How often do you worry about money?
A lot of people find themselves thinking about money the moment they wake up. Trying to figure out how to pay the bills, while also climbing out of debt, can make saving for retirement seem like a fairy tale idea.
However, we’re here to tell you that becoming completely debt-free and financially independent is possible. The best part is, creating a budgeting strategy to get out of debt isn’t going to be nearly as hard as you think it is. Instead, all you’ll need is time, focus, and a few financial tools.
How can you have financial abundance? Read on to find out.
Pay Down Debt With a Timeline
What’s one of the biggest hurdles you’re going to face as you start to change your budget? A lack of motivation. When you’re deep in debt, and it’ll take years to repair your finances, budgeting can seem pointless.
You might start to feel as if everything you do doesn’t matter since you’re so far behind anyway. To overcome budgeting blues or prevent them together, you have to set milestone goals. Digital tools, like finding the best planner app, can help you get a head start.
Your budgeting strategy needs to have short, medium, and long-term goals. Your short-term goals should be on a monthly basis.
How much debt will you have paid off by next month? Take things a step further by looking at a quarterly timeline.
After 3 months, how far will you be to financial freedom? Finally, you’ll also need to set goals that have a 1-year timeline.
When creating your goals, don’t make them based on feelings. Instead, use cold hard numbers to come up with each goal’s timeline. To get these numbers, you’ll first need to determine exactly how much debt you have.
Pull Your Credit Report
Do you know your credit score? Are you aware of who you owe a debt to? You might think you have the full picture of your debt situation, but there can be hidden accounts waiting for collection.
To avoid surprises, get a free copy of your credit report today. If you don’t want to get one online, reach out to your bank. Ask them if they provide credit reports, and find out if they have a financial advisor on staff.
Oftentimes, banks will have financial advisors who can walk you through the details of your credit report. Once you have a report, make a list of every debt you owe. After creating your list, reorganize it so that it lists the smallest to the largest debt.
Start Minimizing Expenses
Now that you have a list of all of your debts, write down a list of your monthly expenses. Be sure to include everything you spend money on.
Ask yourself, “How can I spend less this month?”. Groceries are a great place to start.
Start giving yourself a strict grocery spending limit. Then take that money to a discount grocery store that offers cost-effective solutions.
You won’t have to sacrifice food quality when you go cheaper. There’s a lot of wonderful budget stores or local farmers’ markets, and you can score all sorts of tasty foods for half the price you’d get at a fancy grocery store.
Fast Food and Money Management
Did you know that families with kids in the house are 19% more likely to buy fast food? It makes sense when you’re pressed for time to get a fast meal. However, fast food isn’t just unhealthy; it’s also expensive!
A meal for an entire family can easily cost $30 or more. If you’re eating out at restaurants, now’s the time to stop that too. Make your meals at home, and leave eating out for when you’ve completely cleared away your debt.
The Smart Budget Snowball Effect
Why should you list your debts from the smallest to the largest? A lot of financial experts suggest taking a snowball approach when it comes to paying things off. By beginning with the smaller debts, you’ll be able to build momentum.
Over time, you’ll eventually reach the larger debts. The snowball approach is much better than trying to spread your money out across multiple debts. By attacking small debts with all of your financial force, you’ll be able to clear them out of the way so you can move on to the next one.
Prioritize Large Interest Debts
Do you have a debt that you’re making late payments on?
Let’s say you have a loan out for $3,000 and you’re a few months behind. Each time you miss a payment on that $3,000 loan, you get slapped with a $50 charge. You’d want to prioritize the high-interest payment since it’s costing you money to have that debt.
Increase Your Cash Flow
Now you know how much money you owe and how much money you’re spending every month. Next, it’s time to figure out how much extra money you can put towards debt every month.
If you do not see any extra money after creating a list of your monthly expenses, then it’s time to increase your cash flow. Start looking for side hustles that can help you earn a couple of hundred extra dollars each week.
Waitressing in the evenings, delivering newspapers, and walking dogs, are all great side hustles. You won’t have to quit your day job, and you’ll be in a position to make tips.
If you have a partner who’s helping you get out of debt, both of you will need to get side jobs. The more you can increase your cash flow, the easier it’ll be to climb out of your debt hole.
Perfect Your Budgeting Strategy
Now you know the best tips for creating a budgeting strategy that works. As you can see, money management doesn’t have to be confusing or disheartening.
Since increasing your cash flow is such an important part of achieving financial freedom, start looking for side hustles today. Think about ways you could earn just a little bit of extra money during your time off, and then make that money work for you! For more insights like the ones you read in this article, take a look at what the rest of our site has in store.