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Get Out of Debt Series

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Get Out of Debt in 9 Steps # 9 – Be Patient and Don’t Give Up

No matter how well you have done with budgeting, cutting your spending, and tracking everything it is extremely easy to get bogged down in the daily grind and feel like you aren’t getting anywhere. I believe this is the hardest part of the process. Depending on the size of your debt balance and the size of your income, you could be looking at years to get out of debt, maybe decades.

There are essentially two levels of debt freedom. One is obvious- having no debt at all. The other is being debt free except for the mortgage. This distinction is made because a mortgage is generally thought of as good debt (I don’t agree, at least not on a long term basis), but saving up the cash to pay for a house is rather difficult and most of us end up with a mortgage when we want to own a home. I want to be 100% debt free and that is my goal, but I will feel a lot better about my debt load once I am debt free except for the mortgage.

Right now, seeing my debt balance gives me a sickening feeling deep down and really motivates me to work hard at getting out of debt. I don’t know if that feeling will go away when I am down to just a mortgage (frankly I hope it does not), but some of the pressure should be off by that time. That pressure and sickening feeling can both motivate you and discourage you. You need to recognize that you have these feelings and think about why you feel that way and what you need to do to change your situation. Nothing will improve if you don’t take action to improve it.

You really need to think about what being debt free means to you and most importantly what it means to you in the long term. For me, being debt free is about freedom. Freedom to not take a job because I need the money and it is a tolerable way to pay the bills. I don’t want to settle for that, but at this point in my life I need to make that choice. I have so much debt that I need my ‘day job’ plus extra work to make my way out of debt.

Don’t get all fired up and work hard for a month and then fizzle out. That is exactly how I have started just about every life changing process I have ever attempted in the past. It’s scary to say things are different this time, but things really are different this time. I am going slowly and making real habit changes. Not superficial changes that only last a short while. You can’t succeed by doing that. You need to go slowly, you need to make small changes that you can handle, and you need to maintain those changes. The steps you take toward becoming debt free need to become habits, natural parts of your life that you live on a daily basis. You need a solid foundation. That is why you should go slowly. Don’t expect to get out of debt overnight. Think about how long it took you to get into debt and allow plenty of time to get out.

In this Get Out of Debt Series, I have outlined many tools and methods for making a successful financial turnaround. I believe this series can be the solid foundation you use to support your journey out of debt. Everything I have talked about here is exactly what I am doing and I know that it works. I know that it is now only a matter of time until I am done with debt. Start your journey today and please feel free to post comments on this site or contact me via email if you need help or encouragement along the way.

9 Steps to Get Out of Debt

By , Tue 27 Nov 2007, 5 Comments, Categories: Get Out of Debt Series, Goals, Life

 

Get Out of Debt in 9 Steps # 8 – Make Yourself Accountable

Without accountability your plan to get out of debt is likely to fail. Unless you are a super-motivated, goal-oriented kind of person, you need a form of accountability to find success with your finances. Be honest and know yourself and know your limitations. Think about efforts you have made in the past to get out of debt and why those efforts failed.

I don’t know about you, but I am not that super-motivated, goal-oriented kind of person (at least not yet). I need a form of accountability to be successful in achieving my goals.

Accountability starts at home- unless you are single you probably have someone in your house that you can regularly discuss your finances and goals with. If not at home, find a close friend or relative who you can share this with. You may be embarrassed and I can certainly relate to that, I have yet to tell most of my friends or family about my situation or about this web site. However, I have found all of the accountability I need without involving anyone other than my wife (and all of you folks on the Internet). :)

You can find anonymous accountability by starting a blog about getting out of debt. I did it and so have hundreds of other personal finance bloggers. You don’t have to make a part time job out of it. You can just talk about where you are now, where you want to go, and document how you get there. You can start a blog easily and for free with blogger.com or wordpress.com. If you don’t want to make that level of commitment you could join a personal finance forum or find a local debtor’s anonymous group or consider Dave Ramsey’s Financial Peace University (often done for free at churches, also available online for a fee, which includes forums).

