Three not so difficult steps to get out of debt

It’s time to find financial freedom!

3 NOT SO DIFFICULT STEPS TO GET OUT OF DEBT, CREATE A SIMPLE BUDGET, PLAN FOR THE FUTURE, AND REGAIN CONTROL OF YOUR FINANCES

Money. It tears families apart, ruins marriages, and keeps people from pursuing their dreams. Money troubles inject unnecessary stress, anxiety, and arguments into our daily lives, which keeps us in perpetual discontent. We never seem to have enough, and, living paycheck to paycheck, we can’t ever get ahead.

But it doesn’t have to be this way.

The road to financial freedom can be a long trek without the proper help. It can take a very long time to become financially free. You must first start by devising a plan. Now is the time to get out of debt, eliminate unnecessary expenses and plan for your future. It’s time to master your finances.

While we all need to make money to live—and there’s certainly nothing wrong with earning a great salary—taking control of your financial life involves much more than adjusting your income upward. It involves making repeated good decisions with the resources you have, changing your financial habits, and living deliberately. None of which is inherently easy—especially under the tyranny of today’s instant-gratification culture—but fortunately, regaining control of your finances is simple.

1. BUDGET

Most of us have no idea where our money is going. We think we know, but we don’t really know. This is doubly true for those of us who are married or live with a significant other. Ergo, the first step toward financial freedom is establishing a written monthly budget. Note the three key words here: written, monthly, and budget.

A few guidelines:

Categories. Identify what’s truly necessary by identifying all of your monthly expenses based on the past six months, and then divide your expenses into three categories: Need, Want, Like. Write down every expense (food, housing, utilities, insurance, cars, gas, transportation, clothes, credit cards, phones, Internet, pets, entertainment, etc.); triple-check the list with your significant other or a friend; and then use your Need, Want, Like categories to prioritize and cut wherever you can. The stricter you are, the sooner you’ll be free.

Boundaries. Give every dollar a destination at the beginning of the month. By establishing these boundaries, you won’t worry about what you can and can’t purchase because money that wasn’t assigned at the beginning of the month can’t be spent mid-month.

Teamwork. Everyone in your household—even your children—must have a say in the written budget. This is the only way to get every person’s buy-in. Working together means taking from one category to fund another (e.g., extracting money from, say, your clothing budget to fund your entertainment budget) until each person is on the same page. Once everybody is on board—once everyone is committed to financial freedom—it is much easier to gain the traction you need.

Adjust. You’ll have some slip-ups along the way. That’s all right, it’s part of the process. At first, you and your family should scrutinize your written budget daily, and then eventually weekly, adjusting accordingly until your whole family is comfortable with your set monthly allocations. The first month is the most difficult, but by the third month you’ll curse yourself for wasting so much money during your budget-less days.

Safety. Shit happens, so it’s best to create a Safety Net savings account with $500–$1000 for emergencies. Now listen: do not touch this money unless there is a true emergency (car repairs, medical bills, job loss, etc.). Your Safety Net will allow you to stay on budget even when life punches you in the face. Over time, once you’re out of debt (step 3 below), your Safety Net will grow to include several months of income. But for now, worry only about the first $500–$1000 to start, which you’ll want to keep in a separate Safety Net account to avoid temptation (more on that below).

2. PAY YOURSELF (INVEST)

Most of us hear the word invest and we panic. Investing seems so complicated, so abstruse, so not-something-I-can-wrap-my-head-around. Well, instead of thinking of it as investing money, think of it as paying your future self. And with today’s online tools, you needn’t be overwhelmed—investing is easier than ever. Anyone can (and must) do it.

Try the simple online-investment tool called Betterment as your personal savings, planning, and investing quide. Using Betterment, which costs nothing to set-up and has no minimum-balance requirements, will teach you how to invest for yourselves by setting aside a percentage of our income without even noticing it’s gone.

You can also keep a Safety Net in your Betterment accounts. This is done for two reasons: 1) the money is liquid, which means you have instant access to your Safety Net if needed, and 2) when the money is sitting in a separate account, it is less tempting to access than if it’s in your bank accounts (plus it earns a better interest rate in a safe, conservative way).

3. DEBT FREE

Contrary to what some academics might tell you, there is no such thing as “good debt.” Let’s say that again (read it out loud): THERE IS NO SUCH THING AS GOOD DEBT. True, some debt is worse than other debt, but it’s never “good.”

The truth is: you will not feel free until you are debt free. The debtor is always slave to the lender. Besides, it feels pretty amazing to have no car payments, no credit-card payments, and no student-loan payments looming in the shadows of your lifestyle.

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