How to get out of debt and start saving for the future – even if you can’t afford it.
The first rule of successful money management is to keep your spending below your income.
1. First, pay off and eliminate your debt as fast as possible.
2. Second, you need to learn how to and then purposely save.
3. Third, look past today and invest in your retirement.
4. Fourth, have a plan for your big ticket purchases.
5. Fifth, be prepared to adjust with major life events.
6. Sixth and finally, teach your kids how to avoid bad debt.
To do so, you need to be saving money – ie. spending less than you make.
To do that, you need to KNOW what you’re spending and what you’re saving.
People who aren’t on a budget always think they have a ballpark number in their head of how much money they have available – but it’s never 100% accurate and is frequently wrong, causing them to overdraw.
But why? Why is having a savings account so important?
Simple.
To protect yourself from emergencies, because EVERYONE has an emergency. Life is lived around “emergencies.”
Emergencies happen far more often than we like to admit.
A popped tire, a cold, broken down washing machine. They’re not really emergencies, they’re just annoying and expensive.
Most importantly, they cause you to spend money you don’t have.
Most people consider their credit cards as back-up plans in case they need a lot of money fast.
It’s not a good safety net.
When you use a credit card to get out of an emergency, odds are you’re unable to pay off the balance by the next due date.
So, you accrue interest.
And, before you get the emergency paid off in full, another emergency pops up. Then you have to use your credit card again. Then, the minimum monthly payment grows and grows, making it even harder for you to pay off the emergency, and now… you’re in debt.
Which puts you at step one in building a budget.
Getting out of debt.
Ideally, your emergency fund would cover three to six months of living expenses.
At a bare minimum, you should strive to have one-thousand dollars set aside. You can accomplish this with a good savings plan.
But, I’m in debt because I can’t afford to get out, much less build a savings account
Contrary to what you might think, you don’t have to be wildly successful, or rich, to get out of debt and build a strong savings account.
The first step to getting out of debt is to stop the cycle of debt.
If you just rely on minimum payments, it will take you years to pay off debt.
Adjust your lifestyle, curb your spending, and devote everything you have to living debt free. You do that and your student loans, credit card payments – they’ll disappear faster than you think.
Here’s how to get started.
Let’s address the big ticket items
As much as you don’t want to, you should probably sell your new car.
If your car payment is +$400 a month, and you’re in credit debt, it probably needs to go.
Sell it, buy something cheap (but reliable), and throw any remaining amount you have at the outstanding car debt.
Once it’s paid off, you can then start focusing more of your money on student loans and credit cards.
Minimize your interest rate as much as possible and consolidate your debt
If you have multiple credit cards with high balances you need to consolidate them onto a credit card with a 0% introductory APR.
Some cards offer up to 21 months, which is a great way to hack your debt down quickly.
One of the best ways to get control of your debt is by eliminating micro-purchases
Certain things are essential, and you’ll have to accept spending money on them. Food, toiletries, and any bills you are responsible for are all things that have to be paid.
Then there are things you enjoy, but can do without if you have to, such as new clothes, meals out, and entertainment like going to the movies.
Most people don’t realize how much money they spend until they force themselves to stop spending.
Let’s start with some math
A Grande Vanilla Latte from Starbucks averages $4.67. If you bought one of these every weekday on your way to work, it would add up to over $90 a month.
That’s about $1,100 a year!
Bottled water is another example of an extra expense. If you buy bottled water at an average price of $1.59 per 16-20 oz. size, you are spending over $12.00 a gallon for something that comes practically free from the tap.
What about ordering out? How often do you pick up fast food? Order pizza? Go out with someone to a restaurant?
Going to the grocery store hungry and without a list!
When you do this, you usually end up spending more than you should.
Establish a weekly grocery budget. Plan each and every meal and only buy what is on your list.
Look at your store’s coupons for that week when budgeting and use it as inspiration for your meal plans.
You’ll be surprised by how much food you have in your pantry and refrigerator when part of you says there’s nothing here to eat.
Make a weekly grocery list and budget. Then stick to it!