It may seem odd given the anonymous nature of this blog, but the accountability I have created here is an amazingly powerful force in keeping me on track. I may not know everyone personally who reads this blog, but I know that there are real people out there and this is all very real to me so it really matters to me that I keep up the hard work and stay on track with my finances. Obviously, discussing our finances with my wife regularly is great accountability too. I think the blog adds an extra layer of accountability though, in case we both decide to make a bad decision there is a third party out there waiting to offer advice and criticism.

Figure out what works for you, but find a reliable source of accountability and use that source regularly. I absolutely believe that is critical to success with getting out of debt and turning your finances around. If you try to do this all alone, it can become too easy to give in to temptation and break the budget. Don’t be afraid to ask for help!

9 Steps to Get Out of Debt

By , Mon 26 Nov 2007, Categories: Get Out of Debt Series, Goals

 

Get Out of Debt in 9 Steps # 7 – Visual Reminders to Track Your Debt

Making a financial turnaround and getting out of debt is likely to take a long time- I am faced with several years to pay off my non-mortgage debt and probably more than 10 years to be completely debt free. Seeing that long time span when I want to badly to be out of debt now can feel overwhelming or disheartening at times. I have found the best way to overcome those negative feelings is to make a visual debt reminder and look at it daily.

Visual Debt Reminder

I have my budget spreadsheet for tracking debt that I look at regularly (above). I have this website with my debt snowball published for the whole world to see. I also have a white board on the refrigerator at home where I keep my total debt remaining and the amount I have paid down since starting this financial turnaround. It’s a safe bet that you will see your refrigerator each day and this is a great way to keep your goals in sight. You could even just write your numbers on a piece of paper and tape it to the refrigerator. You could easily take that down if you don’t want family and friends to see it. I would recommend leaving it up though, I think it could open the door for some interesting conversations. However, I must admit that no one who has been in my house since I put up the white board has asked about it. :)

The most important thing I have learned about setting and tracking goals is to write them down and review them regularly. I can really feel the power of this concept at work when it comes to my visual debt reminder. You need to be reminded daily about why you are making the sacrifices you are making and where those sacrifices will get you some day if you stick with them. Walking out the door each morning knowing that I have X amount of debt left to pay off is a great reminder. At the same time, I don’t want to feel buried by the debt so I also take the time to look at the amount of debt I have paid off so far. Without seeing these numbers daily I think it would be very easy for me to make excuses or get lazy and fall behind on my progress.

9 Steps to Get Out of Debt

By , Sun 25 Nov 2007, 5 Comments, Categories: Get Out of Debt Series, Goals

 

Get Out of Debt in 9 Steps # 6 – Track your spending and keep your budget updated

Now that you have made a budget and you are living below your means, you need to keep track of your spending in order to be sure you stay within your budget and don’t spend more than you earn.

I use Quicken to track my spending, entering my receipts and transactions on a daily basis. You don’t have to use Quicken, Microsoft Money is a common alternative, or you can do this with just paper or a spreadsheet as well. Once a week I create a report with Quicken and import that data into my Excel budget spreadsheet. I enter my spending for each category and review how much money I have left in that category for the month (or recognize that I have over spent somewhere). Doing this weekly prevents my spending from getting too far out of control and it provides flexibility to change my budget if the unexpected occurs or if my needs change during the month.

In my earlier post about budgeting, I uploaded a simple spreadsheet sample to help you get started. Now I have an updated, slightly more complicated version that includes fields for tracking your money each week. Take a look at the new version to quickly get up and running with a budget and weekly tracking (Excel, opens in new window).

The key to using this budget spreadsheet is to start the month by filling in the ‘Plan’ columns with your best estimates. Then each week (I update mine every Sunday afternoon), put in your actual numbers for each category for the week. The ‘Total’ and ‘Difference’ columns at the end of the row will help you to see where you stand and how well you prepared for the month.

