Grab a cup of coffee and a snack. This post is a bit longer than usual so grab a seat and enjoy!
I’m sure you all can relate. The monthly cycle of paying bills, spending for your household, and looking forward to the next paycheck to do it all over again. There may be some money left over for your child’s birthday party or a quick weekend getaway here and there, but overall the cycle remains the same. Finding your way to the light at the end of the tunnel may seem far fetched. I know it did for us.
We were so deeply rooted in that cycle, that for years it was our norm. Earlier this year I really began to wonder how our money was being spent. I always did a monthly budget of sorts. Everything was paid on time and in full, our credit scores were great so I thought we were good. But yet, the cycle still remained and our saving accounts were still minuscule. One day I took inventory of our bank statements for a period of 90 days, and I was astonished at what I found. During those 90 days, my husband and I had over $5,000 of unaccounted for money! Money was spent and I couldn’t tell you where one dime of that money went. There were a bunch of random amounts spent at various places that I know we frequent. But still, I couldn’t show you one thing that we purchased with that money! I needed to find a way out!
55 Days ago we began the “Live Richer Challenge” by The Budgetnista. Visit her blog to learn all about Tiffany and her journey to financial freedom. Her story is amazing! When we began the challenge it was a 36 day course on everything you needed to help you get out of debt. It’s now 22 days, but still contains all of the great information. The best part is the challenge is free!
Many of the tips shared here are based on what I learned during the challenge, however some are specific to my unique family makeup. Before we get into that let me give you ladies and gents a peek into our financial portfolio. We are both self-employed with home-based businesses, and we also have some recurring income that has been established for over ten years. While the recurring income is a set amount, our home-based business incomes fluctuate immensely from month to month. We have a total of 14 credit cards and loans, 1 car note, a brand new home mortgage, a student loan, and business lines of credit. In total, our debt is in the 6 figures! Well into the 6 figures! Yeah, y’all feel me now right! Whew! Juggling this financial circus every month is a chore.
The good news is, we have started on a path towards ridding ourselves of debt. 100% of our debt! I’ve spent the past 55 days getting this plan down to a science. If we stick to this plan we will have every dime of our debt paid off in 7 years! That includes our mortgage! While you all may not have the level of debt that we do, these tips will help you get a hold of whatever debt you have and work to get rid of it.
10 Ways We Are Becoming 100% Debt Free
1. Calculate your total monthly income – This is the most important step. If you don’t know how much money you are earning there is no way you can figure out how to pay off your debt. Receiving a regular paycheck makes this step easier. For those who have fluctuating income like we do, take the least amount of your earnings to figure this step out. That way, anything you earn above that amount can be used for debt pay down or building up your savings. Write this income down before moving onto step two.
2. Write down your monthly expenses – What do you spend money on every month? List every bill you have. Then list groceries, entertainment, charitable donations, gas or transit costs, everything that you MUST pay every month to survive.
3. Deduct your expenses from your income – Hopefully you are not in the negative when you do this. If you aren’t great! We’ve identified money that you can use right away to begin your debt pay down plan. If you are, no worries. You are going to make some changes in how you earn and spend money to get out of the red.
4. Identify your spending habits – Where are you spending your money? Is it on eating out? Travel? Home decor? A hobby? Shopping? Is it all going to bills? Figure out where your money is going so that you can make changes to how your money is leaving your hands. A great place to get this information is from your bank and credit card statements.
5. List ALL of your debt – Don’t be alarmed! The goal is to get rid of it right? You’re taking the necessary steps to do just that. Be transparent in doing this. Search through emails and mail, log into your credit card accounts, call your student loan company and mortgage company. Pull your credit report. You want to know every dime that you have to repay. Once you do this you can plan for how to pay it off.
6. Separate your money – My husband and I have a total of 7 personal bank accounts and 1 stock/money market account. Why so many? Because we want to see where our money is going. We didn’t always do this but since we did, we are more on top of our money than ever before. Each account does something specific. 3 saving accounts, 4 checking accounts, and 1 stock account. I am not including our business bank accounts here. That’ll be included in another post.
- Long Term Savings
- Travel Savings
- Emergency Money Savings
- Direct Deposit Checking (for our recurring income)
- Bill Pay Checking (ALL bills get paid from this account)
- My Spending Account (my allowance, groceries, stuff for the kids and house, misc)
- His Spending Account (his allowance, gas, entertainment, misc)
- Stocks/Money Market
The breakdown of our money has helped a great deal. Send your money where you want it to go. Then you can start to gauge how you are spending it. A great app that I have been using in part to fund our travel savings has been Digit. Digit connects to the account of your choice, and makes small transfers into a savings account for you. You don’t have to do anything! The transfer amounts are so small that most times you don’t even notice the money is gone. I have it connected to my spending account and the average transfer amount for this month has been about $6.00. So far this month I’ve saved almost $40.00 with Digit without doing a thing! Give it a try. Use this link to sign up. It takes only 5 minutes and you’ll start seeing transfers in about 2 days after completing your signup.
7. Eliminate non-essentials – If you don’t need it, get rid of it. Subscription boxes, high priced cable, gym memberships, magazine subscriptions, eating out, lawn care, etc. In step 4 you identified your spending habits. Now you can see where your money is going. Let go of the things that are draining your bank account every month. Use the money saved from eliminating the non-essentials to pay down your debt. You’ve already become accustomed to spending it every month, so you won’t miss the money. It’s just being used for a better purpose.
8. Make a monthly budget! – This is very important. Budget monthly to account for new expenses, those that have been paid off, increase or decrease in income, and to be aware of due dates. We want to pay our bills on time to avoid late fee’s and penalties. Here is a great budget sheet to help you get started from savingmoneylivingsmart.com. Lay it all out every month so that you can be prepared to tackle the task ahead of you. I typically do mine during the last 5 days of the month to prep for the month ahead. This gives me the opportunity to make any adjustments needed before hand.
9. Call your creditors and service providers and negotiate for lower interest rates or better plans. Interest is the devil! You know it! Try to get lower interest rates so that you can actually pay the bills off. If they say no, don’t be discouraged. Just stay on the path and eventually it will get done.
10. Set a timeframe for paying off your bills – Don’t move into this plan without an end goal. Know when you want to be debt free and set a plan on how to do so. If your goal is to be debt free in 2 years, figure out how much you need to pay each month towards your debt and make that happen. If you don’t have enough income, find ways to earn more. A part-time job, babysitting, bake sales, consulting, garage sales, anything that you can do to earn more money. Every dollar you earn that is above what is needed to keep you afloat should go directly towards paying off debt. Our end goal is 7 years. Seven years may seem like a long time, but just think, the average mortgage is 30 years in length. That 7 years doesn’t seem so bad now huh?
11. Watch your progress – Take regular inventory of how you are progressing. Nothing will motivate you more than seeing all your hard work right in front of you. With each debt that you eliminate pat yourself on the back! In no time you will be down to the final dollars and financial freedom will be at your feet.
I’m going to be posting monthly about our progress so you can see how applying these steps is working for us. Wednesday’s Debt Free Days is my personal finance journal. I’m excited to be on this journey and look forward to the day that our 6 figure debt is gone.
Please share some of the ways you are managing your money and working towards paying down debt. To better days and becoming debt free…