You’ll also be amazed with how much you save by eliminating those ‘quick’ grocery runs!
Audit and remove subscription services you don’t use often enough or can do without
Subscription services are cheap, but they add up, especially if you’re paying for five or six of them.
Do you actually use all of them?
What entertainment do you need that you can’t get from your library or YouTube?
Most libraries offer free eBooks, audio books, as well as free downloadable movies and TV shows.
Keep your favorite and drop the rest.
You can always come back later, but for now it’s time to tighten your belt.
Cancel cable and your unlimited data plan
You don’t need cable and an unlimited data plan if you have internet at home.
They’re conveniences, but they’re not necessities. So, turn them off.
If there are cancellation fees, save up until you have enough to pay them.
Sounds counter productive, but with them gone you’ll quickly start saving more and more cash each month that you can instead throw at your debt.
Ultimately, stop going to places where it will be hard for you to keep your wallet closed.
Meaning, don’t browse your favorite clothing store on the way home from work or school just because you have time to kill.
Take a book with you or call a loved one instead.
Each time you feel like browsing/shopping online, such as Amazon, play a game on your phone or jot down your thoughts in your notes.
Your brain is most likely craving for a quick escape.
There’s nothing you actually need right that moment from Amazon, so don’t even expose yourself to the temptation.
Don’t run errands around mealtimes. They always take longer than they should. When you do, you’re typically more inclined to pick up a quick bite for you and your family.
Pack snacks and drinks each time you head out of the house.
Explore free resources like your local library or the great outdoors to feel like you’re treating yourself.
We’re not suggesting you become a humble scholar or an ascetic, but part of the reason we spend so much is because we like to feel like we’re ‘accomplishing’ things.
So, give yourself something you can actually accomplish and benefit from!
Have a clear goal in mind, such as, “I will save two hundred dollars in two weeks.”
If you haven’t already implemented a savings plan, you need to start today.
Great! I’m doing all that but I still can’t afford to save. What can I do?
There’s never going to be a great moment to start saving money. At the end of the day, it comes down to choice and sacrifice.
There’s never going to be a great moment to start saving money. At the end of the day, it comes down to choice and sacrifice.
There are a lot of ways you can go about saving, even when you think you can’t. It takes a little planning, determination, and patience, but you CAN start.
Here are a few ways other people have found that makes starting and building a savings account work for them..
Start small and be patient, it will build over time
Your savings plan is your long-term play. It takes time, but it will grow.
It doesn’t matter if you start with an old fashioned piggy bank, or a coin jar, but start right now – a savings account would be better since you’ll be collecting interest at the very least.
Set aside some amount of money.
Even if you’re just setting aside a dollar a day, you’re making headway, and you’re developing good habits.
Try rounding your checking account weekly or nightly
Let’s say you have a balance of $453.28 in your checking account at the end of the day.
Take that $3.28 and transfer it from your checking to savings that night.
Even if you were only $0.68 cents over your 5, 10, or 20-dollar rounding target, transfer it.
It is not about the amount. It is about building a habit of saving.
People who have used this method have been able to add anywhere from $50 to $130 each month to their savings without ever “feeling” it.
If doing it each day is too much of a hassle, then choose a bigger target number like the nearest 20 or 50 dollars and just do it once a week.
Consider the money in your savings account as inaccessible
You will be much more likely to formulate a budget and stick to it if you refuse to dip into your savings outside of legitimate emergencies.
Form a budget, and stick to it. Keep your savings account as hands off as possible.
Not working with a monthly budget encourages reckless spending. If you have money left over after taking care of your essentials, what’s to stop you from buying something that catches your eye?
Monthly budgets support healthy spending habits.
WIth a savings account, you spend only what you must and put the rest into savings.
At the very least, you’ll earn interest on the money you have in savings. The interest isn’t huge, but it’s more than you would get if it wasn’t in a savings account. Why turn away free money?
If that’s still not enough, then you might need to think outside of the box with a side hustle
Whether it’s freelancing in the evenings or renting out a spare bedroom on AirBnB, it’s time to think outside of the box and increase your monthly cash flow.
