a few simple steps will hopefully give you the ammunition to get rid of your debt and live free of all the junk that goes with being a “slave to the lender.”
1. Are you living on less than you make?
You MUST do this consistently or you’ll never get out of debt. Personal finance is a simple math equation. INCOME – SAVINGS – EXPENSES = 0. If you can’t make that math work, you must change something until it does. Simple as that. Changing the math isn’t so easy sometimes, but don’t over-complicate what you need to do mathematically.
2. Do you and your spouse agree on money?
Good decisions or bad, you must be in agreement with your spouse on finances. That way there can be no finger-pointing when something goes wrong and no undue credit taken when something goes right. You’re in it together. PERIOD. If you aren’t married, you’re stuck arguing with that person in the mirror…and he/she can be pretty feisty.
3. Are you doing a budget every month?
If not, why not? If so, why isn’t it working? You need to be living on a written budget that “spends” all your money on paper before you get a single penny in hand. Then you can simply execute on your written plan. In my full-length book, From Debtor to Better, I go into the mechanics of all this in great detail. In my shorter book, It’s Not About Money, I give you the basics to get you started.
4. What about emergencies?
If you’ve made the commitment to be debt-free, you need a cushion against the inevitable unexpected expense. This is called an emergency fund. It is cash (not another credit card or line of credit in any form), in a savings, checking or money market account, designated only for true emergencies. How much? At least one paycheck’s worth. How do you save this when you’re in debt? Make it a priority and find ways to earn some extra for a short time, if needed.
5. What can go away?
The easiest way to spend less money and thus to be able to pay extra on your debts is to cut unnecessary expenses. We all have them. Homework: look at every single thing you paid in the past month and be ready to defend why you wrote that check or approved that expense. Look at the cell phone bills for things like insurance, data packages, etc. that aren’t needed. Look at the cable/satellite/internet/phone bill to see if there are promotions you could take advantage of or if you could get rid of any of them altogether. Look at the entertainment expenses (eating out especially) and make sure you really want to spend that money instead of staying home. Look at EVERY ONE and make sure you don’t repeat history if history was a poor choice.
I guess that’s PLENTY to get you started. I hope it will be helpful to those of you who haven’t started because you just couldn’t figure out how. And for everybody else…no excuse – get to it! When you make it important enough, you’ll do it! Let me know if I can help.
What tips might you add as critical to getting started on the journey to freedom from debt?