GET OUT OF DEBT TODAY!
THE BUDGETING TOOL - $50 USD
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Tag Archives: Debt
I’ve been requested several times to write a post on how to do this, so here it is. I will be posting on how to cut your budget later.
FIND OUT YOUR NET INCOME
Gross income is what they tell you that you make when you’re negotiating a job offer.
Net income, is what you actually get in the bank account after everyone dips their paws into your honey pot and takes out their cut, and this would include:
- Prepaid taxes (also known as ‘tax withholdings’ in the U.S.
- Health insurance
- Social Security (also known as CPP or Canadian Pension Plan)
- Employment Insurance (EI in Canada)
- ..and whatever else you have to pay for out of your cheque
If you don’t know your net income, you should at least know how often you get paid*, so look at the NET amount that gets put into your bank account or is printed on your cheque, then figure out what it should be monthly.
So if you get $2000 in your bank account bi-weekly (every 2 weeks), you earn $4000 net a month.
THAT is what you should budget with.
*Because everyone loves payday. It’s my favourite day of the week.
You also do not have to break it down the way I have with categories.
Pick and choose what works for you.
FIND OUT WHAT YOU SPEND AS FIXED EXPENSES
Now you’re wondering WTF a “fixed” expense is. It’s basically anything you MUST pay each month that doesn’t change as an amount.
This is stuff like Rent, or even your Cellphone if you don’t go over your minutes or data plan.
If you want a general idea of what fixed expenses are, here’s it is.
A GENERAL LIST OF FIXED EXPENSES
Just make a list of all the categories.
- Mortgage Payments
- Car Payment
- Debt Repayment (your minimums, assuming you aren’t incurring more debt)
- Cellphone (assuming you don’t go over your minutes and/or have an unlimited plan)
- Health Insurance
- Car Insurance
- Home Insurance
- Transportation — This can be a fixed expenses if you buy a metropass for instance
FIND OUT WHAT CATEGORIES YOU HAVE LEFT THAT ARE VARIABLE EXPENSES
Just like fixed expenses, you have variable ones that are under your control each month.
For the second part of your budget, figure out what your NECESSARY variable expenses are. This does not include eating out or entertainment.
I’m even debating putting Cellphone/Telephone/Internet on there as “necessary”, but for the sake of normalcy, let’s call them necessary.
Those are UNNECESSARY variable expenses for the purposes of setting budget priorities.
A GENERAL LIST OF NECESSARY VARIABLE EXPENSES
- Utilities to run the home — Electricity, Gas, Water, Heat
- Office — Postage, Delivery, Paper, Pens, Pencils and so on
- Household Supplies — Toilet paper, Cleaning supplies
- Toiletries — Toothpaste, Soap, Toothbrush, Floss, Shampoo, Conditioner
- Medicine — Vitamins, prescriptions, pills
- Parking/Gas — If you have a car
- Pet Food
- Basic Clothing
- Grooming — For a haircut twice a year
- Home maintenance
- Furniture purchases
Now that you have fixed expenses, you should list all the rest that is technically “fun” and unnecessary.
A GENERAL LIST OF UNNECESSARY VARIABLE EXPENSES
- Eating Out
- Alcohol — Drinking
- Clothing — Beyond Wardrobe Essentials (even my list is a bit over the top..)
- Starbucks/Teavana — Buying coffee outside, or other drinks
- Spa — Facials, Massages
- Grooming — Beyond just a haircut, includes Manicures, Pedicures
- Books/Magazines — There is a library for a reason
- Fees — They’re generally unnecessary if you avoid ATMs and incurring fees
THE CATEGORIES ARE FINISHED, NOW ESTIMATE ALLOCATING MONEY TO THEM
You will notice that you have separated your budget categories out by Fixed, Necessary Variable and Unnecessary Variable.
Those are your PRIORITIES of where you should think about adding or cutting money as required.
The actual budgeting comes in, when you apply percentages to them — here’s an ideal household budget with its percentages.