You may have to think about it, and it might not be easy, but there’s likely something you can do to bring in a few more bucks each month.
Stick with it, and before you know it, you’ll cross the line from building and emergency budget to saving for your future.
Save for your future and build your retirement savings
You can never save too much for retirement. The real problem is that many people don’t save anything.
It doesn’t matter how young you are, you need to start saving for retirement as soon as possible.
Your retirement plan will generally be made up of assets that are less liquid than your emergency fund.
Think CD’s, stocks, bonds, and other investments – even establishing a trust in the future. These assets almost always gain value over time.
The important thing to understand is how compound interest rates work.
What’s important to understand is that the value you gain will be growing at a much faster rate than you might imagine.
More than simply saving, it’s putting your money to work – making your money make money!
Create a separate retirement account and put what you can in it after your monthly expenses. It will grow faster than you think!
If you set aside $1,000 dollars and gain ten percent interest, you’ll have $1,100 the next year.
Then, let’s say that $1,100 gains 10%, so you end up with $1,210 the next year plus the 1,000 from year two savings for a total of 2,210.
In year one you gained $100.
In year two you gain $110.
Over time this can really add up. If you continue the plan described above for 40 years, you will have saved 40,000 dollars personally but your account will be worth over a half-million dollars.
This is why you need to start saving and investing in your retirement as soon as possible.
We all have dreams, and not every dream is for when you’re over 65
A savings account used in unison with a monthly budget will help you save for those big ticket items – like a down payment on a house, a plane ticket to Europe, or a new dining room set.
Too often people exchange long term gains for short term ones and buy without much future planning – eroding their safety net and perpetuating the cycle of debt when the next emergency hits.
With a savings account, it’s a little easier to buy those big ticket items without putting yourself at risk with the next ‘annoyance’ that’s hiding right around the corner.
Don’t let the momentary happiness that accompanies micro-purchases fool you.
You want the good stuff.
Save up for what your heart truly wants and say goodbye to cheap imitations trying to woo you.
And finally, after the big ticket item, or maybe “unexpectedly” before you reach that dream, life happens.
Not an emergency, but one of those major life events, like getting married, or having a baby.
Plan for the expected and unexpected major life events
Money Management Tips For Newly Weds
Did you know couples argue about money more than anything else?
When you first get married, it’s easy to make mistakes with your budgeting and money management.
Fights about finances don’t have to be inevitable. Or if they are inevitable, it is at least possible to minimize them.
With great communication and a solid plan, couples can create a strong financial future.
We’ve got some great tips here for newlyweds who are working out the financial side of marriage.
Be Open and Honest
If you didn’t talk about money before you got married, now is the time to lay everything on the table.
Discuss your accounts, debt, savings, and also how each of you handle money.
Decide whether you want a joint bank account now or whether you’ll maintain individual accounts.
It is important that there are no secrets lurking and you begin your marriage on the same financial page.
Design a Budget
When designing a budget, this is the time to sort out your wants and needs.
Review your joint expenses in all categories over the last three or four months, and then decide if you are overspending in any of those areas.
After you determine your exact combined monthly income, you can budget in the proper amounts for all the categories in your life.
Just like we mentioned above, the first priority is to make sure basic expenses are covered without going into debt.
The second priority is creating an emergency fund to account for unexpected events like a car accident.
The third is saving money in an interest bearing account or retirement account.
Last but not least, look at what will be left over for entertainment and other fun purchases – or the big ticket item like a new house.
Work as a Team
Yes, we know how much you want that Star Wars box set or this season’s Coach purse.
When you’re married, you need to take into consideration how your spouse is going to feel about that.
When you make the decision to work as a team, you put your joint needs ahead of your individual needs for the financial security of you both.
Set Goals and Save
When couples are working together, it’s easier to stay on the right financial track.
With mutual financial goals in mind, one member of a couple is less likely to stray off on a spending spree or make frivolous purchases.
When you make the vows “for richer or for poorer,” it means you are going to stand by your spouse, even in tough financial times. With planning, honesty, and lots of love, newlyweds can avoid conflicts about money and stay on the right financial path.
