Welcome to the Debt Free Spending Plan! It is our goal to help you become debt free WITHOUT having to pay a debt counselor! We want you to be able to start TODAY without going ONE STEP further ino debt!
The title of this blog is Debt Free Through Spending, so you might be wondering how SPENDING money is going to SAVE you money! The principle is simple. Most people earn an income either through a paid position, self-employment, and even government subsidy like Social Security. EVERY person is on a budget where they spend money. Most people spend money on a place to live, a car to drive, food to eat, etc. The question is: “How can I get the most through what I spend?”
The answer lies within the pages of this blog. First, you have to understand how and where you spend your money, how to spend money so you can get out of debt, and how to increase your return on what you spend. My degree is in teaching, and it is my goal to help teach YOU how to do all of these things through the resources on this blog.
**** CLICK HERE for the Credit Card Pay Off Calculator!
How to Use This Plan: To really effectively use this plan, we feel it is best for you to download all the necessary documents (This would be all the PDF files), and place them in a binder. This is going to be the start of your Debt Free Spending Plan Binder, and it would help if you three-hole punched these papers and placed them in a binder with a folder inside the front and back cover.
Items You Will Need:
ALL of your bills, a calculator, a hole punch, a three ring binder, file folders, and some sort of filing system. Remember,
Staying Organized Can Save You Money
Step 1: Prioritizing
Figuring out how you’re spending your money can be frustrating, depending on the kind of record you’re keeping. However, before you can come up with a spending plan, you have to take a hard look at your priorities- what’s important to you. This is the step that most people skip, yet it is the MOST IMPORTANT! Many times people jump into credit repair or try to be debt free without looking at what’s most important to them and their families. You have to be realistic about your priorities, and decide if the right people/priorities are in the right places.
Now there are the priorities you have, and the priorities you should have. We’re going to make a list of the priorities you want to have, and a list of your current priorities. Hopefully, you should have some overlap of these two, which will show you where you are setting correct goals and working to achieve them. However, if you find that your current priorities do not match the priorities you should have, then you’re going to have to do some revamping. Please copy the following diagram onto a sheet of paper, and let’s take a look at your priorities.
 |
| Current Priorities Desired Priorities |
So, where is there overlap? What things do you need to change in your life? What will really make you happy? Now is the point where you really have to start asking yourself if material things and money are what really make you happy. Only when you can find your happiness in your other priorities, will your money woes really fall into line. To me, personally, relationships are the most important thing. I work daily to achieve better working relationships in my life, and along the way, I have saved a TON of money!
Step 2: Document Your Debt
Once you’ve decided on what willreally make you happy, we need to start looking at how much debt you have right now.
First, you need to look at all your bills. This may be the painful part, because you may have to face some things that you’ve been denying for awhile. This might include unopened credit card bills, letters from bill collectors, or late fee letters. This must include figuring up your total debt, knowing exactly how much you owe, and how long it will take to pay it back. The only way to work through getting out of debt is to face your denial, but always remember, there are plenty of other people out there who are going through the same thing, and you’re not alone!
While you are documenting your debt, if helps if you place all the necessary paperwork in a file, and place these files in some sort of file box or filing cabinet. Remember, Staying Organized Can Save You Money!
Step 3: Set Up A Realistic Budget
We are going to look at creating your own spending plan by using our My Budget PDF . Eventually, you may want to use an online budgeting tool such as Kiplinger or Mint . However, to get started, we feel it will be easier with the old fashioned method- Paper and Pencil!
Once you have started tracking your finances, then you will have to make some decisions about what you need to change to bring down your overall expenses. If you are in the red, then you may need to go to one phone, or cancel your newspaper subscription, etc. Again, if you go back to your priorities list, then giving up these things shouldn’t be as difficult when you realize they will help you reach the goals that will make you really happy.
nce you have decided on what needs to change in your budget, it’s time to take action. Now is the time to call and cancel the extra insurance you’ve been carrying on your cell phones, or postpone the annual trip to the vet by a month or two. There are so many ways to trim your budget, and these are constantly discussed on the blog to help you learn to start rethinking how you spend your money.
***PLEASE NOTE: If you have serious credit card debt, you may need to seek counsel from a debt consolidation service.
Step 4: Create MARGIN.
So many Americans live paycheck to paycheck and in debt. Many times this happens because they do not have an emergency fund. An emergency fund is extra money set aside to cover unexpected expenses or bills in the case of a layoff, a sudden medical problem, a car repair, or any other major unexpected bill. Many times people do not plan for my favorite word: MARGIN! Margin is the extra room for the unexpected. You never expect the transmission to blow, or your spouse to get that weird bacterial infection. Now you have to pay the mechanic, your bills, or the doctor.
MARGIN means you expect the unexpected and actually plan for it financially. Most financial guru’s recommend 3-6 months of your current salary. That means if you make $1,000 a month, then you will need to save $3,000-$6,000. While this may seem like a lot of money, it is not hard to do for most people. For example, each year many people get back a substantial tax return that could help build this fund. If you are struggling severely with saving, then contact your bank and ask them to make an automatic withdrawal to your savings the same day as you receive your paycheck. This way it’s like you don’t even know you have that money. Also, you may need to ask someone to hold you accountable for your savings.
TIPS
Here is a compiled list of tips to help keep you on the right track of your spending plan over the next several weeks.
1. Set up a filing system – remember, you’re trying to rethink how you spend your money, so you don’t have to go out and buy the most expensive type of system. Just get something that works for you. You will want to start keeping copies of your bills, and this will mean coming up with some sort of filing system. Once you get to be an expert filer, you can read my article on how to set up a paperless filing system using online bill pay and a scanner.
