Success

4 Easy Steps to Pay Off Debt And Save Money

With the increase in income, expenses seem to increase too.

People find themselves getting more into debt even though, they’re making more money than before.

The thing is, no matter how high your income is, if you don’t save money, you’re not getting any wealthier.

Below are some steps to help you save money and live debt-free.

Ready? Let’s get started!

4 Easy Steps to Pay Off Debt And Save Money

Step 1: Put $1,000 in a Beginner Emergency Fund.

4 Easy Steps to Pay Off Debt And Save Money
Photo by Sharon McCutcheon on Unsplash

Make saving $1,000 a goal and do whatever it takes to reach that goal. Work extra hours or have a garage sale if you have to.

This saving account should be set aside and never touched except for emergencies so you can avoid getting into unnecessary debt and paying high-interest rates.

However, you should have a clear definition of what makes up an emergency. A vacation or a new sofa isn’t exactly an emergency.

Some people might find this hard, especially when they’re not used to the idea of having money in their bank accounts for a long period of time. In such cases, a change of mindset is important to be able to save money.

Some people think that money is evil and therefore, you should never accumulate any. The truth is the love of money is the root of all kinds of evil, and not money itself. If anything, money is what feeds the hungry and saves lives.

If you can manage to save for an emergency fund, you’ll be able to save for purchases and eventually for wealth building.

Step 2: Pay off all debt.

4 Easy Steps to Pay Off Debt And Save Money
Photo by Alice Pasqual on Unsplash

To pay off your debt, you’ll need to make some changes in your lifestyle to stop borrowing first and second to start saving and pay off your debt.

1. Change your perspective

78% of US workers live paycheck to paycheck. This means that 4 people out of five are living on a razor’s edge. And the problem here is two: overspending and debt. Banks has been doing a great job selling people the idea that debt is a service offered to consumers to help them live the life they have dreamed of and feel special.

The truth is, debt is a product, well marketed. In fact, the gross revenue for the entire credit card industry was more than $163 billion in 2016 alone.

Changing your perspective about debt and recognizing how destructive it can be is important is you ever want to get rid of it for good.

2. Quit borrowing more money.

The first step to paying off your debt is to stop borrowing. You can’t get out of a hole if you keep digging.

This includes credit cards too. It’s amazing how people became so dependent on their plastic cards that the mere idea of living without one, is scaring some to death.

For many people, the credit card has even replaced the emergency fund concept, and that’s one reason why people aren’t able to reach financial independence.

3. Sell something.

We have filled our houses with stuff we never used or we don’t need altogether.

Sell whatever you can on eBay and Craigslist. If it’s something you’re using but you can do without, ask yourself this “do I need it more than I need to be out of debt?”.

4. Save.

Start living below your means and discover every way to minimize your spendings. Use less and reuse what you can. Find more saving tips here.

5. Work.

The best place to go to when you’re broke is work. If you think you can get a raise, work harder, and ask for one. If you can jump jobs, do it.

In fact, those who change their jobs, at least once every two years, are making 50% more over their lifetime than those who stay at the same job for a long period of time.

A great way to become wealthy is to have multiple sources of income.

You get a part-time job at the weekend, do freelancing, make your own product, selling things on Esty, and Amazon Handmade… but you can also go big and start investing in real estate and the stock markets.

6. Pay Off All Debt Using the Debt Snowball.

List all of your debts (except your primary mortgage) from the smallest to the largest based on payoff balance and start paying off the smallest debt all the way down to the largest.

Pay the minimum payments on all your debt except for the smallest ones, and throw every dollar you can at it until it’s paid off and out of your list.

This, even if won’t save you on interest, is going to give you the motivation, every time you cross the best off the list, to keep going and paying off more debt.

Step 3: Put three to six months of expenses into savings as a full emergency fund.

4 Easy Steps to Pay Off Debt And Save Money
Photo by Katie Harp on Unsplash

For this, you need to figure out from your budget how much it costs to maintain your household for a month. Then put three to six months of that into your bank account.

A savings account shouldn’t be used as a regular checking account that you use for grocery and paying your bills.

However, it should be easily accessible when you need it.

To do that, you need to start with a budget. It’s your way to win with money and stop wondering where the money is going.

1. Zero-based budget.

The easiest method for budgeting is the zero-based budget. This means spending your income all the way down to zero before you even get paid. This includes giving and saving.

At the bottom of the page, after deducting all your expenses, your balance should equal zero. If it doesn’t, you need to go back and adjust your expenses.