And then… there comes three.
How to Budget for a New Baby
Saving for a baby isn’t as simple as saving up for some diapers and onesies.
With a new baby comes a slew of new bills and expenses!
Here’s what you need to know so you can be as financially prepared as possible when your new bundle of joy arrives.
Know What Your Insurance Covers
Know exactly what your insurance will and will not cover, as well as any copays you’ll be expected to put forth for maternal care.
Also, do some research on delivery costs for each hospital in your area.
Prices between hospitals can vary dramatically (from $3,000 to $30,000 in some cases).
Buy Used Baby Gear
Everything doesn’t have to be brand new.
Just ask parents with more than one kid and they’ll most likely tell you that used is the way to go (except for diapers, of course).
Buying used baby clothes and other necessities will save you some serious money.
Facebook Marketplace, Ebay, and consignment stores are great places to shop.
Also, don’t be afraid to ask friends and family to donate anything their kids have grown out of, from clothes to car seats and beyond.
You’ll be surprised by how much you’ll save if you go this route!
Prepare to Live Off One Income
A lot of moms and dads realize once their baby has arrived that they don’t want to go back to work (at least not at first).
Have a frank conversation with your partner about this and prepare for this scenario in advance.
Practice living off one income for a while to see whether it’s sustainable for your financial situation.
If things are tight, you may want to consider moving to more affordable housing so that, should one of you decide to stay home, your budget won’t be stretched too thin.
Research Local Daycare
If you know you’re going to go back to work, you’ll want to know how much a month daycare costs in your area.
Call around and get quotes, and while you’re at it, read reviews or ask for referrals.
You’ll want a good balance of cost and service.
Budget Money for Diapers, Food, and Baby Clothes
How much money do you need to budget for diapers and baby clothes?
About $50 a week (give or take). You’re going to soar through baby supplies at an alarming rate, so be sure to set aside about $200 a month to cover day-to-day baby expenses.
Soon-to-be parents often think they should stockpile years in advance, but this is not necessarily the best idea.
Your baby will grow faster than you think.
For that matter, it might even be worth your while to wait on buying anything. You don’t know how big or small your little one is going to be until he or she arrives!
Prepare as Much as You Can
The rumors are true: You’ll likely never be fully prepared for the cost of a child.
Prepare and get comfortable with expecting the unexpected.
When it comes to financially preparing for a new baby, the best advice we can give is to start saving as soon as possible.
And before you know it your little one’s first Christmas, birthday, etc… will be here.
How to Start Preparing Your Budget for the Holidays
Each year, about half of Americans go into debt over holiday purchases, with the average credit card debt hovering around $1,000.
That amount doesn’t take into account cash purchases made throughout the season.
You can say you’re not going to overspend this year, but without a plan in place you’ll repeat the same mistakes you made in the past.
So that you don’t go into debt this year, here’s how you can start preparing your holiday budget today.
#1: Follow the 1% Rule.
Financial planners recommend that you spend no more than 1% of your annual income on holiday spending.
So, by that model and recommendation, if you and your spouse make $110,000 a year together, then your holiday budget should be no more than $1,100.
#2: Buy Your Tickets Early to Save Money.
If you need to travel over the holiday season, buy your tickets early (in fact, do it immediately after you read this if you can).
Not only will you save yourself a lot of money, but you will spare yourself the stress of finding a ticket at the list minute.
#3: Set up a Savings Account Early Just for the Holidays.
After you’ve met both your mandatory spending and savings goals, put a little bit away each month into a savings account just for the holidays.
Once it’s reached 1% of your annual income leave it be.
As you shop, use it to pay yourself back.
Doing this will also help you keep track of how much you have left.
#4: Plan and Shop Early.
Think of what you want to get everyone months before Christmas. You’ll be much more likely to find a deal and stay on top of your holiday budget if you do.
If you wait until December, prices will be marked up due to supply and demand and you’ll be scrambling at the last minute to find the best gift that fits into your budget.
Plus, you can keep an eye out for coupons and storewide sales to help you out even further.