So if for instance, you’re spending more than 35% on Shelter, and more than 25% on Life (going out, eating, having fun), you need to either cut back in one or the other.
I’d actually try and cut back on ALL the expenses, including fixed ones (get a roommate, move to a cheaper apartment that’s a studio not a 1-bedroom), and see what you end up with.
You can’t have everything if you don’t have the net income to pay for it and save money.
Remember to use your net income against those percentages.
You probably haven’t been tracking your expenses at all, so in the meantime just estimate what you THINK it costs, track your expenses, and see what the actual cost per month turns out to be.
At the end of the first month, you will probably notice (as I did), that what I THOUGHT I spent, was way off from what I actually spent. In a bad way.
Once you continue to diligently track your expenses, and learn where you make mistakes, adjust your budget accordingly.
SOME BASIC BUDGETING NUMBERS TO START WITH
Here are some basic personal amounts to start with, and you can adjust as you go along your budgeting path:
(Real numbers are better, especially for fixed expenses like rent or mortgage or your debt.)
Note: These numbers are for a single person renting an apartment in Canada without a car and no debt.
- Rent: $700
- Apartment Insurance: $15
- Cellphone: $50
- Transportation: $130
- Groceries: $200
- Utilities: $50
- Household Supplies: $25
- Toiletries/Medicine: $25
- Parking/Gas: $250
- Internet: $50
- Clothing & Gifts: $50
- Eating Out: $50
Total = $1595 a month
As you run through the list, you may be thinking: Hey I pay more/less than that!
That’s where you have to adjust for yourself, and add in or remove categories that don’t apply to you.
Children you have, are not investments.
You have kids as a parent, knowing full well that you may spend about $250,000 until they’re 18 and ready to be shipped off to college or start whatever adult career they want to start, where you’ll spend goodness knows what on their education (if anything at all).
So why is it that my dad thinks we’re investments?
Just recently he asked for:
- Luxury, all-expenses first-class paid trip to London, England
- $500 a month (extra) as a sign of “respect” in dole money back to him
- A new car, because the one that they JUST BOUGHT, is not a luxury Mercedes-Benz
Is he out of his fricking mind?
We had a massive fight over this.
I yelled for a good hour and almost lost my voice, and I’ve been angry ever since.
HE’S TRYING TO SHOW OFF TO HIS BROTHER
It all boiled down to the fact that he’s been comparing what my (millionaire) uncle has gotten from his 3 sons.
They regularly give their parents $500 – $1000 a month as dole money, which works out to about $2500 a month coming in from the kids.
Now, what my uncle failed to mention (and my father has failed to recognize) is:
- He paid for their 4-year overseas education, tuition and living expenses — $500K minimum each*
- He gave them each $250,000 for a house or apartment down payment
*Paid for a nice apartment, bought them a new car to drive around while in school, paid living expenses, all food, all equipment, all books.
We’re just at around $750,000 per child. Totally free and clear.
OF COURSE THEY ARE GIVING MONEY BACK TO HIM!
They don’t need to give the money, but they’re doing it because:
- It’s a sign of ‘respect’ (or so he says, which makes my dad super jealous)
- They can expect to get the money back when he passes on anyway (this is my thought)
- They know there’s a fortune on the way of about a million to two million each kid (or more)
- …in addition to the $750K they have already gotten as their start in life
BUT WHAT HELP HAVE I GOTTEN FROM HIM? SERIOUSLY?
In contrast, what has my father done for me once I turned 18 and left by my own will?
- Didn’t save that $10,000 they promised they’d set aside for my education from their winnings
- Didn’t pay for my $60,000 education, nor offer to help me in any way
- …actually, hasn’t paid for anything since I turned 18, not even letting me stay at home rent-free*
*Not that I care, but people get really surprised when they hear that my parents charge me $600 in rent, in addition to my paying for all the food, cooking, cleaning, snow shovelling, garbage-throwing, helping, etc.
