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New Year Debt Strategy: Step#1

If you have debt, other than a mortgage or student loans, then you have accumulate this debt by spending more than you make. It's that simple. It doesn't matter what circumstances brought on the debt, for whatever reason you ended up living beyond your means.

Take some time and reflect on how that debt came to be: Did you require a major home repair? Did the dog get sick? Did your car breakdown? Or is your lifestyle just plain more expensive than your income? The more liabilities you have (home, kids, pets, cars, etc.) the more likely you are to incur a major expense. Take stock of what you own and the more you own, the more you have to realize that those rare expenses likely aren't so rare. So, how do you manage this?

Step #1: Do NOT Spend More than you Make

  • Now say this outloud to yourself, "I will not spend more than I make".

  • Financially sound households have this strategy completely figured out.

  • If your debt is creeping up, then you are spending too much and must make change.

  • Once you figure this out, I promise it will be easier to prepare for those big expenses.

If you are spending more than you make, I challenge you to monitor your spending for 3 months. Look at all of the inflows and outflows of your household and get in the black.

Tips to making tracking easier:

  1. Use 1 bank account and 1 credit card. The more accounts you have to track, the messier it gets.

  2. Look at last months' statements and lay eyes on where your money has been going. Determine any trouble spots such as online shopping or eating out. Historical spending is a huge indicator.

  3. Understand all those subscriptions; add up all of those little TV and music subscriptions

  4. Track Weekly, sometimes looking back at a whole month is too late.

Once you are in the black, that's when you can implement strategies to save for emergencies and big ticket items. As a financial planner, my main priority to my clients is to make sure that they don't accumulate any more debt, regardless if we have to put those debt payments on minimum payment strategies to stay in the black. Sometimes we can get really emotional about debt balances and make heroic payments towards it, but in the end you have given yourself the short end of the stick and end up having to use it again to put food on the table. This is the hampster wheel, it's time to move on.

Of course, if you need a hand creating a debt repayment strategy, I'm pretty good at that!


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