When you have a debt problem, the solution (at least on paper) is easy: Make more or spend less, and preferably do both.
But it’s a lot easier said than done, right? Right.
There are a million reasons we end up in debt. Sometimes we make less than money than we used, an unexpected bill pops up, we’re out of work for a while, divorce, etc. There are countless ways we get there, but only one thing really matters: the solution. That solution hinges on two things, which we covered at the top, which is spending and income.
Make More
If you’re in a situation where you can directly increase your earnings (such as working hourly) then consider that a very strong first step. Picking up overtime or a few extra assignments is a great way to boost your top line. Others — such as salary employees or those that can’t willingly increase their hours — will want to consider different avenues.
For them, consider side hustles — ghostwriting, selling some stuff on eBay, walking dogs, whatever! — or contemplate a part-time job. Maybe that’s bartending a few nights, or perhaps it’s working at a retailer or coffee shop on the weekend. Remember, this isn’t a forever position, it’s just a way for you to boost your earnings.
Spend Less
To help curb debt, we have to spend less money. Make a spreadsheet for ALL of your bills. Not necessarily each transaction, but the bills you have to constantly face. TV, Spotify, health insurance, electric, etc. Then find ways to curb, cut back or even outright eliminate.
Netflix is $15 a month while cable can push $100. Can you live without cable? If not, consider an option like YouTube TV or Hulu TV for $40 month. Now — assuming you had internet in the first place — you’re saving $60 a month or $720 per year. If your cable and internet are bundled, the bill for the latter might go up $10 or $15 a month, but net-net, you’re still saving $45 to $50 a month.
Go out to eat or to the bar twice a week at an average of $50 a pop? Cut those visits in half, at least, or consider eliminating them completely for the first few months. At the present rate, that’s $100 a week or $5,200 a year. Stay home for a month and go just once a week for the rest of the year and you’re saving $2,800 a year. With our switch to YouTubeTV, we’re already saving ~$3,500 a year.
Try lowering your thermostat by 2 degrees in the winter and raising it in the summer. Take a shorter shower, make sure you turn lights off when you leave a room, call around to see if you can get a lower insurance rate on your home and auto, if applicable. Use coupons, set a shopping budget (or find your average grocery spending and vow to cut it by 10%), drink Tito’s instead of Goose or Three Thieves instead of Joel Gott.
That may be some hyperbole, but you get the point. There are tons of ways to reduce our monthly overhead, particularly because we don’t realize how fast seemingly small transactions add up over a month, and then over a year.
The Debt Problem
If you’re reading this, it’s hopefully as you feel your spending is starting to get out of control or that your savings account is drying up vs. the alternative of being at or near rock-bottom and aren’t sure where to turn. But one thing that won’t help is burying your head in the sand. Debt needs to be addressed and the sooner the better.
Like everything listed above, it depends on the reader and their specific situation. But the goal of increasing our income and cutting our spending is that it allows us to have more money coming in and less going out. Now, if you’re only in a position where your discipline is waning or you constantly feel like you’re “in the black,” meaning you don’t have debt but you don’t really have savings either, then your job is done. Use the concepts above to boost your income and cut your spending and allow that extra “cash flow” to fall to the bottom line.
If you’re in debt though, you need to use that extra cash to start chipping away at it. Whether it’s debt to a friend or family member, student loans or credit cards debt, the sooner it goes, the better.
If it’s the latter — credit card debt — it really needs to go. Consider a balance transfer to a different credit card that will allow you an interest-free payoff period. But make sure you pay this sum off before the allotted time’s up, otherwise the interest will kick in. You can also consider a personal loan at a lower rate. While somewhat suboptimal, this rate is generally better than a credit card.
Once the debt is paid off, you can start doing what the others who were “in the black” are doing and bank that extra cash. The more cash you have coming in, the more you can afford to diversify. Maybe that’s investments, savings accounts, real estate, etc. It doesn’t matter what it is, as long as it’s not debt.
The Bottom Line
Think of your financial self as a business. A business that has a debt problem either needs to increase its revenue or cut its spending, and preferably do both. Asset sales will stem the bleeding but it won’t fix the problem, and thus we need to address the real issue at hand.
When we take these steps, we’re addressing the problem. When the problem is solved an amazing thing happens: You can live more freely! That extra money can often be put into pipelines that make even more money. And by increasing those pipelines, you increase your cash flow.
Over time, your freedom grows more and more and you’ll definitely take notice.