For the first fifteen years of my adult life, I lived paycheck to paycheck. In April of 2005, I got sick and tired of being sick and tired, and I decided to do whatever it took to escape the paycheck to paycheck cycle. Here’s what I did -
1. I balanced my checkbook. I know, this sounds like a very simple, very basic thing to do, but if you don’t know where you are, exactly, then you can’t begin your journey. Balancing a checkbook takes five to ten minutes, and if you have access to online banking, it can take even less time. Find out how much money you have, right now, in your checking account.
2. I checked the balance in my savings account. In April of 2005, I had a grand total of $500 in my savings account. This number did two things. First, it scared me to death, because I knew that all I had standing between me and being absolutely broke was $500. Second, it motivated me. Here I was, a dude who had been working since I was 15 years old, steady, and I had $500 to show for it.
3. I created a list of my expected monthly income and my expected monthly expenses. Fine tuning this list, I created my very first budget. I was amazed to see that I was spending so much money on things that I did not need. After removing a few wants, I realized that I was making enough money to begin my debt reduction. I now us Quicken.
4. I listed my creditors and the amounts that I owed them. I used this list to create my debt snowball. I printed out three copies of this list, one for my office desk, one for the back of my Bible, and one for the refrigerator. For the entire time I was getting out of debt, this list both angered and energized me.
5. I determined to build a mini-emergency fund of $1000. To this day, I am convinced that the smartest decision I’ve ever made was to fund this mini-emergency fund. Twice during my debt reduction process, I had to dip into my emergency fund, and each time, before continuing with accelerated debt reduction payments, I rebuilt my emergency fund to the $1000 minimum. I keep my savings in my 360 Savings from Capital One 360. No fees, no minimums, and no need to change banks.
6. I put my credit card in my wallet and I left it there. I stopped using credit cards. I didn’t call my credit card companies and cancel my cards. I didn’t freeze them in water. I didn’t cut them up. Much like the dieter who still lives in a world of food, I live in a world of credit. I chose to put them away and live below my means, not above them. I still don’t use my credit cards, except to reserve hotel rooms, for which I then pay cash when I checkout.
7. I found ways to increase my income. I sold a lot of stuff on eBay, I learned to make a bit of money from my blog, and my wife and I had three yard sales.
8. I found ways to decrease my spending. I admitted, to myself, that I was spending too much money on stuff, and that stuff, while enjoyable in the present, was robbing me of a sound financial future. Some stuff had to go. I stopped renting movies, playing golf, listening to satellite radio, and having my clothes dry cleaned.
9. I talked to my spouse, at least once a week, about our plans for the future. It’s amazing how communication can change a couple’s outlook. Instead of thinking about the next month, and how we would make it, we began to dream about our future, and our retirements.
10. I kept going, no matter the setback. I think that this is the most important point of all. Even after my original goal date zoomed by, and I was still in debt, I didn’t give up. I kept pushing forward, until, eventually, I was debt free.
11. I’m still working hard to stay free from the paycheck to paycheck cycle. Life keeps happening. I now have three kids, instead of two, and more responsibilities than at any other time in my life. I can’t back away or shrink back, I have to keep moving forward. Now that I am debt free, I can afford a few more of life’s little luxuries, but I’m always mindful of how it felt to be worried, each month, if there would be enough money in the bank to cover all my bills. I am so thankful that I made the decision, almost four years ago, to do something about my finances.
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