Now all of that above doesn’t matter to me in hindsight.
What bothers me now, is this asking for money, when he hasn’t done anything to (basically) deserve it.
It’s like comparing apples to oranges. The situation of my uncle and his sons, is NOT our situation, and I am not sure my father has told the entire truth to his side of the family.
He probably comes off as the self-sacrificing martyr in his one-sided stories.
I can’t say that going $60,000 into debt was an entirely ruinous experience, because I came out of it for the better, having learned how to manage my money, budget and track my expenses, and otherwise set myself on the path to riches.
Basically, I ended up on the right side of things by luck, and I have no doubt I’ll be a millionaire before 50, it’s just a question of how early before 50.
Currently, I don’t mind paying rent and buying all the groceries (AND cooking, AND cleaning), because it’s nice to be with my mom, having not lived or have been around to help her once I left.
It also isn’t fair to be a parasite on your parents, even if they can afford it.
As an example we could pay about the same amount (or less, actually) of the $600 rent if we lived on our own in Montreal, because we’ve done it before.
In fact, it’s actually costing us MORE money (about $100 – $200/month more) to live here with my parents, but we are choosing to do it for personal reasons. Or at least, I was, to be near to my mom for a little while before I leave for good this time.
This is the first time in years, that I’ve even been back for more than a month, since I left at 19. I’m generally always traveling or in another city, and my mom has told me she has missed me for the past 10+ years I haven’t been around them much.
THEY DON’T NEED THE MONEY
Furthermore, HE DOESN’T EVEN NEED THE DAMN MONEY.
He just wants to spend it on himself, to brag and to front like he’s rich when he isn’t.
Photograph I took of a stack of yuan we had when we went to China
Selfishly, spending the money that his children have worked hard for, when he himself, hasn’t worked more than 15 hours a week in his life, living off his previous winnings, and using it to gamble in casinos.
Now he wants to mooch off his kids!?
They currently have the mortgage COMPLETELY cleared, and about $4000 a month coming in to cover the household.
As he was in charge of the money, he basically let money slip through their fingers like water their whole lives, not having saved enough for retirement on their own (not that it matters, they have a fairly decent company plan), and not having worked much his ENTIRE life, unlike my mother.
WE WERE HIS INVESTMENT/RETIREMENT PLAN, BUT HE NEVER PUT IN THE WORK OR THE MONEY REQUIRED INTO US
What does my dad really want?
To recoup his “investment” in his children because he feels like we owe him for having paid for ages 0 – 19.
The funny thing is he was a bit of an absent parent when we were growing up, and frankly, didn’t do anything for, or with us for more than 20% of the time.
Did I also mention that he hasn’t worked more than 15 hours a week at minimum wage OR LESS for his ENTIRE life? He spent his days doing.. Nothing. At. All.
Do you know who started doing her laundry at 7? This girl.
My mom was the real core of the house, but she had her own problems and work to handle, on top of trying to clean, cook, feed, prepare for, and help the 4 kids in the house with no help at all from my dad. She just didn’t have the time for us, so we turned independent at an early age.
I CAN AFFORD TO GIVE MONEY, BUT NOT FOR THEM TO WASTE IT
I can’t even begin to tell you how upset I’ve been this whole week after our knock’em’down-drag-’em-out-fight.
Yes, I have money.
Yes my other 3 siblings have money.
Yes, we CAN afford to give him money even from our savings and not be destitute, but taking all of the above into account, why should we?
It’s not like we plan on leaving them for dead, but we also don’t see the point of giving him money … for NOTHING.
We’ve already agreed among ourselves that if they have a serious need for the money like a nursing home, healthcare, or anything that threatens their life, we would gladly chip in and pay.
Need $20,000 for a life-saving, critical surgery? I’ll sell my investments to pay for it.
But not if it’s just so you can buy a new car and brag to your brother about how your kids paid for it.
That’s just sheer idiocy.
Let me repeat this again, future and current parents: YOUR CHILDREN ARE NOT INVESTMENTS.
