The first set of posts were designed to get you started on saving right away. There really is no magic to this. You either have to make more or spend less. You already know this.
A good starting point is to put it on paper, a spreadsheet, or get an app design for budgets. If you have Excel or Numbers, they have templates ready to go that you can use.
You will want to calculate how much you bring home a month after taxes then how much your basic human needs cost each month. The leftover is what you theoretically should be putting toward debt or saving.
Blah blah, you’ve done this a million times. Well do it again, and mean it this time. Maybe go back and read the posts about Needs and Success. If you aren’t living this way, it means that you value your possessions more than your freedom. That’s fine if that’s how you want it to be, but I have a feeling you’re reading this line because you don’t.
Finish the budget sheet then look at what you spent the past few months on luxury items. The goal is to reduce that list of shit and apply that money toward your debts instead. Just imagine how much money you would need to earn if all you had were the basic needs and zero loans or credit cards. Can you even imagine it? Is it something you’ve ever put real thought into?
I like what some people call the “snowball” payment method. This is where you pay off the smallest loans first. We will consider a loan to be any amount of money you owe to someone or to an entity. Paying off something, no matter how small, feels awesome. The snowball effect happens when you then take the money you were paying on that bill and now apply that extra on the next one. I’ll add that while I’m using this approach, I’m only paying the minimum amount required on the bills I’m not focused on. At some point you will be slamming large amounts of money on bills and they WILL disappear. You have to be tenacious, though.
I don’t worry about collecting interest on investments or any of that during this phase because you can actually think of the interest rate you were paying down as the reward. Your investment would have have a higher percentage of return for it to be worth adding to before getting of of the debt. Example, you are paying down a debt with 15% interest, you are earning 15% now. To me at least.
That snowball is going to end up rolling right into the investments at some point down the line and then you’ll be ridin’ the gravey train. This is certainly not going to happen soon, but living this way will beat the hell out of the 65 years of work most people put in before realizing this.
Another way to pay down the debt is to go after the highest interest debts first. I just don’t get as excited about this method because snowballing through the lower debts is more fun to me.
If you are in your 20s or better, you have the chance to get ahead of all of this and start out avoiding what everyone else didn’t, and live really well. For everyone else, add another calculation to your budget and figure out how long it will take you to pay everything off using the snowball method.
Don’t feel like you have to spend the rest of your life paying off your student loans or even 30 years on your mortgage. Really figure it out on paper. I’d bet if you really worked at it, you could do this in around 10 years, no matter what kind of storm you’ve gotten yourself into.
Next up will be ways to speed this process up by making more money.