Budget Tracking Spreadsheet Screenshot

In addition to using a tool to track your spending, have a regular ‘budget meeting’ with your spouse, your kids, or anyone who helps you to stay accountable. Make sure that you are scheduling a time to discuss where you are at with your spending, how the month is shaping up with your money and any areas of concern. Communication is critical, and frequent updates help you to stay on top of things. If you keep up with this you shouldn’t have any ‘surprises’ or mistakes that lead to bank fees or bounced checks or anything else. This is not a time to place blame on anyone if mistakes have been made, but rather a time to discuss what went wrong and what went right in a comfortable way. You need to be a team!

Tracking every dollar spent and assigning it to a category may not work for everyone. It works for me because I’m the computer nerd in the house and I like to collect and analyze the data. If you aren’t wired this way, consider much more broad budget categories that you fund at the start of the month or with each paycheck. Maybe you put $100 in your pocket (or an envelope) for food and that covers your groceries and eating out for the week. You don’t have to track all of those dollars, but you do have to commit to the fact that this is food money and you aren’t going to mix in dollars from other categories and spend it on unrelated things.

You may think the budget process I covered is too tedious, but I would recommend trying to track every dollar for a month or two and see how it goes. At the very least, you’ll have a better understanding of where your money is going. If that’s not for you, just be honest with yourself about where you are assigning your money and don’t stray too far from your plans.

9 Steps to Get Out of Debt

By , Sat 24 Nov 2007, 3 Comments, Categories: Budgeting, Get Out of Debt Series

 

Get Out of Debt in 9 Steps # 5 – Live Below Your Means

Live below your means is basically the mantra of the personal finance improvement world. This could be step number one in my Get Out of Debt series and it could even be the only step. The reason it’s not is that most of us don’t really understand what it means and it is much easier said than done. Lets be honest, living below your means isn’t the American way anymore. That is sad and I fear this behavior can’t last much longer (we have to get smart some day). When I got a job and went out on my own I thought I was supposed to finance a new car, sign up for credit cards, and buy what I wanted as long as I could make the payments. That’s how I thought I could afford something- if the payments fit in my budget, not how much the thing I was buying actually cost.

When I started my financial turnaround, I knew the phrase ‘live below your means’, but I really had no idea how to do it. I probably still don’t fully understand it, but I am at least putting it into practice now. It is an amazing change and I can’t believe I didn’t live like this before. You really have to embrace it and know that it is the only way you will get out of debt and build wealth. It’s common sense and it seems so obvious, but for some reason people just don’t get it. I didn’t get it and most people I know don’t get it (or they understand it but refuse to live that way).

I admit that it is difficult to do in our consumerism culture, but you must recognize the culture we live in and take steps to break free. People may think you are a bit strange when you don’t come home with a shiny new car every couple of years (unless you are paying cash for those cars) or when you don’t buy the trendy new thing that everyone wants (flat screen TVs these days), but you will likely learn to embrace being the ‘strange’ one in your circle of friends. It is certainly easier to do when you know you will be free from debt some day and financially prepared for anything life has to throw at you.

Living below your means can be accomplished through frugality or by earning more income (assuming you stop your spending at some level below it). Doing both is obviously the most powerful way to accomplish your goals and make the most progress with your finances. You have to choose the way you get there based on your personal values and what is most important to you. My advice is to work hard while you can and live frugally at the same time so that when you get a bit older you don’t have to work so hard and you already have a frugal lifestyle in place. Just don’t fall into the trap of thinking that you can always out-earn your spending. You can only work so many hours during the day yet there is really no limit to the amount of money you can spend. You need to understand the trade off of your time for the dollars you earn and how much of your time it costs you to buy the things you want. Find a balance that works for you, but don’t let our consumerist culture tell you what that balance should be.

9 Steps to Get Out of Debt

By , Fri 23 Nov 2007, 11 Comments, Categories: Frugality, Get Out of Debt Series

 

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