There are all kinds of things that can cause you to worry, but financial stress is one of the most common problems people face. When you’re worried about how you’re going to make ends meet, it can be tough to feel happy and fulfilled.
But there are specific steps you can take toward achieving freedom from financial bonds. It does take work, but the outcome is so rewarding you’ll realize it was worth any effort on your part.
Step 1: Get Real About Your Situation
When you’re overwhelmed by finances, you might have a tendency to put the bills in piles and just try to ignore them. But that only increases your anxiety and stress. Instead, you need to face the facts.
First you need to get out all the bills and see where you are. If you’re married, your spouse needs to get in on this, too. It’s important to make sure that you both are part of the process.
Financial strain is a leading cause of divorce, but by working together as a team you can strengthen your marriage as well as your financial future. Make a pact to sit down together on a regular basis to discuss the money.
You’ll have two different kinds of bills. The first will be the stuff you need to live each month such as rent/mortgage, utilities, gas, food, and insurance. The second is debt which includes loans, medical debt, and credit card debt.
For the monthly bills, it works well to make a monthly calendar and write down the amounts due on the appropriate dates. These bills are sometimes the same but can fluctuate.
For example, your electric bill may be higher in summer months when you use more air conditioning. So you’ll have to repeat this process each month as the new bills arrive. But in general you can get an idea of what your financial needs are each month.
Then make a list – by hand or in a spreadsheet – of your debts and debt payments. This can be an overwhelming process, but it’s a necessary one. And you really will feel better when you face the situation and really know what’s going on.
For now, plan to pay only the minimum payments on credit cards and debt until you get your expenditures under control. Later you can begin to pay down bigger amounts toward your balances.
Next, it’s time to take stock of your income. Write down any sources of income you have from jobs, child support, or any other income you receive. Then you need to compare your expenses to income.
Do you have enough coming in to meet your needs? Sometimes people do, but because they mismanage their money they don’t take care of the bills first. And if you don’t have enough to cover the expenses, it’s time to make hard choices.
Step 2: Write Down Every Penny You Spend
You should also begin to track your spending. Even if you spend 99 cents on an item, write it down. You might want to use a checkbook register or a small notebook to keep track of spending. Don’t let anything go without being recorded.
Do this for about a month and then review it. Do you see times you spent money that you really didn’t have to spend? Often you’ll find that you spend a lot of money on things like grabbing a soda at the gas station or getting an expensive cup of coffee regularly.
Go through with a highlighter and highlight any entries of money you spent that wasn’t absolutely necessary. That includes eating out, entertainment, gifts, drinks here and there, etc.
It doesn’t seem like much when you’re spending an extra dollar or two, but those little expenses add up. Looking at how you actually spend your money can help you to make better choices.
Once you’ve identified the areas of extra expenditures, make a plan to eliminate them. You may need to make changes such as packing your lunch, carrying a water bottle with you, getting a travel mug to take your coffee from home, making gifts, and look for free entertainment in your community.
Step 3: Increase Your Income or Reduce Your Expenses
The bottom line is that you need to bring in more money than you have going out. First, look at what expenses you can cut. Can you get rid of some luxury items such as cable and eating out?
There are usually ways that you can tighten your belt. Often people get into debt because they spend too much money on things that aren’t really necessary. Look at every expense – this is where the tracking comes in handy.
Often one of your largest bills is housing. Can you live in a less expensive place? It doesn’t have to be forever, but for a short time this sacrifice can help you to save money and get back on your feet.
Bartering is another way to lower expenses. Trading services with friends can help you to save money. For example, you could provide sewing services in exchange for a discount or free childcare. Look at your skills and needs and determine if there’s a bartering opportunity.
After eliminating extra expenses, if you still don’t have enough income you need to come up with a plan to increase your income. There are several options for trying to bring in more income – though this is a difficult thing to do sometimes.
Some ideas include:
* Taking on a second job
* Asking your current boss for more hours or a salary raise
* Get rid of clutter and have a yard sale
* Take on odd jobs such as cleaning, babysitting, or yard work
* Apply for jobs that pay more than your current one
* Earn money by using your hobbies. Do you sew, make products, or practice photography? Those can all be turned into side businesses.
* Rent a room out of your home
Anything you can do to bring in extra money is helpful. Once you get to a place where you’re bringing in more than is going out, you can begin to make further steps toward the financial freedom you’ve dreamed of having.
