How to Get Debt Under Control – The First Steps

No one plans to be in debt. A lot of us have dreams as a kid of what it might be like to be rich. Some of us carry these dreams through to adulthood, we get our first taste of money when we start a career or when we move up to a new position where one finally gets to feel like they are being compensated well enough to be able to afford some things for the first time in their life. Maybe you like taking exotic vacations, or going to expensive restaurants, or to have a nice new home. All of these contribute to that sense of “I have made it”.

However, what starts out as a luxury quickly becomes the norm and you can find yourself searching for the next fix that takes you back to that initial feeling you had when you first purchased that nice home or drove that new car. Now your regular salary may not feel like enough anymore and you start depending on that bonus you will get next year in order to borrow to take that vacation or get that new toy. Maybe you don’t want to deny yourself the simple pleasures in life that you feel that you have earned at this point, such as eating out often or buying your lunch everyday so you don’t have to pack it.

This describes the slow, gradual and slippery slope that some of us find ourselves on getting into debt. It can happen at any income level, which many people who earn less are surprised to find out. Once the paycheck gets fatter, the expenses increase proportionally and you find yourself trapped in the cycle of debt just treading water again and planning on how to increase your pay again. This cycle is only stopped by a few things. The first is death, let’s assume we don’t want that option. The second is you work until retirement kicks in. Hopefully you haven’t borrowed from your 401k to finance that dream lifestyle and you can get some social security. For many this is not ideal but it is an end to the debt and earning cycle. The third is that you consciously choose to change your ways and get out of debt. This is not just a decision; it is a psychological change that requires mental toughness, commitment and discipline. This last option can save your financial life and open new doors in terms of your career and lifestyle, but only if you remain committed.

OK, So How Do You Actually Do It?

It is one thing to realize you can’t keep up with the lifestyle you have made for yourself. It is quite another to say “I am going to change” and then start actually changing your habits and daily routine to take the steps in the right direction. You can go anywhere on the internet to tell you how to get out of debt, what I would like to do however, is help you to set yourself up mentally. Motivation and drive are the keys to achieving any goal. Just like an Olympic athlete has to train tirelessly for their big moment, you have to train yourself mentally to stay on track, keep your eye on your goals and dreams, realize that you deserve it and you can do it.

So what goals would motivate you to pull this lifestyle change off? What I suggest, and what motivates me is the idea of freedom and one day being your own boss. Imagine not having to get up to go to work when someone else tells you to. Or imagine that you do go to work, but you simply do when you want to, dressed as you want to and you decide how much money you make. Or maybe you like your job, but it would be a bit less stressful if things were mostly paid for in terms of your basic needs and you didn’t have to depend on another promotion or navigating office politics to get a raise? You could simply enjoy the work you do day in and day out without the money factor distracting you. These are the lives that a lot of frugal people hope to one day live. It takes sitting down and thinking about yourself, your life and what you want out of it. In my experience, when most people do this, they realize they don’t necessarily want money, they want respect, they want time with friends and family and they want to feel in control of their destiny. It’s a stretch for some to think simply saving money can provide you with these things but saving wisely over the long term can do just that.

So this is the first step, to develop a goal. The desire to achieve that goal will drive your daily activity. My goal is financial freedom and freedom for my daily routine. I dream of one day either making my own daily schedule, having my own business or being able to travel for long periods of time and show my family the world while at the same time providing financial security and a strong financial future for them.

So you see my motivation and hopefully it doesn’t take much for you to find yours. After you have found your financial life goals, you need to develop a plan of how to get there. The first step is to start saving. One of the best and easiest things my bankruptcy attorney father, who has dealt with many personal bankruptcies showed me, was to keep a money log for a month. Every time you spend money, whether on a card or in cash, write it down. Write down what it was and exactly how much you spend. It takes seconds to do and is even easier with technology nowadays because you can store all your spending down quickly on your phone’s memo pad. Don’t cheat, don’t write down just things you put on a credit card. You need to write down everything. This includes rent, insurance, car payments all the way down to your monthly Netflix payments.

Taking a Dose of My Own Medicine

Here I have an example of myself before I started reigning in my expenses. When I was not keeping track of my money I was spending needlessly on things like coffee, buying lunch, going out to eat, things for the house, subscriptions such as XM radio for my car etc.

