In honor of Money Smart Week 2015, I’ll be posting my best tips and resources on the blog Monday, Wednesday and Friday this week followed by a special roundup of my favorite personal finance posts on Saturday. If you’ve never heard of Money Smart Week, have you been living under a rock it’s a public awareness campaign (created by the Federal Reserve Bank of Chicago in 2002) designed to help consumers better manage their own finances and it’s recognized all throughout the country. Banks, financial advisors, credit unions etc. from all over gather their best knowledge and resources together to provide communities with the best of the best when it comes to improving your own financial situation. If you’re interested in getting involved this week by attending any local events your community is hosting, please check out MoneySmartWeek.org
Even though I’m not a certified financial planner, as a personal finance blogger, I felt it was only right to chime in and share the strategies I’ve adopted to help me get a grip on my finances and work my way out of debt. As a mom who’s been paying off debt and building up a financial safety net on a very modest salary (>$40k), I’ve managed to make ends meet and make extra payments on my debt each month without going broke. This means I’m not praying that my bank account won’t go overdraft, eating Ramen Noodles, or walking around with holes in my shoes.
The average American household is carrying $32,264 in student loan debt and $15,611 in credit card debt and more than 1/3 of the American population has some form of debt in collections.
These numbers are startling, and just because thousands of families are living with debt doesn’t make it normal. Living in debt and only paying the minimum payment each month is no way to live and we all deserve the freedom of a debt free life. Here are 4 things you can do to avoid going broke when actively paying off your debt.
Create a Realistic Budget Even if It Pains You
I’d love to say there’s some big secret out there to help you get your finances in order but the truth is, it all starts with a good old fashioned budget. Even if you hate budgets, it’s important to prioritize your expenses and spending categories by creating one. I’ve never been the type of person to sit down and enter figures into a spreadsheet and make fancy bar graphs from month to month but I do have a budget.
I usually just jot down all my expenses and bills for the month either on paper on in a Word document on my computer and check each item off after they’ve been paid. My debt payments are always right at the top of the list right under my rent since I can’t wait to throw more money toward my car loan and student loans each month. I also report to readers here on my blog with my monthly budget reviews. Whichever method you choose, just make sure you choose to create some form of a budget to limit and categorize your spending.
Decide What You Will Give Up Today In Order to Achieve Financial Freedom Tomorrow
It’s important to realize that in order to get out of debt, you will have to make a few sacrifices and give up some non-necessities to meet your goal. Cut out all your expensive habits like dining out every other night and try to find cheaper alternatives.
There are almost always more affordable options so make it your mission to find out what works best for you. In order to free up more of my money so I can get out of debt faster without going broke I chose to give up:
- Cable TV
- Dining out and ordering takeout often
- My expensive cell phone bill by switching to Republic Wireless for $10/mo.
- Mani/pedis every 2 weeks
- 2 of my credit cards
Your list may look different from mine but the main point is just to create a list and cut the dead weight from your expenses. When you commit to living a simpler life with fewer expenses, it not only frees up more money but allows you to be appreciative of what you already have.
Reduce Your Fixed Expenses to Live Within Your Means
Living above your means is a common trait that can easily cause you to fall into debt. So while you’re cutting your variable everyday expenses, don’t forget about your fixed expenses as well. The great thing about cutting your fixed expenses is that you only have to make the effort to do so once, then you can enjoy the benefits and savings throughout the year.
The biggest fixed expense I decided to cut last year was my housing. A good rule of thumb is that your housing expenses should never exceed 30% of your income. Last year I cut my housing expenses from 32% to 16% of my income by moving just down the street.
If you’re not interested in moving to a more affordable residence, there are plenty of bills you should be able to decrease and you should look into shopping around for the best insurance rates for auto and health insurance. The insurance industry is very competitive and you can’t be positive that you are getting the best rate if you don’t compare policies and check out your insurance carrier’s competition.
Increase Your Income
When you’ve decided on what you would give up in order to get out of debt and cut all your expenses, check again to make sure there are no other expenses you can possibly reduce. Then adjust your budget. If money is still tight, you always have the option to increase your income.
