For the first fifteen years of my adult life, I borrowed money for every major purchase. Three years ago, I decided to stop borrowing money and get out of debt. As you can imagine, going from a ‘borrower’ to a ‘non-borrower’ (Is that a word?) can be a difficult process. Here’s how I did it -
1. I created two lists. List A was a list of my monthly expenses – by priority. List B was a list of monthly income. I realized, after making the lists, that I could live without using a credit card or borrowing money, but only if I reduced the number of items in list A.
2. After establishing the fact that I COULD live without borrowing money, I then created a plan to insure that I WOULD live without borrowing money. So, I took the numbers from List A and List B and created a monthly budget.
3. Once the budget had been created, I began to look for additional ways to reduce debt and increase savings. I quickly established an emergency fund of $1000. Throughout the ensuing debt reduction process, I always maintained an emergency fund balance between $800 and $2000. The emergency fund served as my new ‘credit card’. When an unexpected expense reared its ugly head – I would dip into my emergency fund, deal with the expense, and move forward.
4. After creating the budget and establishing the emergency fund, I began to attack my debts. I used the debt snowball and in less than 10 months, I was debt free.
Now, if you’ve made it this far, you’ll note that these four steps cover the ‘financial side’ of the process. But, what about the ‘personal side’? What changes took place, internally? How did a compulsive borrower become a competent saver?
1. I began to consider the longterm ramifications of my spending/borrowing habits. I found a few online calculators and calculated how much money I was paying in interest – and how much money I was ‘losing’ by not contributing to my retirement accounts. Seeing these calculations had a profound effect – emotionally and psychologically.
2. After realizing that ‘something’ had to be done – I sat down with my wife and we talked about what we wanted out of life. We both realized that we had ‘everything’ we wanted – except for financial security. We dedicated ourselves to a life of saving and frugality.
3. I did not cut-up my credit cards or freeze them in the freezer or hide them in a sock drawer. I simply left them in my wallet – and refused to use them. I made up my mind that I would be different. Instead of ‘removing’ the temptation, I faced it head-on. Also, I made a promise to myself (and my readers) that I would do my level best to live without borrowing money. Making this promise ‘changed’ me.
4. Instead of hiding my struggles, I began to seek the advice and council of money-smart folks. I asked questions and I listened to answers. Admitting my failures allowed me the freedom to accept constructive criticism. By the way – Most successful people are happy to share their methods, opinions, and time. All I really had to do was ask.
Getting out of debt feels great. Living debt free feels even better. But, the entire process started when I made some ‘financial’ AND ‘personal’ changes. Instead of continuing the same behaviors – and foolishly anticipating different results – I radically changed my lifestyle – and enthusiastically anticipated progress.
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