If you want investments, save your money and BUY THEM.
Don’t have children.
We aren’t guaranteed to give anything back, and frankly, they should be happy we didn’t turn out to be losers and drug addicts, with the way that they raised us.
Most books and PF authors will tell you the rule of thumb on budgeting is to take a percentage of your income and it looks something like this:
If you look at it on a monthly basis, it looks like this in your budgeting tool:
But that’s kind of useless if you don’t know what these vague categories contain.
Does “Housing” include utilities?
Does “Life” mean things for your pet as well as your own groceries?
The answer to both questions above: Yes.
The trickiest category is Housing for me because it can be hard to think about what goes into it, whereas the category of Life is the fattest one.
Here’s how I see it:
HOUSING is anything to do with SHELTER = 35%
- Utilities (Water, Gas, Heat, Electricity)
- Rent Insurance
- House Insurance
- Home Maintenance (not buying furniture, actual home repairs)
- Condo Fees
LIFE is pretty much everything else = 25%
- Eating Out
- Pet Stuff
- Furniture for the home
- Home renovations and maintenance
- Medical needs (medicine or doctor/dentist visits)
- Bank Fees
- Holiday Spending
TRANSPORTATION is how you get to where you’re going = 15%
- Public transportation
- Maintenance for the car
- Car insurance
- Driver’s License/Vehicle Registration Fees
- Parking costs
- Parking Tickets (you better not get any…!)
DEBT REPAYMENT means: Money you are using to clear your debt = 15%
- Pay down your debt with the the highest interest rate
- …then take that money after that debt is gone, and pay extra on the next debt
- …all the way until you are debt free!
SAVINGS means: Money you don’t touch on a daily basis! = 10%
- Retirement savings
- Emergency funds
- Short-Term savings like a Travel Fund
- Home Maintenance Fund (should be 3% of your home’s gross value in an account)
WHY DOESN’T THE TELEVISION, INTERNET, OR THE TELEPHONE GO UNDER “HOUSING”?
Because you don’t need either to have shelter.
Plenty of people live without any of those things.
I only have a cellphone, and even that plan is shared with BF, so we treat it like our portable home phone.
Housing is a roof over your head. What does it take to run a place like that? Insurance, Utilities and the Rent or Mortgage payment.
Therefore, stuff you pay for that you use to entertain yourself or communicate with others as part of your Lifestyle goes under Life.
WHAT DOES YOUR GENERAL BUDGET LOOK LIKE?
As we all live in different parts of the world, in different areas of the country, and have different incomes, this will definitely NOT be personalized to you.
For instance, you may have a pet, whereas I don’t, and you need to budget for that.
Or you live in the U.S. and you need to budget for healthcare, whereas I don’t in Canada.
Here’s what a typical budget would be if I made one for myself for a month, living in a hotel with a car.
I don’t have a car right now, but I would get one secondhand in cash if I had to use it for work and I couldn’t take the bus.
MY IRREGULAR INCOME AT ~$70K AND WHY I CHOOSE A BUDGET AT ~$40K
Since my income is so irregular, I gave myself a generous ~$40,000 gross income a year as a budget because I assume I can always get a job that pays at least that per year if times get rough.
Basically, the less I spend, the less money I need to earn per year (gross).
Since I can always spend less than ~$40,000, but that’s the right gross income to maintain my current lifestyle.
As I’ve really only been working full-time 2 out of the 5 years or less than 50% of the time, if I am being honest.
So my income to date has been on average $70,000 gross per year as a freelancer for 5 years.
That is about $54,700 net per year as an income in Ontario.
As I’ve amassed around $200,000 in my net worth to date, I’ve saved $40,000 net a year.
Actually, it’s $60,000 more than that because that’s how much my debt cost when I started working, and cleared it in 18 months with my budgeting tool, but I digress.
All this really means I’ve been spending a lot less than $40,000 gross a year, even with all my traveling, and dipping into savings when I want to buy things, and that’s partly due to being a consultant and having your life subsidized because you’re always traveling.