I’m personally not a fan of working a second traditional job if you already have a full-time job. Odds are your second job would be part-time and part time jobs usually don’t offer great wages or benefits. Plus it sounds exhausting and no fun.
You still don’t have to settle for your day job income alone though. You can always increase your income by picking up a side hustle. Find something you’re passionate about or enjoy doing and turn it into a money making side hustle. Whether you like to write, paint, design graphics, bake, or create crafts figure out how you can sell and market your services to others.
With the mass amount of information and resources that can be found on the internet, side hustling is easier to do than you would think and there are plenty of ways to earn extra money here and there because every little bit counts. It also sounds way more fun than working part-time at a job you could care less about.
I started freelance writing just a few months ago and I’m already earning a couple hundred dollars each month and my income is steadily increasing from freelancing. I use the extra money I make on the side of my full time job to make extra debt payments and fund my savings account as a cash buffer. Side hustling allows me to make money doing something I love and reduces my chances of going broke while I try to aggressively pay off my debt.
How do you avoid going ‘broke’ each month whether you have debt or not?
Stop Worrying About Money and Regain Control
Join 5,000+ others to get access to free printables to help you manage your monthly bills, reduce expenses, pay off debt, and more. Receive just two emails per month with exclusive content to help you on your journey.
believeinabudget says
It’s so true – either make more or spend less! I’m kind of in between both things right now. I’m trying to figure out how to cut my budget and how to make more money! The easiest thing for me to give up would be dining out. It’s a budget killer for me!
Chonce says
The urge to dine out is usually the most intense for me during the weekends. During the week I’m perfectly fine with eating at home. On the weekends though, keeping my spending low is achieved by meal planning and allowing myself to have a small restaurant budget.
Leslie R says
I’m right there with you re: dining out. I try to stalk groupon for good deals. There is also a restaurant group here in Nashville that sells 1/2 price gift certificates a few times a year. I buy those and save them for special occasions. Makes it easier to budget my restaurant dollars!
Chonce says
I’m always on a quest to save money on dining out even though I significantly cut back on doing it a lot. I forgot to mention restaurant.com for deals but I haven’t personally used it yet so I can’t offer much of an opinion.
Barry @ Moneywehave says
Having a realistic budget is vital. Way too many people don’t take the time to track their spending and come up with a good a budget. Without a proper budget, you’ll get nowhere.
Chonce says
There was a time when I didn’t budget and I honestly don’t remember how I even made that work. That’s probably why I got into debt. But nowadays, I can’t function without a proper budget in place and it’s for the best.
Tonya@Budget and the Beach says
I’m a big fan of making more AND spending less! Unfortunately, when it comes to getting out of debt, tough choices do have to be made, but that doesn’t mean that life is going to completely suck, it just requires creative thinking.
Chonce says
I agree Tonya, it’s all about how you view your circumstances and try to make the best out of your current situation.
Anum @Current on Currency says
Like Tonya said, making more and spending less is the way to go! So glad to hear that your freelancing is successful. Keep it up!
Chonce says
Thanks! I’m really hoping I can keep at it in the next few months.
Jason @ TheButlerJournal.com says
I did some things similar to you. I stopped using my credit cards all together. I also lowered my phone bill from $60 to $45. I can see a difference. I’m on the fence about the cable. I love sports too much to give it up.
Chonce says
Sounds like you’ve already generated some good savings. I was a little hesistant to give up cable too but it hasn’t been that bad. It’s becoming easier and easier to be able to pull up tons of shows online. For sports, my bf has this ESPN app and he just streams the games from his phone to our tv with Chromecast.
Christina @ Embracing Simple says
I think that spending less on entertainment (going out to movies, eating out, mini golf, etc.) has been really great for us to get creative otherwise and come up with fun and frugal activities. We then put that money toward paying off our debts instead, and it’s a win-win!
Chonce says
I agree, I’ve found tons of free and low cost things to do in my neighborhood once I realized that I didn’t have to spend an arm and a leg to get out of the house and do something fun with my family.
