Being in debt feels like being trapped at the bottom of a well with no way to dig yourself out. It may seem like too big of a climb. The number may look too big. It’s not. I’m going to give you a simple road map to follow. In the early 1990’s I ran myself into a little debt. It wasn’t too crazy, but for what I was making at the time, it seemed significant. As I kept spending, I kept telling myself, ‘That’s no big deal. It will just take a couple of extra months to pay off that card.
I realized my spending habits were way out of control. The way I thought about money was just plain wrong. I set out to create a plan to wipe out my debt. The problem I faced was, I couldn’t figure out how to do it. There was no internet at the time, so there was no one to show me the way. I hit the library and bookstores to begin my research. After about a month, I had penciled out a personal finance plan. Then, I put it into action.
Within a year, I had dug myself out of debt and managed to build an emergency fund of a couple of thousand dollars. I’ve been debt-free ever since. Well, except for my house, but that will be paid off within the next year or so. The important thing is what I learned along the way, changed my money view. Now, I want to share that with other people because I think it can help them too.
Personal Finance Tip #1; Blasting away debt with an easy-to-follow plan.
Budgets shouldn’t be constructive, like a noose hanging around your neck. They should be more like a guide to give you a path to something better. Everyone’s budget will be a little different. So, it would be unfair to give you the ‘this is how you have to do it’ mindset. I’m going to explain how I did mine. But, more importantly, I’m going to give you the thinking behind it so you can custom-tailor yours to meet your lifestyle. I’ll even share some opinions of others. I didn’t use them, but I believe might help you develop your ideal budget.
- First, you need to know what you spend. When I created my first budget, it was hand-drawn in a notebook. Now, a computer spreadsheet would be best because of the ease of switching things around. You will need to change things, especially in the beginning, until you get something that is working. Write down everything you spend the first couple weeks. Be exact as you can. I had horrible spending habits. So wrong, I had no idea where all my money went. A couple of dollars here and a couple of dollars there, pretty soon you’re broke.
- Next, you need to dig deep. Go through your old bank statements and your credit card statements for the past year. These will give you a sense of where you spend other portions of your money. At this point, you could start developing your categories. I love mind mapping. I haven’t created a detailed budget since I got hardcore into mind mapping.
- Make your budget as detailed as you can. You should have more than five categories. I like the envelope method for monitoring how to use cash. I think Dave Ramsey may have developed it. I used it. It works great. You will need to create separate paper envelopes to put some money in every pay period. When you spend the cash, you’re done spending in that category until the next pay period.
- Get rid of your credit cards. Some people used to shred them. I took mine out of my wallet and locked them up in my apartment. I went cash only on my budget. Rent and utility bills I paid by check, but all other things were strictly cash. That is why you will need a combination of a written budget log and the envelopes. I had a notebook I used. That was before I owned a computer. Now, I would just create a spreadsheet.
- Figure out your monthly income and start adding up your expenses. If you’ve never actually seen what you have gone out as opposed to what you have coming in, you may be in for a shock. I know I was. Your lump sum paycheck goes away pretty quickly if you don’t track where everything goes. If you continually go deeper into debt every month, you’ll need to cut spending or start making some extra money. Some people don’t typically spend more than they earn, they just made some bad buying decisions and are paying high interest on something which is pulling them deeper. If your core bills are costing you more than you are making, some drastic changes might be in order.
Many people use the debt snowball method to start paying down debt. With the debt snowball, the mindset is to pay off the smallest debt first, then work your way into paying the more substantial debt as you go along. It does give you some sense of accomplishment as you go along; rolling your payment money from smallest debt to highest. Interest is paying more for an item that you initially agreed to pay. This amount gets more pronounced the higher your debt is. I prefer paying off the highest interest rate first. Let us say you put more toward the principal each month to clear out high interest rates. Then the debt will get smaller and the less you’ll be paying in interest each month.
Personal Finance Tip #2; Creative ways to slash your expenses without feeling the pain
As I said, I’m not a fan of the debt snowball method because I’m crazy fanatical about not giving money away to interest charges. I can also make quite a game of expense slashing. There are some things I think people need, so life doesn’t become too uncomfortable. If this budget is too painful, you will want to quit. Balance is the key.
Here is my list of places to start cutting expenses.
- The first place I look is those little monthly subscription charges you never really use. Gym memberships, newspaper subscriptions, Netflix, and even some internet monthly subscriptions you’ve forgotten. The one subscription service I like and the only one, I think will save you money, is razor blade subscriptions. I pay six dollars a month for razor blades. Razor blades are costly in the supermarket. You can easily spend thirty dollars or more a month for razor blades. For six dollars per month, you can get the same amount of razor blades. I like getting my razor blades mailed to me.
- Cable T.V. and internet is another place to save quite a bit of money. It depends on what you use and how much debt you are trying to pay off. Sometimes you can negotiate a rate reduction. You may want to shop around for a new service. In drastic situations, you may determine you can get by without any of it altogether. If you are putting together a side hustle to earn a little extra cash, you will enjoy less time in front of the T.V. to work on making more money.
