I’ve been wanting to write this post for a while; a very basic, down and dirty, step by step guide on how to get started on being debt free. This is what WE did, and more or less how I usually respond when people say “I want to take over my finances but how do I start?!”
- Get Mad. Write down all of your debts on a piece of paper. Everything. Every personal loan, every credit card medical bill, car loan, student loan (you can add the student loans together for each person in the household to save room on the page), the mortgage, everything. Make it look nice because its going to be on display. Add all of those numbers together and write your total on the very bottom of the page. Woah huh? Now post that up someplace where you’ll have to look at it every day. One of those places in your house where the floor cleaner people call a “high traffic area.” Now leave it there for a few days and just marinate on that figure.
This can also be the time when you dream about what you would do with your life if you didn’t have debt payments. For me it was to be a stay at home mom of a big family. If we didn’t have car payments, credit cards, student loan payments, we wouldn’t need as much income, I wouldn’t have to go to work and we wouldn’t have to count on baby sitters or after school programs or family members to take care of the kids.
- Educate Yourself. Now you know how deep of a mess you’re in, you’ve marinated on it until the point where you’re mad. But don’t be mad where you’re just flopping around like a fish out of water with no real direction. Educate yourself about debt reduction and financial fitness. If you knew how to manage your finances effectively, you wouldn’t be in this mess right? So ask an expert.
Read Dave Ramsey’s book Total Money Makeover. Sign up and attend Financial Peace University. A lot of people like the book Barefoot Investor, but personally I haven’t read it yet. I also really was inspired by Ruth Soukup’s book Living Well, Spending Less. Find some expert plan that inspires you and create your game plan.
3. Make your Budget. You HAVE. To have. A Budget. Your budget is your new great uncle that died and left you all kinds of money. Never have we ever “found” more money than since we started a strict budget. Last month I wrote a post about how to make a budget that fits your income. You can read it here. I worked really hard on it and made sure to include tips on how to cut expenses and add income, so I hope that you find it helpful.
4. Track your Progress. Motivation is key. Personally, I know I can only deprive myself
of pizza delivery and Dunkin’s coffee for so long without seeing some type of payoff. I like these debt free charts and I used them a lot for my student loans. But they just weren’t doing it for me now that we’re tackling Jeff’s loans because he has like 17 of them. So I switched over to this style with the boxes. Find some type of way to show what you’ve accomplished, and then post it up in the same high traffic area you have your debts listed.
5. Tweak and Adjust. Don’t get discouraged if you’re not debt free in the first month, or if you fall short of some of your goals. Reflect on what you’ve learned so far and adjust your plan for the next month. Change your goals to be more realistic, or change your methodology to accomplish your goals no matter what. Cut out expenses, sell something, add more income through a side job or overtime. Like anything else this is a journey, and its not without stumbling blocks or a learning curve. But no matter where you are on the journey, you’re always better off than before you started.