For a long time, I believed that the reason for my money troubles was a lack of money. It was the logical explanation for a student who worked part time and then it became a logical explanation for a new immigrant working for minimum wage. As the debt grew, it became the logical explanation for a woman earning decent money but struggling to keep up with minimum payments as she supported a self-employed spouse. The reality though, is that lack of money was never the problem. It was a symptom of a problem and recognizing that was my first step to turning things around.
I’ve come to realize that when we try to justify our situation by blaming outside forces: a job, a relationship, a “must have” expense, we are not only passing off the responsibility to something else we are also passing off the power to make a change. When you hand over that power, it lets you off the hook as far as taking action goes but it also leaves you feeling frustrated and helpless. Owning your situation means putting yourself firmly on the hook but it also means putting yourself firmly in control which lets you take the credit for every part of your success.
No matter how bad the situation, there is always a way to make it better. Chances are though, that it also means getting out of our comfort zone, stretching and getting uncomfortable. Chances are it’s not the easiest path. However, if you’re willing to take a chance on making a change, here are five steps to get you started.
1. How Much Do You Make?
The first step in getting out of debt is getting to know your cash flow. This can be an intimidating concept but it doesn’t have to be complicated. Start simple with a piece of paper and pen and, at the top of the page, write down how much money you have coming in each month.
2. How Much Do You Owe?
The next step is to list all your debts, the current balances, interest rates and the minimum payments. Pull out your latest statements so you know the numbers are accurate and that you’ve included everything. Write all this information down and then total up the balances and the payments.
3. How Much Do You Spend?
Now you know how much money you have flowing into your account each month and how much you owe, the next step is to figure out how much money you have flowing out in total. With this stage, it’s important not to just guess the figures because we tend to underestimate our spending, especially when it comes to groceries, gas and eating out. Instead, go back through your bank statements and credit card statements to make sure that your numbers are right.
Write down all of your regular monthly expenses on your piece of paper – include any regular savings commitments as well as the minimum payments for your debts, then add them up. The total is your monthly outgoings.
4. How Much Could You Commit to Debt-Busting?
Take the amount you have coming in (from step 1) and subtract the amount you have going out (from step 3). The result is the maximum amount that you could commit to paying down your debts each month. If the number is positive then decide how much of it is reasonable for you to commit to conquering the debt mountain. While it might be tempting to throw all of your “spare” income against debt, it makes sense to leave yourself a little bit of a buffer zone so that you have enough to cover any unexpected expenses that crop up.
If the number is negative then the next step is to figure out what you can do to increase income and/or reduce expenses. Options include, asking for a pay raise, taking on an extra job or cutting back on “extra” expenses such as cable and eating out. If you need some inspiration there are plenty of stories on line of people who have found ways to either stretch a dollar or make additional income. Find a story that resonates with you and then let it inspire you to try something different. It can be hard at first to cut back on things that you’ve become used to having but I can tell you from experience that once you start to see those debt balances decreasing it becomes a lot easier to handle!
5. How Much Do You Want To Make A Change?
Doing the math and the research sets the foundation for making a change but whether you decide to use that foundation to build something better for yourself is always an individual decision. Change isn’t easy but if you have a strong motivator it becomes easier to implement. As I said at the beginning of the post, a lack of money isn’t the problem; it’s just a symptom of the problem. If you’re willing to dig down to figure out where that problem is rooted and then put a plan in place to eliminate it you can create lasting change and rewrite your financial future.
The philosopher Lao Tzu once said that, “a journey of 1000 miles begins with a single step.” Take a minute to think about one thing that you could do today that would take you one step closer to creating a solid financial future. Then take that step. I promise it will be worth it.