- A telephone is a way to save a ton of money. My wife and I got rid of our home phone because we both had cell phones. In our house, the telemarketers used our home phone more than we did. You can also shop around for cheaper cell phone plans. It depends on how drastic you want to go. Cell phone companies are continually coming up with specials. You will need to research your current contract. Most companies have sizeable penalties for breaking your lease. If you are fresh into a new expensive deal, negotiating a way out may save you money. If you are near the end of your contract, you may want to finish out your contract before you shop around for a new one.
- Not eating out at restaurants is a tremendous way to cut expenses. If one of your pure enjoyments in life is going out, especially on a date night, I won’t deprive you of that. The key is to cut it to moderation. Eating at restaurants is where the envelope system comes in handy. If you only have so much in the envelope, you can’t overspend. No more just whipping out a credit card to pay for a meal. When cutting expenses, everyone mentions getting rid of Starbucks coffee. I don’t drink coffee, but if it is a real passion of yours, maybe cut it down to a treat once a week. Start another envelope and put the money in. If you can forgo coffee one week, you could have two the next week or take that money and put it toward debt and start fresh next week. The same holds for restaurant meals. These envelope amounts can carry over. Hopefully, you are incredibly frugal.
- Even figuring out ways to cut the gas in your car. I don’t mean driving to another gas station to save $.02 a gallon. That isn’t worth it. Gas stations use this tactic as a mental sales tactic, but it makes no sense. Most cars buy between 10 and 15 gallons to fill their tank. Driving to another gas station to save between $.20 and $.30 doesn’t make much of an impact on your budget. What I mean is ridesharing and just driving less. Can you plan your trips out more strategically? One trip to the grocery store per week instead of three. Carpooling to events, then taking turns on who drives. My car usually costs me about $30 per week in gas. If I could somehow cut that to $30 every two weeks, I would save about $750 per year.
- The grocery store is another excellent place to save a ton of money. There is an overwhelming amount of discount grocery options popping up all the time. Buying more vegetables and less meat is one way of saving. Meat is relatively expensive for what you get. Buy generic brands instead of name brands. Most of the generic brands are made by name brands anyway, just put into generic packaging. Recently, I bought a vacuum sealer. I can buy in bulk or buy ‘on sale’ items, vacuum seal them, and then store them for extended periods. The last thing I have to say about buying groceries is the power of ‘couponing.’ People have been doing it forever. You can save a ton of money if you plan out your trips to the grocery store.
There are many more ways to save money, these are just a few. I’ll be updating this list as time goes by and I get more creative ideas you can use to cut expenses.
Personal Finance Tip #3; Ways to earn extra money every month
Now comes the fun section. This section is the area that has always intrigued me the most. I’m continually experimenting with things to make extra money. Some work out well. Some don’t match my personality quite so well. I’m going to run through a bunch of ideas. Pick the ones that seem fun. All of these personal finance ideas are not meant to be huge businesses. They are just little things you can do in your spare time to earn a little extra money.
- The first is just pure arbitrage. Find some items on one platform free or cheap, then sell them on another platform for a profit. Craigslist works well for this. Shop Craigslist for cheap deals or even free items. Get the item and sell it on Craigslist, eBay, or Letgo for a profit. My uncle and some of his friends used to have a service where they would clean out peoples’ garages. They would charge them a fee to do the cleaning, then take the useful items and sell them off at rummage sales. That isn’t a horrible business model either. You not only get items to sell, but you are get money from cleaning the garage.
- Another exciting way to create a little revenue is to sell old things around the house. I love cleaning the house like this. I hate old junk I never use lying around. I look at it this way; stuff costs you money every year to have around. It costs money when you buy it, and it costs you money to store it. The more things you have, the larger house you need to store all your stuff. I’m a fan of the six-month rule. If you haven’t used it in six months, get rid of it.
- If you have a unique skill or hobby as an artist or making crafts, you can always start an Etsy store. Here is an article about a woman who is killing it on Etsy. She quit her job and is traveling the world as her Etsy store continues to make her money. It’s easy. You can do it in your spare time. You can make some good side money and learn something about business and marketing. There are stories of people who have turned their part-time Etsy stores into full-time businesses. Etsy has a small $.20 listing fee. Then when you sell it, they take a 3.5 % transaction fee and a 3% plus a $.25 payment processing fee. You are looking at roughly 6.5% in fees. Make sure you charge enough for your items. You can search around on there to get an idea of the market, then set your price accordingly. The bare minimum should be a 100% markup of your cost (don’t forget to add your time). This amount should give you plenty enough of a margin to absorb their fees. Don’t forget to add shipping to your final collected price. Their shopping cart system also has an automatic shipping cost estimator.
- If you have some unique skills, you can offer your services on the web or in person. I had a friend whose wife used to enjoy cleaning, so she started cleaning office buildings at night. She eventually blew it up and turned it into a business. Take stock of the skills you have and figure out a way to find a buyer. Craigslist is a great place to start.
- Of course, there is always the second job. The second job is my least favorite. I don’t want to go to my first job. Why in the world would I ever want a second job? Some people like them though. It gets them around new people, they earn a little extra money, and sometimes it puts them in a position to learn a new skill.
The above stuff is not even close to everything you can do. If you get an idea, jump on it and figure it out. You may stumble your way into the next Facebook or Amazon. These lists of things won’t be static. They will always evolve and change with time. The very best thing is to keep exploring and trying new things. This should be an excellent place to start when you need to get budgeting, cutting your expenses, and finding ways to make more money.
Thanks,
Kevin