2. Set up a payment calendar. This can be something as simple as a Dollar Store calendar, or you can set up a calendar through your email program. Outlook has calendars, and so does Windows Mail for newer operating systems. You will want to keep track of when payments are due, and how much in this calendar.
3. Start reading! There is so much knowledge within this blog and the links throughout. Please apply this information as quickly as possible, so you can make effective changes now, not later.
ARTICLES
Keeping Your Finances on the Straight and Narrow
Staying Organized Can Save You Money
Step 5: Investing Beyond Your Margin Fund!
Saving is something that is foreign to many people, and only a few people find out how to effectively save or even how/where to save. While knowing where to save is each person’s individual choice, we will look at different ways to save that will work for many people. We will also look at debt, and how it is the opposite of saving. We will look at various ways to pay down your debt and increase your savings.
When you’re looking to put your money somewhere, you want to make sure you’re getting the highest rate of return on your money, or the most interest. Investopedia has a great article on the forces behind interest rates here. It is essential that you understand interest before you can save or spend. Obviously, interest can work for or against you. For example, if you have 19% interest on a credit card, you are going to have that amount added daily to your total. You are basically paying the credit card company to borrow their money. A simple example might be that you owe 19 cents on every dollar that you borrow. When compounded daily, this can add up to a large amount of money.
It is hard to pay back what you owe, plus the interest, if you only make the minimum monthly payment. Credit card companies are now required to show you on your statement how long it will take you to pay the amount back, AND the total amount you will pay, if you only pay the minimum payment. This is where it is essential to know how much interest you are being charged on all your credit cards. However, we will get into that in detail later.
Let’s look at the interest you gain on your savings account. In the current economy, there is little to be said for investing in a savings account at your local bank. The interest rates are very low (currently .15 % at my own bank), and you will not make much money on these accounts. However, they are more flexible, in that if you ever need your money quickly, you can often go to the bank and retrieve your money immediately. These types of accounts are great to keep your emergency fund. This is money you would need in the event of a crisis, such as an unexpected layoff, a car repair, or any other unexpected major expense.
However, when looking to save to make a great rate of return, you will need to decide how much risk you are willing to take and WHY you are saving. For example, are you saving for your child’s education, retirement, a vacation, or your dream home? The second question is HOW LONG DO I HAVE TO SAVE? For example, if your child is an infant, you will have approximately 18 years to save for their college education. These factors will play into your saving decisions.
Either way, gaining interest through saving is always better than paying interest to credit card companies!
There are many ways to begin saving money. However, not all ways to save are created equal. As discussed in the Saving/Debt section of the blog, you have to decide what you are saving for and how long you have to save. This all goes back to the priorities page we completed in the Budgeting 101 section. What are your financial priorities? Are you saving for a new car? Your child’s college fund? Retirement?
Let’s start with retirement. Anyone over the age of twenty-one should already be saving for retirement. With the bleak economy and Social Security forecasts, we may not have the luxury of monthly Social Security payments like our grandparents. Therefore, we may need to save at a higher rate than our parents. We’ll take a look at the various types of retirement savings, and I will also be posting links to other sites with longer explanations.
The #1 principle for saving money for retirement is DON’T PUT ALL YOUR EGGS IN ONE BASKET. If you’re not familiar with this idiom, it means, don’t put all your money into one place. This is even a Biblical proverb. We all know horror stories of retirement vehicles gone awry. Whether its an insurance company that folds (and your retirement fund was in an annuity account with them), or a company whose stock crashes, it helps to invest your money in more than one place.
Pensions- Since I am a teacher, I will have a pension when I retire that comes through the State Teachers Retirement System. Many types of jobs offer these types of retirement plans, and while these are great resources, they also fall under the eggs in a basket principle (As will all the other types of accounts we will discuss).
401(k)/IRA- Please read about these saving options here:
PLEASE NOTE: If your employer is willing to match funds for these types of accounts, it is best to match at the highest possible percentage. This is like FREE money!!!!!
Mutual Funds/Stocks – As with anything in life, there are risks. The stock market alone brings more risks than most savings vehicles, but they can also bring the highest rate of return. While I wouldn’t recommend websites like E-trade for the average investor, stocks can actually be safer when purchased through mutual funds. I am including a list of websites that have more information about these types of investments.
Stocks by Jim Cramer
Links to other posts about Saving and Debt:
DEBT REPAYMENT
Paying down debt starts with a plan. If you haven’t already read Budgeting 101, you will need to go back and read through that material first. However, once you know what debt bills you have, you will want to make a comparison sheet. We have developed our own Debt Paydown Sheet here OR Download the PDF: Debt Paydown PDF Once you have looked at your total debt amounts and the interest rates, you will have to decide where to start based on the rates and the balances. For example, if you owe $200 to a credit card company with an interest rate of 24%, versus a $6,000 loan with 9% interest to the bank, it makes more sense to pay off the $200 credit card first, because it’s a small amount with a high interest rate.
You will need to order your debts by highest interest rate and lowest balance, and pay off the lowest balance with the highest interest rates first. It will also help to “clear your head” if you can get rid of some of the smaller bills first.
*TIP: If you owe money to a doctors office or hospital, you can often make low monthly payments that are interest free. You will need to check with their billing office first, to make sure!
Once you have your bills ordered by importance, then you can start making extra payments to the creditor you have listed as #1 on your sheet. Depending on your other expenses, you may or may not be able to start paying down debt until you have established an Emergency Fund. An emergency fund is discussed in Budgeting 101.
Articles/Blog Posts
16 Things to Avoid Buying Used
4 Habits to Keep Your Finances on the Straight and Narrow