Therefore ~$40K is my maximum budget because I account for if I have a car, pay for gas, insurance, license plate renewals and so on, which I haven’t had to in about 2 years.
I also always max out every retirement fund you can think of which helps my taxable income, and save a lot of money because I share the costs 50/50 with BF.
Click to biggify and read my notes, hopes and dreams…
DEBT = I don’t owe anyone, anything, which helps a lot.
SAVINGS = All the rest of my money. See above about saving everything else.
You will notice that I spend a lot of money on Food, Clothes & Electronics for instance, but barely anything on Cellphone, nor on anything like Furniture or Household stuff.
This is in line with my minimalist philosophy to spend on what you care about, but not on things you don’t.
I have less things in terms of quantity, but each item costs more money because of I am willing to shell out for quality because it lasts longer.
There you have it, my general household budget that I’ve been entering in my budgeting and expense tracking tool.
I also plan on lowering this spending for 2013.
My new Ideal Household 2013 budget is coming up next week.
Enough is enough.
Back to you!
WAIT, THAT 15% DEBT REPAYMENT AMOUNT IS TOO LOW FOR MY DEBT
Where you start to get a problem, is where you realize that your debt repayment minimums may be bigger than 15% a month, maybe even double.
In which case, you need to do two very important things:
- Make more money
- Start cutting back on other parts in your budget
You can’t put more money on your debt if you don’t have it to spare.
There is also no other choice, and no other way.
Pick #1 or #2.
If #2 is not an option and you can’t cut back, make more money.
WHAT DO I DO IF I DON’T HAVE ANY DEBT?
People say that the 15% of the Debt Repayment should be absorbed into other areas of your spending so you can have a nice life, but I am a big proponent of sticking it all (or at least the bulk of it) into savings, and saving a hefty 25% of your net income per month if you can.
If you’ve already lived without that 15%, what’s it to you?
I’ve always felt that 10% of your net income is far too low of a number to be saving in general for short-term funds, retirement and anything in between.
I like 15% – 20% instead as a rule of thumb, although my personal rule of thumb is: as much as is reasonably possible.
What’s your household budget? Do you use the same categories?
There was an article shared by Single Mom, Rich Mom in her post Judgey McJudgeypants referencing a Toronto Life article entitled: “Almost Rich: an examination of the true cost of city living and why rich is never rich enough“.
FYI, SMRM makes more as a single income earner than any of these people, and she is even more frugal than I am, which isn’t saying much because I don’t consider myself frugal… but I thought I ought to point out!
As a short recap, these people earn about $160,000 – $200,000 gross a year and are saying that it still isn’t enough to live the way they want and save. Toronto Life writes:
…the threshold for the top one per cent of income earners is much lower than you’d expect: $196,000, in the latest Statistics Canada numbers.
That’s no small amount of money, but hardly the means for a life of leisure.
In an increasingly pricy city like Toronto, where we pay a premium for everything from milk to car insurance, $196,000 can seem positively middle-class.
I am no good at reading these expenses in a huge paragraph, so I made graphs for two profiles I thought were the most interesting:
At the end of the month, after all the bills are paid, they usually find they have nothing left. “We have a weakness for designer furniture,” says Suzanne. “In 2010, we spent $5,000 on a table and Eames chairs for our dining room.”
THE LEWIS-KOONINGS BUDGET:
I estimated that they earn $125,000 net a year after taxes.
NOTES I’D LIKE TO POINT OUT:
- They’re saving 1.18% of their income for their kids and 0% for themselves
- …but are spending 4.73% of their income on Wine and 4.73% on Eating Out
When you prioritize Wine and Eating Out over saving for your kids or yourself, something is wrong, unless I’m missing the big picture and they have an INCREDIBLE retirement savings plan from their employers (very possible, especially if they work for the government).
