Debt free living is something we should all strive for. Did you know that the average American is at about $38,000 in personal debt, and that excludes mortgages! (source CNBC.com)
So what exactly is debt free living and why should it be one of our most important personal financial goals?
Being debt free means you don’t owe any money, that means no payments or owing friends/family. Being and staying debt free means saving up for something you want, which means changing the “I want it now” mentality that most of us have now a days.
You can have what you want, you just need to sacrifice in certain areas and know how to limit the amount of money you waste.
How To Become Debt Free
I hope you find this guide helpful! Below are just a few things to keep in mind before beginning your journey to becoming debt free.
- If you have a spouse it is best to include them during this debt repayment guide.
- Make sure you are ready to learn how to reduce your debt and make a change so you can stay motivated.
- The blog posts I included are very helpful, be sure to check them out.
- When you have completed your budget worksheet print it out and stick it on your fridge.
- If you have trouble sticking to a budget try and make sure you have spending cash allotted to yourself every week. This will help keep you from spending your budgeted cash.
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Step 1: Create a budget!
Get your monthly revenue written out. If this step is difficult for you I loved Dave Ramsey’s Total Money Makeover Workbook.
Next take a look at your expenses per month, dig deep and make sure you include everything! Including the small things like coffee, snacks, etc.
ProTip- Look at your last months bank statements. Any random withdrawals write down as misc.
Take that number and subtract it from your revenue. Are you happy with that number? Is it in the positive or negative? If you feel shocked and horrified at that number (like I was when I seen my number) then lets change it! You deserve to be happy! You deserve to be financially stable, money doesn’t own you, you own that money!
Affirmation- I move from poverty thinking to abundance thinking.
Step 2: Purge Baby, Purge!
So that last step was an eye opener, now it is time to make that number less scary. Look at your expenses and write out your fixed ones, those include:
- Rent
- Mortgage
- Internet
- Power
- Phones
- Insurance
and so on.
Now try to cut those down as much as you can.
Feel free to check out my blog post: How To Save Money On Your Bills
Now write out all your variable expenses, those include:
- gas
- groceries
- baby items
- etc
Try and cut back on those as much as possible. Really dig deep, I know it is hard but I also know you can do it, being debt free is so worth it!
Affirmation- My finances improve beyond my dreams.
Step 3: Backup and Relish!
Let’s go back to Step 1 now and redo the math. Look at your number now, do you feel better? You should! Making changes to your lifestyle is hard! My biggest suggestion to you is cut back on your grocery bill, I was able to cut mine in half per month saving me $200.
Check out my blog post on how I did that here: How To Budget For Groceries
If you still need help try making some extra money, there are tons of different ways to make some extra cash, my favorite quick and easy way to make money would be Survey sites!
Survey Junkie is the most recommended survey site and the most trusted. You can cash out using either PayPal or exchange for gift cards. So it is a good way to spend money on your wants so you can save more.
My second favorite is Swagbucks, you get a free $5 sign up bonus as well. Like Survey Junkie you earn points by completing surveys but there are also tons of other ways to earn points on Swagbucks.
The thing I love about Swagbucks is the payment threshold is as low as $3! It goes up from there so you can get your money pretty fast if you wanted.
Affirmation: My actions create constant prosperity.
Related: 8 Top Paying Survey Sites You Can Join Today and Earn Free Money!
Step 4: Get your footing back!
Time to create some safety nets. You need an emergency fund ASAP, I cannot tell you how much this changed my financial life. Just to know that safety net is there changed my relationship, we were no longer worried about what would happen if our truck broke down or if we got injured and needed extra cash. The list goes on.
Related: 20 Legit Ways To Make $100 A Day, Make Money Fast!
Getting your Emergency fund fast:
- Go through your items and sell off anything you no longer use or need.
- Offer to deep clean a relatives home. <I cleaned my grandfather’s for $150.
- Offer a service, write blog posts, create a website, bake and sell on local buy and sell. So many options here.
You can read my blog post about Emergency Funds here: 3 Ways To Get Your Emergency Fund Fast
Affirmation: I constantly attract opportunities that create more money.
Step 5: Tackle That Debt!
Write down all your debts except your mortgage. Now there are a couple options to choose from in regards to what you pay off first.
ProTip: Always make sure you budget in your minimum monthly debt payments.
~Option 1: If you have trouble staying motivated pay off the lowest balances first. I also like this option because once you pay off the lower ones you can take the minimum payment and the extra and apply that all to the next debt in line. Continue that technique and you will pay off your larger debts in no time.
~Option 2: List in order based on your interest rates, pay off your higher rates first. This option will save you $$.
~Option 3: Pay off your higher debts first, this will also save you money, and once your higher debts are gone it will be easy to pay off your smaller debt. You will have to make this decision on your own as it depends on your
preferences. I did Option 1 for my debts because I like to see results instantly or I tend to give up.
Affirmation: I enjoy spending my money wisely.
Step 6: All About Them Savings!
Having a savings is also important and separate from an emergency fund. Your savings could be for a range of things, Trips, Retirement, Down Payment on a mortgage, so many more.
The amount you put towards your savings will be based on your end budget.
What I did is: After I filled in my entire budget I took the money left over and applied it to my savings. The importance of your savings will be based on what you are using it for. For instance I use mine for big ticket items such as trips, or new furniture etc. So the amount I was contributing to my savings at the beginning was only $50 per month! Of course, if your savings is for a down payment on a house or retirement you need to make it as important as your emergency fund.
Affirmation: Every day I am attracting and saving more and more money.
Step 7: Rainy Day Funds!
I love my rainy day funds! These will be personalized based on your needs, but they are basically funds that will cover particular emergencies. For example:
let’s say you have a dog and he/she became ill and needed to see a vet, that can add up pretty quick. So you would have a rainy day fund for your pet. Another example: family gifts, I went so long never having money for families Birthdays, Christmas Gifts etc. It was embarrassing and I always felt bad because I love to give to others. Having a Rainy Day fund for Family Gifts has been amazing, I also have one for Christmas.
You don’t need to add a whole lot to these each month, just work out what you would like to have available per year and divide by 12.
Affirmation: The more I contribute for others. The more money I make.
Step 8: Revisit and Revise!
Let’s now go back to your budget and make it amazing! I have created a budget template that I personally use, you can get that HERE.
Do your best to include the rainy day funds also as those will come in handy. However, feel free to keep those empty for now until you get your debt under control, just make sure you always have your emergency fund.
Affirmation: Being financially healthy is crucial to my happiness.