#5: Remember: It’s the Holiday Season.
You’re not just celebrating one day.
You’re celebrating multiple days and events.
Therefore, your 1% budget needs to account for work parties, travel, quick get-togethers, as well as any gift-giving days between friends, family, and loved ones.
It needs to cover it all.
It’s when people don’t consider everything that accompanies the holiday season that they go into debt.
You may feel like you’re selling your loved ones short by using your holiday budget on things such as work parties, but ask yourself this, would they really want you to go into debt over them?
Teach your kids how to avoid bad debt and smart money habits
Something noticeably missing from childhood education these days is the teaching of proper financial habits. Some schools offer it, but if you want your kids to learn smart money habits, you’re the best teacher.
Here are three things you can start doing with your kids today to teach them the value of proper money management.
Show them how you personally manage your money
The best way to help your kids develop strong financial habits is to show them through your own personal money management.
One way you can do this with them is by creating a grocery shopping list that sticks to a strict budget. Include them in the discussion and let them make a few decisions. Explain how much you have to work with as a family and show how a single purchase can affect multiple purchase decisions.
For it to really sink in, you have to write out the week’s meal plan so that they can see how their choices affect what they’ll be eating for the rest of the week. They may decide to go with store-brand cereal so they can get an extra pizza for Friday movie night!
Give them an allowance
For your kids to truly learn about smart money habits, they need to have experience with it. Strongly consider giving them a weekly allowance if you’re not already. $20, $10, or even $5 is more than enough for them to start learning. Do whatever you feel won’t spoil them.
At first, let them use the allowance as they see fit (assuming, of course, their purchases are age appropriate, safe, and won’t get them in any kind of trouble). Over time, with your subtle direction, they’ll learn the value of saving up for big purchases. A $20 game, for example, pales in comparison to a trip to Japan!
Note: Some parents make their kids allocate percentages of their allowance to future necessities (first car, college textbooks, prom dresses). This is obviously up to you. There’s certainly a lot of value to doing such a thing, but we suggest you let them make a mistake or two. Children need to learn as much from your example as they do from their own mistakes.
Open up a savings account in their name
Until your children are 18, they can’t open up a bank account in their name. However, you can open up a savings account for them and then transfer ownership of it to them once they are old enough.
Along with learning skills such as how to bank online, you can also teach them how to use physical brick-and-mortar locations. Knowing and understanding both are valuable life skills.
In addition to learning how to properly bank, you can have them practice basic math skills every time money is deposited and teach them the value of compounding interest (something many adults have to be taught). Plus, there’s something to be said about ‘seeing’ how much money you have. It makes you want to protect it.
Don’t overthink it. Start today!
As they say, the best time to plant a tree was twenty years ago, but the second best time is today.
Don’t put off teaching your children strong financial habits. In addition to building character, it also prepares them for the future. A win-win if there ever was one!
Summation
Motivate yourself to budget your monthly income.
Once you get to a stable place and you’ve got this budgeting thing dialed in, set a goal to start setting back at least 10% of your paycheck every payday.
Experts suggest the 50/20/30 rule— meaning 50% of your budget should go towards musts, 20% towards savings, and 30% towards wants.
If you doubt yourself and your ability to stay on track, find a well-reviewed budgeting app and get it. Even if it costs a few bucks, if it has a lot of features that appeal to you, get it. You can budget it into your budget!
To leave you with a word of wisdom
Don’t spend your money on belief systems.
You don’t have to have a house with a white picket fence if it’s not what you truly love.
If you like eating out and going to bars more than you do living in an expensive apartment, flip the equation.
Live the life that brings you – and only you (well, your family, too) – joy.
You’re not here for the status quo.
Just, stay out of debt and temper today’s joy with your future joy.
Future you will be grateful if you kept them in mind with how you live out today.
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By doing this one thing, by the time you turn 65, you would have a nest egg in excess of $850,000.
Are you making these common mistakes and putting your finances at risk?
If you’re using your bank account the same way you did five, ten, or even twenty years ago, you’re missing out…