He tries to stay debt-free, but occasionally he splurges on travel or a big-ticket toy, like the $7,500 Royal Enfield motorcycle he bought last year. “People think I make a lot of money,” he says, “but I lose so much of it in tax.”
THE HAYNES BUDGET:
I estimated that he earns $115,000 net after taxes.
NOTES I’D LIKE TO POINT OUT:
- I don’t think his budget is that bad…. because he prioritizes what he wants to do!!!
- He also seems to be saving a total of about $40,000 a year based on his budget ($20K in retirement and $20K in budget leftover).
- I’m sort of curious about his quote about not making a lot of money and losing most of it in tax — he’s a single income household earning about $115k net a year which is a phenomenal amount of money
Read the Toronto Life Article here.
THEY EARN PLENTY TO SAVE, THEY JUST SPEND TOO MUCH
Same old, same old.
I will admit, I was reading the article and I was a bit shocked that they think what they earn, is not enough, but maybe that’s just Toronto Life’s spin on things to garner some shock so that the article goes viral.
I earn $30,000 less than the lowest earner, and I think what I earn is more than enough as a dual income no kids (DINK), although BF and I don’t share our income, we do split the essential bills 50/50 like Rent, Household and Groceries.
For those couples who say that they don’t seem to have money at the end of the day (Lewis-Koonings), they need to re-examine their budget.
The rest, seem to be saving, although not as much as they’d like.
EVERYONE PRIORITIZES WHAT THEY WANT TO DO WITH THEIR MONEY
They either want to spend it on Wine and Eating out instead of saving for their kids or their own future (Lewis-Koonings), or they decide that Wine is important, but they still make it a point to sock away the maximum for their retirement (Haynes).
I am not saying that NO ONE should be able to eat out or have a great bottle of wine a week.
I’m saying that if you feel like you don’t save enough, and you’re always living cheque to cheque then you need to re-examine your budget and put your money where your mouth is.
People who claim that they HAVE to eat out because they don’t have time to cook when they get home or are tired, are people who are not organized and conscientious about their money to be prepared for those weekly challenges.
I’m tired too. I get home, it’s late, I’m annoyed, but I cook ahead of time so that I don’t go hungry and start eating condiments and spices.
I AM NO SAINT… BUT I DO SAVE MY MONEY
I am no saint. I definitely spend when I want to spend, and I do what I want with my money, but that’s because I can afford to and I know it.
I save when I can, and when I feel panicky or anxious that I might be turning into a McSpenderson, I cut back and start re-evaluating my goals.
I try to be conscientious about my money, but I also want to live my life and be happy, even if it means spending $2.50 on a single macaron! (OK who am I kidding, I eat 4 macarons at a time… so make that $10.)
SO, IS A 6-FIGURE INCOME MORE THAN ENOUGH FOR YOU?
Disclaimer: This will not work for everyone, but this is how I got out of debt.
I was $60,000 of debt when I graduated from college (all tuition), with no consumer debt (I’ve never paid a red cent in credit card interest). I cleared it in 18 months.
I only realized I was in a big financial hole when I started paying attention to how much interest they were charging me on my debt (5% and 7.5%), now that I was no longer a student and it was no longer interest free.
I decided I wanted to get out of debt, but not having managed or handled money in an intelligent manner my entire life, I figured I needed a crash course in Money 101.
I started reading as many articles that had the word ‘money’, ‘finance’, and ‘budget’ as I possibly could, which included blogs, books and articles in magazines.
After I got the gist of what I had to do by budgeting and tracking my expenses, I started paying down my debt and I finished it in 18 months.
So how did I do it?
Looking back, this is what I think helped.
DECIDING TO GET OUT OF DEBT
If you earn $10,000 or a million, if you are in debt and comfortable with that hanging around your neck, it won’t matter whether you are in debt or not.
You have to make a DECISION to get out of debt, and not to be comfortable with owing people money.
DECIDING TO CLEAR IT IN 5 YEARS
My plan was to get rid of it in 5 years. I didn’t want to keep paying it for the rest of my life, and the loan period was going to be about 10 years before I would clear anything!
