A couple of years ago I realised I was in massive amounts of debt.
It was consuming me.
This debt had, in a roundabout way, crept up on me. I knew I was in debt, I knew my situation was worsening, but the road, to some extent, was unavoidable.
Have you ever been in a situation where you knew something in your life needed to change but for whatever reason you either felt paralysed to change it or you justified to yourself, on some level, that it had to be this way?
That’s where I was.
Stuck on a merry-go-round of madness with no way to get off.
I was neck deep in some personal circumstances that almost justified the downward spiral.
But here’s the thing:
At some point, you have to take a mental stop and reevaluate.
When I finally put the breaks on and dared to look at the figures I had no idea how bad the situation had become.
I made a decision right there and then to stop the madness.
And with that decision I stepped into clearer thinking.
Do you know what else happened?
I stepped into a new found sense of strength.
It’s hard to describe.
Maybe it was empowerment, who knows, but I felt like I’d taken hold of my situation in a different way.
This situation was no longer going to consume me. I wasn’t going to let it.
I took a step back and let the emotion go; and then approached the problem in a cold, business-like manner.
I took three simple steps and with these steps, with determination and diligence, I’ve managed to turn my circumstances around.
These were to:
- Figure out who I owed money to, and how much
- Organise my finances through a budget
- Reduce my household costs using a cost-cutting strategy
I’ll be clear with you right now. I’m not out of the woods yet, by any means, unfortunately. But the madness has stopped. I have a plan and, for the most part, I’m in control of my future.
By following these simple steps, debt no longer stresses the hell out of me each day.
I have a plan, and it works.
For me, the biggest hindrance to tackling debt and moving forward was the worry.
My debt was mountainous and I just didn’t know where to start. It’s made harder still when each of your creditors demands payment first and fast.
Once you’ve figured out who you owe money to you can plan how to tackle the debt.
A budget informs your cost-cutting strategy
A budget is your plan. It will help you set weekly financial goals to hit each week to get to where you want to be.
When I first created my budget I got a shock.
I put in all my outgoings for the previous 3-4 months to give myself a clear view of where my money was going.
What an eye-opening exercise!
I was spending $1,200 a year on coffee.
A single $5 coffee on the way to work each day made a big difference when you look at how much that adds up to each year!
I was spending almost double that amount buying lunch at work each day.
The average smoker is spending almost $2,000 a year on cigarettes.
A mild drinker is spending around $1,600 a year on alcohol.
I drink little and, the financial benefit alone, I’m glad I don’t smoke.
Poor eating habits hike up your spending too. Take-out and junk food will hit your pocket without you realising. And the long-term effects on your health will likely also kick you in your wallet at some point.
I’m not here to lecture you on your life choices. My point is, small expenses, treats and our daily addictions add up. Identifying which costs to cut or reduce will increase your ability to save, invest or pay off debt.
And do you want to know what kind impact those small amounts can have on your debt or savings?
The $1,560 spent on alcohol equates to $123,331 over 30 years with compound interest if saved!
Yes, we all need our little treats. I love my coffee in the morning. It starts my day. Or, I should say, it starts me up for my day.
I could not cut coffee out forever. We love each other.
But in desperate times, I have cut it out completely. During these times, I’ve noticed a significant difference at the end of the month.
Your cost-cutting strategy should see you tweaking your budget. Tweaking weekly expenses in my budget showed me the impacts this had on the weeks and months ahead.
I cut out coffee. I reduced my grocery spend, with a commitment to shopping frugally. I bought ingredients in bulk, made bigger meals and either froze the extra or took it to work the next day. This helped me cut out paid lunches. I reduced my travel spending by planning my journeys or sharing a ride to work. I turned electronics off that weren’t in use, reducing my electricity bill.
And as the month drew to an end I could see reducing my living expenses was making the difference I needed. I was able to pay debt off faster. This avoided paying further interest on credit card debt which kept more money in my pocket. This alone made me feel fantastic and spurred me on to make further reductions in my living expenses.
And you know what?
Once you start to cut these things out, at least some of them, and you get used to it, you don’t miss them as much. You realise, you don’t need some of these things.
If you’re looking to increase your contributions to savings or you want to pay off debt reducing your living costs through a cost-cutting strategy is the best place to start. By keeping a budget you’ll be able to assess where to cut costs and how much you should reduce your expenses. If you want a copy of my budget planner spreadsheet then use the subscription box in the middle of the post.