Get Out & Stay Out!

Assuming you have more debt than you can handle right now, below are some next steps you can take to begin moving from financial bondage to financial freedom today!

Helpful Hints for Household Expense Reduction & Income Generation

  1. IMMEDIATELY STOP USING ALL CREDIT CARDS, UNLESS IT IS AN ABSOLUTE EMERGENCY. Move to a cash-only plan for all household purchases.
  2. Assess whether or not additional streams of income are possible and prudent.
  • Consider second or third part-time jobs outside and/or inside your home (home-based businesses: tutoring, selling unneeded items on Ebay, Craig’s list, Letgo, Marketplace, garage sales, flee markets, home parties, direct mail, etc.)

3. Can you take additional payroll tax deductions without owing Uncle Sam at year-end?

  • If you claim “0” just to get a check back from the IRS for overpaying your taxes, you have just given Uncle Sam an interest-free loan all year long! Why not put that money in your pocket each payday and use it to payoff credit cards or to open a savings account? (see your tax preparer to help determine how many deductions you can legally take)
  • Make sure you take every tax deduction & tax credit you are entitled to when filing taxes.

4. Homeowners – Do you carry mortgage insurance through your bank? You may qualify to drop it. Check it out!

5. Homeowner & Car insurance – When did you last shop for new quotes/lower rates?

6. Life, Health, Disability, Long Term Care Insurance, etc. – When did you last shop for a new quotes/lower rates?

7. Eating out? How often? Where? Reduce or eliminate until you are out of debt.

8. Vacations? Scale back or eliminate until you are out of debt.

9. Utilities: Gas/Electricity – Are you on a budget plan to help normalize monthly expenses for better budgeting? Call your provider, ask if they will put you on a  budget plan.

10. Telephones/Cell phones/Cable vs. Satellite TV/Internet – Whistles & Bells? Basic plans vs. premium plans. Reassess for possible cost reductions.

11. Sanitation – Do you have a choice of provider? Shop around if you can.

12. Groceries: Bulk vs. Prepackaged? Generic vs. Name Brand? A membership to Sam’s Club, Costco, etc. might be worth the membership fee for potential savings.

13. Gasoline: How much for last fill-up? Check around town, call your local radio station, use “Gas Guru” app on cell phone.

14. Expensive leisure activities: golf, bowling, pro sporting events, 1st run movies, etc.? Reduce or eliminate until you are out of debt.

15. Clothing/Shoes – Brand names vs. Generic? (Goodwill, Gabriels, Big Lots, Marshall’s, Plato’s Closet, other 2nd hand outlets)

16. Medical Expense alternatives:

  • Check for free or discounted health clinics in your area.
  • Brand name vs. Generic drugs & vitamins (prescription & nonprescription)
  • Ask your doctor for samples when he writes you a prescription

17. Miscellaneous “Wants & Desires” that can be stopped or put on hold until you are debt-free:

  • Tanning
  • Tatoos/Body piercings and associated expenses
  • Fingernail Treatments/Painting
  • Dry cleaning vs. clothing that doesn’t require dry cleaning
  • Subscriptions (magazines, book clubs, music clubs, health clubs, etc.)
  • Pets & associated expenses (food, grooming, boarding, veterinarians, etc.) – Wait until debt-free unless pets are already part of your family. They deserve proper care too.
  • Cigarettes, cigars, pipes, chewing tobacco, etc.
  • Alcoholic beverages
  • Gift Items (Christmas, Easter, Birthdays, Weddings, Graduations, etc.) for family, friends and relatives? Homemade gifts vs. purchases?
  • Yard & Home Maintenance – Do it yourself when possible vs. paying someone else.
  • Proper maintenance on older vehicles rather than turnover every 2-4 years. These days, most properly maintained used cars will last 10 years or more.
  • Buying “good” used cars vs. buying new – Do your research first!

Baby Steps To Becoming Debt-Free

Once you’ve found ways to reduce household expenses and are generating some additional income, it’s time to implement and commit to a plan that will move you to the ultimate goal of a debt-free lifestyle and financial freedom!

1. Your first priority is to open a savings account and begin building your “Emergency Fund”. This fund should only be used to purchase items that truly constitute a household “emergency” (furnace, AC, refrigerator, major car repair, tires, etc.) Experts site various levels to this kind of fund:

  • Some experts say you should have at least $1000 saved.
  • Others say you should have 3-6 months of your paycheck saved. Obviously it will take a while to save this much. However, if you should lose your job, can you imagine the peace of mind you’ll have knowing you can still meet all your monthly expense obligations until you find employment again?

2. Next, if married, you and your spouse must sit down and develop a reasonable monthly spending plan, better known as a budget. Depending on the budget items you choose to plan on, your household income minus household expenses should equal no less than zero. If single, have someone you trust to hold you accountable help you complete your monthly spending plan (budget).

  • I’ve created a handy budget worksheet to get you started HERE. If you have questions on how to use the worksheet, don’t hesitate to email me.

3. Once your Emergency Fund is in place, it’s time to start accelerating the payoff of your credit cards using a technique some experts refer to as the “payoff ladder”. Here’s how it works:

  • Assuming you have more than one credit card, you start with the one with the lowest balanced owed, not the highest interest rate. This strategy provides you with the quickest payoff so you are experiencing a quick win. If you can add any additional money to the minimum balance owed, all the better!
  • Once the first card is paid off, you take the money you were paying on it each month and add it to the minimum monthly amount you are paying on the next card until it is paid off.
  • You keep repeating this method until all your credit cards are paid off. Then, commit to using your cards only if you know you can pay off the amount owed in full each month.

4. When your credit cards are all paid off, you can begin adding some of that new-found money to your monthly auto loan and/or mortgage payment which will accelerate the payoff of those loans and save a ton of interest!

You are now well on your way to debt-free living with greater peace of mind!

See you next week for the next steps to financial freedom and more Wisdom Matters!

 

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