Back in 2016 I had an epiphany: I needed to be more fiscally responsible. For one, I needed to stop carrying so much debt and living so close to the line. I had dabbled around with paying off cars and saving more, but was never really serious about it.
Fast forward nearly two years later and just last week I was able to write about how my wife and I paid off $57,000 in student loans in 2017 alone. So what changed?
The biggest change for me was maturity. Most of my twenties were college 2.0. Truthfully, the party never ended. However, I quickly realized that if I wanted to have any sort of lifestyle that I controlled, I needed to become more serious about my finances.
But before you can create control, options, and time, you need to manage your debt. Here are just a few simple steps to take in order to get started.
1. Lower your monthly expenses.
Look at your income then look at your monthly out go. Now, is there anywhere you can eliminate expenses? For example, I just saved about $300 annually by bundling my insurance coverage with a new provider.
A few simple ways to lower monthly expenses include losing the cable bill, downsizing your vehicle (I did this when I sold my truck) and looking at wasted spending. Food, drinks, entertainment can cost the average adult $225 a month alone.
If you are looking to manage your food expenses look at meal planning and using rewards points for eating out! Avoid using credit cards for random purchases, use either cash or debit.
2. Learn from past mistakes.
I often speak from example, but just like buying a $35,000 truck in 2014, sometimes we all make costly mistakes. Sometimes the best way to learn is to reflect on past experiences.
Debt works the same way. If you had spending habits that led to consumer debt, or maybe you just have student loans from college still, see what you did in the past. If you weren’t paying extra or paying ahead chances are you didn’t do much to the principal.
This is a personal belief, but if we all looked back and took a tally of all the interest we paid out over the course of a year, chances are we would take personal finance more seriously.
3. Begin to understand amortization.
Amortization, or the repayment of a loan principal, is a word I heard 5 years after getting my mortgage. I really wish I knew what it meant when I bought my first home, but like many I did not.
Now that I see how amortization charts work, I am a tad bit more fanatical about paying off debt.
For starters – just play around with this amortization calculator and some of your debts. The average college graduate had $37,000 in student loan debt. Over the course of 10 years they could expect to pay $10,000 in interest.
However, if they attack the principal with extra payments they can quickly get ahead and pay less in interest overtime.
4. Create some extra income with a side hustle.
In one of my first ever blog posts, I showed how one person can take $600 extra per month and use it to pay off $60,000 in three years. Where do you get $600 might be the question you are currently asking.
For starters, look at your hobbies and see if there is anything you could do to create income. From doing some landscaping, making things or picking up some personal training clients, chances are you may be able to create some extra money with your favorite hobbies.
The internet provides endless opportunities that can provide extra income. I will let everyone in on a hint I read recently – get really good with computers. Every day there is a freelance opportunity out there for people who have skills using computers. From managing social media adds to graphic design, a simple way to earn extra income on your own time is using a computer.
Here is a list of 16 Side Hustles you can explore as well.
5. Pay your debt first.
In order to get ahead on your debt and wipe it out, you will most likely need to adjust how you approach your debt.
Most people pay their bills, spend their money on things they enjoy, and finally, with any extra, they will payoff debts or save. In reality, it should be the other way around. Pay off your debt, pay your bills, then use any leftover for spending.
Please do not misinterpret that as me saying not to pay your bills. What I am saying is find out the number you can allocate to your debt (or savings) per check and when you get paid do that first. Bills come after followed by spending.
Unfortunately, it is typically spending, bills, and nothing extra towards debt.
Read more about our desire to be debt free here: I Got 99 Problems but Debt Ain’t One!
In the end, it boils down to what you want.
I think it is important to point out that everyone pays or carries debt for their own personal reasons. Not everyone has to be or is as fanatical about paying off debt as Lauren and I may be.
However, when we think about what we do want – more time together, travel, options, security – we are quickly reminded why we are delaying the good for the great.
If you can figure out your reason for accomplishing your personal fiance goals, chances are you will accomplish them much faster then you anticipate. On the contrary, if you are like me three years ago and you have zero personal finance goals, then I would start with writing a few down!