Looking at this there are few points to note because some of these are not my normal monthly expenses. The Phone bill is higher due to my automatic billing expiring and missing a month and also includes my wife’s bill (although I can surely bring that down). Car payment and parking are not really an option to get rid of. My wife has her own business which requires her to use the car and due to alternate side parking rules, we decided it is not a good use of her time to be searching for parking spots for hours every day. The insurance includes renters insurance and insurance for jewelry in addition to the car. The electric bill was high because this was a very hot summer and my wife has been home most of the day with our newborn son. Baby supplies are a must as well as clothes, since our son grows fast and every month or 2 needs new sizes. The parking tickets are also not a normal expense, we had been putting them off for a while and are a result of parking while my wife is conducting her business, neither of us wanted them or were careless, it just happens.

There are a lot of other things I can do without though. $704 on restaurants! This is truly a waste, you consume everything right when you pay and have nothing to show for it. Definitely cutting the eating and drinking out down. That goes the same for the lunch expense, out of pure laziness, I was buying my lunch every day and wasn’t making an effort to bring my own. Same goes for coffee, the worst part of this is that we have free coffee at my office and I shun it for coffee from Starbucks or Dunkin Donuts, which has coffee that I feel tastes better. Well I better get used to that free coffee.

Taxis are another unnecessary expense, ok maybe once or twice per month is ok but $175, I can walk or take the train thank you. I can also do without some of the subscriptions; I barely listen to XM radio, and can use the internet instead while driving around to listen to music. Same goes for cable, I like to have it but we can watch most things on the internet now and just buy a digital antenna for the public channels.

This is the first step in getting things under control, you have to take ownership of your expenses and come to terms with them. Some people will just take the excesses over what they earned and put it on a credit card or dip into savings. Before this starts to happen I wanted to confront my own actions and get things under control to start to take ownership of my life. This is an important mentality to have, it’s not denying myself certain pleasures, it’s not having material desires take over my life and dictate what I do in my future.

So just like you should do, I went back over my expenses and revised them, crossing out everything I don’t need and I noticed two things. The first is how much money I could have saved and the second is how much money I am spending when I cut out all the unnecessary things. Some things can be adjusted immediately, that includes the going out, switching to a new plan for the phone bill, cutting the electricity usage by unplugging devices when they are not in use and turning things like the lights and the TV off more often when they are not in use. In addition, I can start taking my lunch to work and getting that free coffee instead of wasting it on “fancy coffee”. So I added up all these things and this is the value of all the unnecessary spending that I was able to compute just for that particular month.

There you have it, I could have saved almost two thousand dollars! Looking at these things is hard, you think of all the dumb things you did and how if you just changed your behavior a little you could have more money for so many things that you really want. Now some of these took some ingenuity and thinking to save money on. You may not have the same options but I suggest looking into special ways, based on your job or people you may know to save money. For example, to save on our phone bill, we teamed up with a like-minded frugal friend of ours for a T-Mobile promotion. We all join his plan and my wife and I end up paying $35 each per month for unlimited phone service, text and data. In addition, my company provides me with a phone, however if I want to install their email app, they offer to take the phone back and instead cover $50 worth of my monthly bill. I had to buy the required phone for the plan (hello iPhone 7, goodbye android!) but net, I am only paying about $45 per month for 2 lines. In addition for the cable, I cut it to the bare minimum internet only, bought an antenna and kept just a few subscriptions that were much cheaper. That way I still have shows for my son or family time, get to watch a few series when my wife when I have time and we save over $100 on monthly cable and internet costs.

Over the longer term we can start to save on other things, but this takes more long term planning. We can reduce the rent by moving further outside the city, that may also reduce our insurance expense. As for the car payment, I can use the savings immediately to start to pay down the balance on that car so I can be free and clear of the car loan one day.

These are all simple and boring steps towards getting closer to my long term goals but they are achievable for many of us. The satisfaction of achieving those goals should help keep you motivated. I recommend going over your expenses like this once a month even after you have made cuts just to see how you can improve and tweak your expenses. I hope this example helps inspire other people to do the same, it was sure a dose of cold reality for me, I will be saving and checking my expenses going forward.

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