If you are among the many families carrying credit card debt, student loans, business loans and the like, there is a way out. It doesn’t require a degree in statistics, finance or mathematics. The answer is simple. The strategies here are tried and true.It doesn’t matter your situation, the answers are the same for everyone. The steps you take are identical if you are $5,000 in debt or $50,000 in debt.
1. Stop Trying to Keep Up With The Jones’
If you find yourself trying to appear wealthy to others by buying junk you can’t afford you will continue to destroy your finances. A need for approval and respect can drive us to do insane things sometimes.
When you buy a bunch of stuff with no money and tons of debt, you’re faking it. A radical change is required and your quest for approval simply needs to stop.Step number one requires you to STOP using credit. Cut up all your cards and stop acquiring new debt. This may seem obvious, but if your debt is out of control it’s because you keep adding to it. Don’t finance anything.
2. Where Does It All Go?
In order to begin living within your means, you have to start by looking at where your money goes. I’m talking every penny that comes into your life. This step will seem tedious but you have to go the distance. Begin tracking now.
All it takes is some paper and a pen. Every day track how much and what for… how much did you spend, what did you spend it on. Doing this for the next 30 days will most definitely open your eyes to your spending habits.
It’s by doing this that you will be able to plug some leaks in your spending. Knowing where your money goes will put you in a better position for success.If you have never done this, you will be amazed at how much money is basically tossed out the window… it all adds up!
3. Build A Rainy Day Fund
Now that you are no longer racking up your credit cards (you cut them all by now) and you’re plugging holes in your spending, you’re ready to build an Emergency Fund.
This is a small savings that should be kept separate from your normal checking account.
Your initial goal will be $1000. Clearly, this won’t catch all the big things but it will catch all the little ones until the emergency fund is fully funded (Step 5).
4. Begin Your Debt Snowball
There are varying opinions on this amongst the experts. Personally, I went with what Dave Ramsey says…Ignore interest rates when determining the order in which you’ll pay off your debt.
Organize them from smallest to largest.
Pay the minimum on all of them except the smallest.
Throw every dollar against the smallest debt until it’s eliminated then move on to the next smallest debt.
5. Putting An End To Money Fights
The last step is to continue building the emergency fund you started. The goal is to sock away enough to cover expenses for 3-6 months.
After fully funding this account, you will have a tremendous amount of reduced stress and your money anxiety will have all but disappeared.
