Wednesday, June 13, 2012

Tips To Kick-Start Your Way To Debt Freedom

When people email me and ask me how we save our money and are practically debt free except for the mortgage, I have a lot to say. Instead of having to repeat myself I thought now would be the perfect opportunity to share some tips on how to take some steps towards debt freedom.
Debt Freedom isn't something you can buy nor won't happen overnight. Perhaps look at it as a long-term goal in which you need to set smaller goals in order to achieve the preferred outcome- Debt freedom.
There is no magic age for debt freedom, only you can decide. If you are 20 and have no debt you are debt free but what about your net worth would you like to build on that? I assume so and to do that you have to take on that debt sometimes in the form of a mortgage . Saving for a down-payment on a mortgage is your first step to building that net worth.
Most times newlyweds ask me how should we budget now that we are married. I often tell them they should have done this prior to getting married. If don't do this step then you should start learning to budget now. Newlyweds make mistakes sometimes and those mistakes can cost them dearly down the road. Be prepared, sort out a budget and work together before tying the knot.

Tips To Kick-Start Your Way To Debt Freedom.......
  1. You NEED A Plan!- Without setting short-term and long-term goals it's difficult to process the rest of the information in the budget. If you are a couple sit down with a piece of paper and pen and think of all the reasons you want to be debt free. Collaborate on ways to get you both there so you are on the same page. The worst thing you want is 2 people not working towards the same goal.
  2. Spend less than you earn- this is a no-brainer for most but for some they don't live for the future they live exclusively in the now. Delayed gratification when spending money is much more important than creating a hole of debt which will take months if not years to get out of.
  3. Design a budget- Spend less money than you net to start saving for the future. Ask yourself do you have an emergency savings fund? Is there enough money saved for those projected expenses throughout the year? You need to balance your budget and save all of your receipts, without one you have no idea how healthy or unhealthy your finances are.
  4. Reduce or Stop Spending on "STUFF"- You can always go through your budget and see categories that you need to improve on or simply get rid of. Generally I think by the second or third month of budgeting you will pour water on your face. This is where people wake-up to their spending habits and most make changes one of which is to take a step back from spending. Example of this would be our grocery budget. We were spending upwards of $600 a month which was far too much for 2 adults. We decided to start The Grocery Game Challenge to combat this overspending and now our budget is $190 a month. We also cut back by shopping only 3 weeks out of each month and started meal planning. We took inventory of our pantry and freezer and worked around the food we already have stockpiled in our home. Knowing prices is the key to saving money on your grocery bill so focus on the price and the metrics.
  5. Learn To Negotiate and How to say NO!- Every person should practice their negotiation skills. Today there is so much in terms of competition in the markets that you may just spring a great deal with some smooth negotiating skills. An example would be lowering your communication and entertainment ( cell phone,cable, internet,home phone) by haggling a price that is less than the competition would give you. Continue to negotiate when you can like at a garage sale or when buying an item on Kijiji or Ebay second-hand. If you don't get what you want, say no. If you don't want to spend money, say no. It's as easy as that. Over time you will get comfortable and your skill will simply be the way you think about how much is too much.
  6. Pay Down Your Debt, Pay more or Pay Extra- I often say you can't save money when you own money. It is imperative to pay as much as you can on your consumer debt. Paying the minimum balance on credit cards is getting you no where and you are not saving. Get out of debt by piling the most amount of spare money on the highest interest card you have. When you finish paying that card you roll all that money on to the next highest while continuing to pay minimum payments on the others. In no time you will have your bills paid and more money in the budget to save for an emergency fund.
  7. Never give Up on your Dreams!- There are always going to be months where the budget simply isn't working out or perhaps something unexpected popped up. Don't give up, never quit. Pick yourself back up and try harder the next month. Make the changes, visit your budget often and make alterations if need be.
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Canadian Budget Binder is a blog run by Mr.CBB and is about a couple who writes about their financial journey using a budget they designed. They blog about Frugal tips, post their actual budget and Net-Worth Update and some lovely Frugal recipes that will make your mouth water!
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