Step 4: Stop Using Credit Cards
It’s important to start saving money so that you won’t rely on credit cards to get you through when unexpected expenses arise – and they always do. It’s good to have about $1000 in a savings account that you can have as a cushion.
This money isn’t to pay for Christmas presents or luxury items. You’re not saving up for a new possession with this money. This is the money you’ll have when an unexpected car repair comes up or you have a medical need – true emergencies.
Other than that, you can just leave this money in an account and forget about it. But you won’t’ believe the peace of mind that will come from knowing if there’s a problem, you’ll have a backup.
Once you have that money saved, you can feel good about cutting up those credit cards. They’re too tempting walking around in your wallet all the time. You can be under the mistaken impression that they’re actual money when in fact, they’re the cause of financial bondage.
Cut up your credit cards and never look back. If you don’t have money to buy something, don’t buy it. This simple action will keep you from digging into deeper debt. While that may mean you don’t have as much “stuff”, remember that spending money you don’t have has led you to feelings of anxiety and even despair at times.
Step 5: Pay Down Your Debt
Up to now, you’ve been just getting a handle on your expenditures. You’ve been paying just the minimum payments on credit cards – but that won’t get you out of debt. While it’s good to be caught up, now you need to work toward getting out from under the debt that’s weighing you down.
Once you have a savings emergency fund and you’re not behind on the bills, you’re ready to put more toward your debt. There are two ways you can pay off debt. One is to arrange your credit cards and other debts in order of your interest rates.
With this system you’ll pay off the debt that has the highest interest rate first. In the end, you’ll be paying less because those interest rates are costing you more money than you might realize.
The other way to go is to order your debt from smallest to largest total amount. You’ll start by paying off the smallest one first. Once it’s paid off, you can put the money you were putting toward it to the next smallest card.
You’ll continue this system until you’ve paid off everything. You may pay more in interest this way, but there are psychological benefits to kissing entire credit cards goodbye.
Choose the system that works best for you. For most people, it works better to start with the smallest amounts and work your way up because you can actually see a big difference when you get to say goodbye to a bill forever.
Any time you get a little windfall of extra money, apply it toward the debt. Eventually you’ll find that the debt is completely gone and you’re ready to go on to the next step of planning your financial future.
Step 6: Save and Invest
Once all the debt is gone, it’s time to start building a solid financial foundation. This includes saving money and investing in your future so that when retirement comes knocking on your door, you’re ready for it.
Having a generous savings account also means that you’ll be prepared for any emergency that comes your way. You’ll feel secure if a spouse loses his or her job or if you want to add to your family.
You’ll also be able to finally start enjoying some luxuries in life. If you can pay cash for some of the things you want to do, you can enjoy vacations, eating out, and paying for entertainment or gifts.
However, you should be warned that you need to stick to a budget so that you don’t end up back in debt and having to repeat this entire process. When you continue to remain conscious of how you spend money, you’ll enjoy long-term financial freedom.
At this point, you’ll also want to meet with a financial planner who can help you to determine how best to invest your money and to set up a plan for your retirement years. When you have plenty of money in your retirement accounts, you’ll also feel the security of knowing your golden years will be comfortable.
Make sure to take care of your long-term needs once your debts are wiped out. Then vow never to get into debt again! By following these simple steps you can be completely free from debts – even a mortgage.
Short Term Sacrifice Leads to Long Term Freedom
In our modern world, it’s difficult to avoid debt. There’s always something to spend money on and you feel pressure to keep up with other people’s activities and possessions.
But when you get real about what you need versus what you want, you’ll find that you can actually meet your needs with far less money than you thought before. This understanding will help you to spend less and save more.
Having debt is like being a slave to bills. It can make you feel hopeless, helpless, and put you into a deep depression. And ignoring the problem will only make those negative feelings worse.
While you may dread the idea of facing your finances, that one step will open the door to having the true freedom you desire. And while it may be a little difficult and even painful to begin denying some of the wants you have, the outcome will be worth it.
When you’re sacrificing, it’s important to remember your end goal – true financial freedom. That goal can help you to keep going even when you’re starting to feel deprived.
Scrimping and saving can actually be fun if you have the right attitude. It can help you to be more creative about gift giving and activities as well as how you spend your free time. It will help your stress levels to go down and can improve your relationships. Financial freedom is about more than a healthy bank account – it can actually help you to be healthier and happier when you get real about what you need and take care of yourself and your family.
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