DC @ Young Adult Money says
We have a lot of student loans and honestly we’ve been very focused on increasing income. So far it has paid off as we have been able to significantly increase our income year-over-year the past 3 years. We do practice frugality and cut costs where we can, but we’ve found increasing income to be the best way to pay down debt, invest more, and save more. But yes, debt has served as a big motivation.
Chonce says
I agree increasing your income is one of the best ways to make progress on your debt payments but frugal habits are always good to have. Since I’ve already cut my expenses as much as I possibly could, I’m mostly focused on increasing my income right now and so far so good.
Michelle says
I’ve done several of the things that you’ve listed: bought out my cell phone contract and switched to Republic Wireless, don’t eat out as much, stopped shopping when bored (and depressed), and I switched to cash from using credit as a back up.
Chonce says
Switching to cash a definitely on my to-do list if I can get over my slight obsession with credit card rewards. Republic Wireless has been great so far in terms of savings. It’s not perfect, but it gets the job done.
Liz says
I completely agree here. My fiance and I are still working on spending less, because we do okay financially for two people. However, he has expensive hobbies and it can be tough telling him no all the time. I hate being that woman, but sometimes, it has to be done. With the wedding in the mix, there just hasn’t been a lot of time for side hustling. As you know though, big changes are coming to our life that should help us immensely on our path to financial freedom.
Chonce says
I can only imagine how busy things are for you guys right now. My bf has a few pricey hobbies that I’m not a fan of, but sometimes he’s open to finding cheaper alternatives and that’s where I step in to help.
Dear Debt says
Really great tips here! I have lowered my living costs and I’m all about that hustle 🙂
Chonce says
Same here! Hustling gets the job done, there’s no way around it.
Sara @ Debt Camel says
“Decide What You Will Give Up Today In Order to Achieve Financial Freedom Tomorrow” that is absolutely the right way to look at the problem. If the answer is not a lot, then you are just going to stay on the work – debt – more work treadmill forever.
I always like the saying “you aren’t borrowing from a bank, you are borrowing from your future self”.
Chonce says
That’s a really interesting way to put it and very true. Finding a balance between living for now and saving and preparing for the future is always a tough one for most people but it’s something we all need to do.
Prudence Debtfree says
Chonce, you’ve just reached hero status in my eyes. I read the post you linked to on moving to save money, and I’m so impressed. You’ve got your priorities so right, and you maintain such a positive attitude. I don’t get the impression that you feel deprived or exhausted. You say you’re not a financial planner, but I think that your experience in making things work out is of enormous value. I hope that many, many people find your blog and start finding hope in your example.
Chonce says
Thanks! That realllllly means a lot 🙂 As a blogger it means so much to me to be able to reach people and offer them something of value. Even though I’m not licensed or certified, I still like to give my opinion based on my own personal experiences and what is working out for me in terms of meeting my financial goals. I’ve learned so much from reading other PF blogs and resources so it’s only right to throw my two cents in there as well 🙂
thesingledollar says
I also made housing choices to save money — big compromises are yielding huge results. What I love about this post is that it’s compassionate but also sensible: there’s no mystical secret here. There’s only making choices to live within your means (possibly while increasing your means!) or not.
Chonce says
It’s true that this is no big secret to creating a budget and getting your finances in order. There are many tips and techniques you can implement but you just need to have dedication/determination and a goal to reference. I’m hoping that once I move in June I can stay put for a few years though.
Holly@ClubThrifty says
We are debt-free, but we still focus on increasing our income each month. Having more money gives us choices and increases the distance between our income and expenses. I like for the gap to be as huge as possible- more money to save!
Chonce says
I hear you on that. Just the thought of how much extra money I’ll have to save and invest after I’m debt free is a big motivator.
Jennifer @ WanderlustWallet says
That is an alarming statistic that a third of Americans have some form of debt in collections. Good advice for getting out of debt and beyond. We stopped eating out for the most part and no longer own cars. We also have a pretty basic cell phone plan, but it works fine for our needs. We do not have debt other than a very low interest student loan (that we’ve decided not to pay off early), but we still budget. Planning and discipline are key!
Chonce says
I’m sure you guys save a ton of money by not having a car. Cars are so expensive to maintain but I commute to work so that’s one expense I can’t really cut back on.