Getting into debt is easy, but getting out of debt and staying out is much harder. It’s not complicated, it just requires a certain force of will that can be challenging for some people.
Very simply, getting out of debt means setting out a plan for living within your means and sticking to it: no impulsive purchases, no extravagant amenities, just an understanding of what you make and how you need to spend it. Here’s what you do:
First: Figure out what you make and what you spend.
This might means tracking your income and expenses over a period of time, which is much easier than it used to be. It’s not about needing to keep a perfect check register (although you should totally do that if you use checks) but rather downloading your checking account history.
You can set the period, say a few months, and then separate the income and spending into a few categories by month. The big ones are essential and nonessential, essential are your rent or mortgage, car payments, utilities, and your average grocery bill. And your student loans or class payments, if applicable.
On the opposite side of your downloaded ledger is: How much do you get paid in an average month? (If you get paid biweekly that’s two paychecks, not three).
Take a look at it and see if there’s anything obvious about it: how much do you spend on coffee or lunch every day? Drinking on the weekend?
Second: Budget
Okay, now you know how much you make and how much you spend . . . how much should you be spending? Write it down. Or type it and then save the file. Just get it out of you and put it down on the paper.
Be realistic. If you go drinking every weekend, don’t pretend you’re going to go teetotaler all at once. Think about how many drinks you have and cut down by one per night or one night per week.
Now you have a plan. Stick to it, and here’s one thing to remember: if you screw up once, everything is not ruined. Get right back on the wagon and try again, and the next time too. So many people just give up if they encounter a hiccup, but you don’t want to be one of them.
Third: Save something
Start small, but get bigger over time. How about starting with a dollar this week, then two next week, then three, then four, until you reach the level you think is reasonable (maybe $20 a week? $25?) This will also allow you to deal with emergencies better, and without going into debt in some cases.
You actually have to move it to the savings account though, if you’re going to do this. No cheating by trying to leave it in a checking account.
Fourth: Control your access to debt
So there are two sides to this particular point. First, if you go into debt, try to do it for things that will keep their value over time. A car to get around will help you get or keep your job. School will help you make more money in the future. A trip to Vegas . . . well, how much value are you going to get out of that after the trip ends.
On the other side of that, don’t allow yourself easy access to debt if you have trouble controlling yourself, and the big one here is credit cards. It’s really easy to accidentally load up on credit card debt and if you’re one of those people you should think about cutting them up once they’re paid off. Use a debit card, which is only money that you currently have, and that might make you think twice about impulsive purchases.
Summary:
Staying out of debt isn’t exactly sexy at first, but having your finances together gets better over time, because it means better spending in the future. Maybe a nicer house or a better car. If you want more specific help, including help saving on your taxes, give us a call.