Money is a complex thing. There is a saying that “money can’t buy happiness.” However, depending on how you use it, money can work to your advantage or it can put an immense amount of stress in your life. Are you living paycheck to paycheck or are you one expense away from financial disaster?
If you are in a situation where you don’t have any extra money to do the things you wish you could do, there is hope!! There are two things that I am doing right now and both of them have opened my eyes to my (not so good) spending habits and helped me figure out where I should be spending my money instead. In fact, I have almost made it a competition with myself to see how fast I can get this debt paid down.
The first thing I did was figure out how much money I was paying monthly on Every. Little. Thing. This task does take some work but it is worth it if it helps you have more money in the end. You may not get it done in an hour or even a day but set a goal for it to get done within the next few days. Write a list of every bill you have during a month. You will want to include even the little things in this list, such as gifts for others, eating out, entertainment, clothing, as well as the monthly payments you make for utilities, phone, cable, and credit cards. I also listed 3 categories as “miscellaneous” for things that won’t quite fit into any other category. You can amend this as you go – it’s not written in stone. I do suggest that you list your groceries separately from your household items such as soap and shampoo. You will need eight columns beside each item, one for each day of the week.
After you have this list made, print out the last three months of your bank ledger and begin filling in every column with the amounts you have spent for each date. Hopefully not every box will have an amount in it. For instance, your utility bill should have only one box filled in for the entire month. After you have recorded every transaction, add up each row for each category. By this time you should be seeing a picture of what you spend your money on. It is very eye opening to see how much money you have “thrown away” on things that you have nothing to show for! Could you eat out a bit less? Maybe you could rent a movie in place of going to the theater every now and then. Even finding sales or using coupons here and there is more helpful than you would think. After doing this assignment, begin to record your transactions daily. Figure out how much you absolutely need to spend on each category each week and stick to it. That is called a budget. Trust me, it sounds scary, but once you do it, you will be glad you did!
The second thing I did is research faster ways that I could pay off debt. After reading a while, I came across the “snowball” method that has proven to be a great motivator. I found this method from one of the leading money and debt experts, Dave Ramsey. You can find out more about Dave Ramsey’s method of debt resolution here: http://www.daveramsey.com/blog/how-the-debt-snowball-method-works. The premise of this method is that, although most people suggest paying off the debt with the highest interest rate, it is often more successful to pay off the smallest debt first while paying the minimum on the other debts. Once you have paid off your smallest debt, add the amount you were paying on it to the next smallest debt. In this way you will gain momentum as you go and the rewarding feeling of paying off each debt motivates you to work even harder to pay off the remaining debt.
I suggest that you don’t reign in your budget so tight that you never have any fun. Maybe cut back from eating out three nights per week to just once per week. I strongly believe that if you never have any fun or never spend any money you will become resentful and your plan could fail. What is stopping you from digging yourself out of debt? The sooner you get started, the sooner you can start enjoying the benefits of having more peace of mind and more change in your pocket as well.