STARTED CARING ABOUT MY OWN MONEY
I started caring about MY money. Rather than “someone else’s debt”, it was MY debt.
I started caring about my income, my debt, my expenses, my obligations and basically.. my money.
I really wanted to do things right, financially and stop having to care or worry about where my cash would go each month.
By the end of 6 months, I had a routine down pat, where each paycheck would hit my bank account, and it would be allocated to each category down to the penny.
STARTED A BUDGET AND TRACKING MY EXPENSES
That was the time I created my budgeting and tracking expense tool.
It has been proven time and time again that if you make a budget, track your expenses and stick to your financial plan, you will become debt-free and wealthy.
You do not need to make a high income to be able to save or to get out of debt, you just need a change in lifestyle and in your mindset.
People who make 6-figure incomes and spend every penny of it, are no better off than those who make a fraction of that, because they don’t save anything.
In fact, people with high incomes who don’t save, tend to feel like they deserve to spend more than what they earn, and may end up with bigger debts than someone with a lower income.
EARNING A GOOD INCOME
I graduated from college and got a job at $65,000 a year.
I obviously worked hard to get to the level where I could get a job that paid that kind of money, but it was also not during a recession and the general economy was quite good.
As a result, my fairly high income for a new college grad, allowed me a net income of about $3200 each month after taxes to spend.
HAPPENED TO BE A CONSULTANT
I also entered into a profession (consulting) that offered me a lot of benefits, such as:
- Lots of expenses to pay for that would be reimbursed – this gave me credit card points to use towards groceries and other living expenses
- Ability to travel and live where the project was – this was cheaper than flying me back each week, so I gave up my apartment and lived in each project city, with shelter and food paid for 100% by the client
For the first year, I paid for an apartment and realized I hadn’t really lived there for most of the year, and it was $1500 out my net income each month.
So I gave up my apartment, and my net income was freed up by not having an apartment hanging over me.
I was able to put up to 90% of my net income towards my debt each month (but it doesn’t necessarily mean that I did).
BECAME VERY EXPENSE-CONSCIOUS / CRAZY
Even though I had the ability to put 90% of my net income towards my debt, it didn’t mean that I did it regularly all the time in the beginning.
I was more in the mindset of: Great! I have all this money, now I can pay my debt comfortably to be out in 5 years, and spend the rest.
It wasn’t until I realized how silly that was, that I slowly started increasing my net income payments towards my debt.
Near the end of my debt ($15,000 left to go), I was counting pennies to try and hit my target of 90% of my net income towards my debt.
I didn’t go out to eat let alone eat! I ate less, and I kind of went nuts. It was kind of obsessive compulsive and I was told I was really going too far off the deep end.
I even briefly toyed with the idea of NOT putting money into my retirement fund (100% employer matched), just to have that extra cash each month towards my debt. Luckily I didn’t do it, but it did cross my mind.
QUIT MY JOB AND FREELANCED
Near the end of my $15,000 it was about the time I got sick of my company, quit and started freelancing.
I quadrupled my income, and cleared the last $15,000 with the money I earned.
Even without quitting my job and freelancing, I was on track to finish off my debt by the following year, a good 2 years less than my estimated 5 years.
I already had fairly good money habits in place, I was already putting a lot of my net income towards my debt, and I was being very careful with my expenses, all of which helped.
This is NOT a story that everyone can replicate fully. My situation is different.. even unique, and I just made the most of the opportunity I was given.
I absolutely acknowledge that not everyone could and SHOULD do this, but the main parts that are still relevant to everyone getting out of debt are highlighted in red.
- Decided to get out of debt
- Decided to clear it in 5 years
- Started caring about my money (and my debt!)
- Started a budget and started tracking my expenses
- Earned a good income
- Happened to be a consultant (in the right profession to save money)
- Became very expense-conscious / crazy
- Quit my job and freelanced
And that’s how I did it!