When allocating money to savings, keep in mind that the most important goal is to have an emergency fund. After doing that, the money should go towards paying off your debt and last.

After paying off your debt, the money should go to fill an emergency fund of three to six months of expenses.

2. Envelopes budgeting.

The thing about paying off with a check or with a debit card is you don’t know how much money you’re spending on things such as grocery, shopping, gas… and thus you don’t have an idea of how much is left in your grocery budget.

A cash-based envelope system, on the other hand, allows you to know exactly, how much is left of your budget.

All you need to do is to set a budget and when you get paid, withdraw the money from the bank and put the allocated amount to envelopes for each category of expenses.

Once the money runs out, you can’t buy anything more until next month.

Of course, there are some expenses that should be paid right out of your bank account such as payments for your retirement account and utility bills.

But for expenses such as food, gas, and entertainment, the cash-based envelope system can solve your overspending problem.

Step 4: Be Aware of Bad Money Habits.

4 Easy Steps to Pay Off Debt And Save Money
Photo by Jp Valery on Unsplash

We all make bad decisions when it comes to managing our finances. But bad money habits can keep us from achieving financial independence, especially when we’re not aware of them or when we don’t know how to change those habits.

Below is a list of bad money habits that are keeping you broke:

1. Making Minimum Payments On Credit Cards.

There’s no habit worse than borrowing money with a double-digit interest rate.

To make matters even worse, making minimum payments on credit cards can make you pay double what you borrowed because of the interest charged.

If your balance is $1,000 with an interest rate of 10% and you make a minimum payment of 20% per month, you’re going to end up paying $300 in interest alone.

If you can’t quit using a credit card, make sure you pay off your balance every month.

2. Seeking Happiness In Material Things.

We seem to believe that happiness is in the next item we purchase. That the purpose of saving money is to actually buy the next expensive thing.

The truth is, once you have the basic needs for a comfortable life, nothing you can buy can add much if anything at all to your happiness level.

3. Shopping Therapy and Impulse Buying.

Often times, we end up regretting the decisions we’ve made when we’re sad, and it’s no different when it comes to shopping therapy and impulse buying.

You might feel a little bit better after buying something, but that feeling is momentarily and it’ll soon fade away, only to be replaced by guilt and regret.

So, when you’re feeling the blues try something more constructive.

4. Eating Out Too Often.

Breaking this bad money habit can literally save you thousands of dollars every year, especially when you have a family to feed.

Eating out might seem like the right thing to do, especially on those days when you’re too tired to put something together or when you don’t have much time. It’s fine, only we’re almost always drained of energy and running out of time when we’re home back from work.

With some help and some smart planning, you can manage to put together something healthy to eat. Try cooking in larger quantities and freezing the rest for later and get yourself some help from your family.

5. Spending More Than You Earn.

Lots of people think that if they’re spending more than they’re earning, then their income is not enough.

The truth is, people who don’t know how to live below their means, tend to upgrade their lives with any rise in their income, which makes the latter never enough for them.

Downsize your house, downgrade your car, and embrace minimalism, you’ll be amazed at how far your income can go once you learn how to live below your means.

The rule goes like this « If you can’t afford it twice, don’t buy it ».

6. Paying Unnecessary Fees.

Fees like ATM fees and membership fees that you don’t use might seem almost insignificant, but those fees add up in no time.

7. Not Learning How to Manage Your Finances.

Learning is the best investment anyone can make. It saves lots of work and effort and helps guide you to new ways to manage your money better.

Whether you want to improve your career or you want to acquire better money management skills, reading books in that field and attending workshops can help you do that and more.

8. Relying On One Income Stream.

Focusing on your career and improving it, is great. But you might also consider starting a side hustle or investing in stocks and real estate or even getting a second job if you have the energy and time for that.

Having more than one income stream is a great way to feel more secure financially and be able to push yourself toward financial independence and wealth.

Did I miss anything?

Now I’d like to hear from you.

Which techniques from today’s post are you going to try first?

Or maybe I didn’t mention one of your favorite techniques.

Either way, let me know by leaving a comment below right now!

Wondering what to read next?

Like This Post? Please Consider Sharing It On Facebook, Twitter, and Pinterest!

4 Easy Steps to Pay Off Debt And Save Money
4 Easy Steps to Pay Off Debt And Save Money
4 Easy Steps to Pay Off Debt And Save Money
4 Easy Steps to Pay Off Debt And Save Money
4 Easy Steps to Pay Off Debt And Save Money
4 Easy Steps to Pay Off Debt And Save Money

Leave a Reply

Your email address will not be published. Required fields are marked *