Get Yourself Out Of Debt: The Series: Part 2

Congratulations! By continuing to read on in the series you are admitting to yourself that you have a debt problem.  This is a big step. For many people just being honest and admitting they have a debt problem is nearly impossible.  They have gotten so used to putting on this mask and pretending in front of others that they can’t face themselves to admit they have a problem.  As I mentioned in step 1: Making the choice, you have to be able to face reality and admit you have a problem before you can make progress.

Get Yourself Out Of Debt: Step 2: Getting Started:

OK. Time to roll up the sleeves. In order to get out of debt, the first thing we need to do is balance the equation.  In it’s simplest form, debt comes down to one reason… you are living beyond your means.  Now there are always exceptions to that case, but I did say the simplest form.  Anyway, the equation HAS TO BE LESS THAN OR EQUAL TO.  Most people it is greater than, which is what has led us here.

You fall into one of three simple categories:

  1. Money coming in< Money going out (this means you are building up debt)
  2. Money coming in=Money going out (this means you are barely getting by paycheck to paycheck)
  3. Money coming in>Money going out (this means you are getting ahead in life and have surplus  monies)

More than likely you are in the building debt category… i.e. living beyond your means.

So what does this mean?

This means you need to get control of your finances before you do anything else.  You need to know where every cent is coming in from and where every cent is being spent. You probably know exactly how much you make from your pay stubs, so you are already half way there.

First things first: You need a budget.  I can’t stress this enough.  If you know in the back of your mind you only have 70 dollars for groceries in the budget this week… that means spending 80 dollars is putting you deeper in debt.  You need to know where you think you money needs to go to get ahead.

First baby step: you need a budget.

How do you create a budget? In the simplest form, whip out a notepad and start writing down categories for everything you spend money on and estimate to the dollar amount spent.  You can’t tell what you can cut back on if you don’t know what you spend. In it’s more complex form, there are software budgeting programs you can buy and use… some even download your info from your bank and other fancy stuff.  What do we use?  A simple spreadsheet file (MS Excel) with the dates running down the side.  We run our bank account out about a year ahead, putting in when each paycheck is, when each bill comes out and based on the budget, what each bill is for.  To read about budgeting in more details, read more about budgeting by clicking here.

Seriously. Before you even talk about getting out of debt, you have to get your financial house in order first. If you don’t you’re going to get yourself in trouble and you’ll just get mad and fall off the horse.  Get serious about it, do up a budget.

Second baby step: Track your expenses:

What do I mean? I mean for at least one month you NEED TO write down every single purchase and bill you pay in a notebook or spreadsheet.  I mean everything… 25 cents for gum, 125 dollars for electric bill, 12 dollars for lunch out, 60 dollars for gasoline… I do mean every bloody red cent you spend should be written down over the course of that month.

Why? Because I said so!  Well, if that isn’t good enough… it’s because you need to see what you are spending your money on if you want to turn your life around.  You’ll really see why in a minute… trust me… this is really important… you’ll agree after you do it.

Third baby step: The One Month Later Comparison:

Okay. You have your budget laid out.  You have your expenses tracked for one month. Feeling pretty good aren’t you!

This task is to take all of your expenses from the last month (remember to be honest and include every cent) and add it all up into the categories you laid out in your budget.  Now compare your budgeted amounts with what you ACTUALLY spent over the last month.

Not feeling so good now are you? You are living beyond your means. In the rare case that you did stay under budget… I applaud you… I have never met anyone who did it first time around.

The lesson here: There is still a lot more work ahead:

Now that you can see on paper you STILL have a problem, you can have that mental picture burned in your mind along with that gut pain when you realized you blew it.  Use this as your motivation… harness it to make sure you never feel like that again. Take that motivation and hit the budget and reign in your outgoing money.  This is where the frugal living will help, but you still need to balance the budget honestly and make it work… which in some cases may mean hard decisions like getting rid of cell phones, cable tv and other unnecessary expenses (trust me, you’ll live).  Balancing the budget may also mean getting a part-time job, working extra overtime/shifts, doing some online income items (like paid surveys) or even selling some old junk stuff of yours at a garage sale.  The lesson here… balance your budget and stick to it… that means you have to get your expenses down and your income up.

NEXT: Part 3 – The Power Of The Snowball


Read on: Our get yourself out of debt series continues….

*Note: This article is meant to be a general example of how one would get themselves out of debt and an explanation of how we are getting out of debt.  I am not a certified financial planner nor am I a CPA, so this article should not be considered financial advice, but a general guide for inspiration.

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