Have you ever wondered why people make the choices they do? Obviously, our decision-making is impacted by our upbringing, instilled values, weather, cultural preferences, and money. While money is one of the key factors that determine what we do, where we live, what we eat, and how we entertain ourselves, I want to take some time to look at this from a different angle of having money or the lack thereof – debt.
We all know that if we have less money than we would like, we cannot buy the things we would rather have. Often times, it is not a poorly structured salary (pun intended) that’s the root of the problem. It most likely started with the university degree you pursued against your own will, or perhaps the car you really needed but could not afford when you needed it. Either way, it started somewhere.
Have we been tricked by the debt?
What begins as a manageable debt can cascade into a complex web of financial and personal difficulties, encompassing almost every aspect of life. Jut think about it, the student loan you took to become a doctor and earn x amount of money may now be costing you more than you earn. Luckily for us all, expected income materialize instantly and is never delayed!
Right?
But at least you have your car. Just nobody told you that cars depreciate quickly, and the loan on a car often outlasts the vehicle’s optimal service life, leading to a cycle of renewing loans for replacement vehicles.
How to get untangled from the web of endless lifelong payments
Finding a way out of the perpetual cycle of debt is not an overnight journey but a series of deliberate steps towards financial freedom. Here are three main strategies to get started:
Create a Realistic Budget and Stick to It
- Create a Realistic Budget !and Stick to It!
- Prioritize High-Interest Debt
- Build an Emergency Fund
Steps to get out of the prison
1. Create a Realistic Budget and Stick to It
Budgeting is the cornerstone of financial management. A realistic budget helps you understand your income and expenses, ensuring you don’t spend more than you earn.
Track Your Spending: For one month, keep a detailed record of all your expenses, no matter how small. Use apps or a simple spreadsheet to categorize them. You’ll be surprised how many things on that list are not necessary & are like links in the chains holding you in debt
Categorize Necessities and Luxuries: Differentiate between essential expenses (like rent, groceries, and utilities) and non-essential spending (like dining out, subscriptions, and hobbies). This will help you understand what really matters and what can wait till you’re free.
Set Limits and Goals: Allocate specific amounts for each category based on your priorities and income. Aim to save a portion of your income each month, even if it’s small.
This could be you! (minus the smile & minus the friend in the background)
2. Prioritize High-Interest Debt
Cut the biggest beast off first. High-interest debt, such as credit card balances, can quickly spiral out of control due to compounding interest. Tackling these first will save you money in the long run.
List Your Debts: Make a comprehensive list of all your debts, including the interest rates and minimum payments.
Focus on High-Interest Debt: Pay more than the minimum payment on your highest-interest debt while maintaining minimum payments on others.
Use the Debt Avalanche Method: This method prioritizes paying off debts with the highest interest rates first, reducing the total interest you pay over time.
3. Build an Emergency Fund
An emergency fund acts as a financial safety net, preventing you from relying on credit cards or loans in unforeseen situations. So when **stuff hits the fan, you’re not going to push yourself deeper into the bottomless pit.
Set a Target Amount: Aim to save at least three to six months’ worth of living expenses. Classic tip that seems unrealistic to reach, but cut down on those daily coffees in your list and you can start providing some buffer room when you need breathing space.
Automate Savings: Set up automatic transfers to a separate savings account each month to ensure consistent contributions.
Start Small: Begin with small, achievable savings goals and gradually increase the amount as your financial situation improves.
Put technology to good use
In today’s digital age, technology can be a powerful ally in managing your finances effectively. Here are some tools that can help:
Budgeting Apps: Apps like Mint, YNAB (You Need A Budget), and PocketGuard can help you track spending, create budgets, and set financial goals.
Debt Repayment Calculators: Tools like Undebt.it or the Snowball Debt Calculator help you create and manage a debt repayment plan.
Savings Apps: Apps like Acorns, Digit, and Qapital automatically save small amounts of money for you, making it easier to build your emergency fund.
Investment Platforms: Use platforms like Robinhood, Betterment, or Vanguard to start investing and growing your wealth once your debt is under control.
Expense Trackers: Tools like Expensify or Wally help you keep track of receipts, categorize expenses, and manage your spending more efficiently.
By implementing these strategies and leveraging technology, you can begin to untangle yourself from the web of endless lifelong payments, paving the way to financial freedom and stability. Remember, the journey to financial independence is a marathon, not a sprint. Consistency, discipline, and informed decision-making are key to achieving your financial goals.
Moral of the Story
Even though it’s most likely not your fault that the world we live in incentivizes debt and living off finances you don’t have to reach that “next stage” of your life, you are still the one holding the hot potato. It’s time to throw it out and reclaim your freedom. The longer you hold it, the more it will burn you.
