This post comes from 20-something college student and writer named Red. Red walks the walk and offers a great resource to emulate if you have the desire to get your financial situation on track. Attaining financial independence is a significant goal for many minimalists. Follow Red’s progress, tips, and experiences towards living debt free at http://girlwithredballoon.blogspot.com/.
Getting Your (Financial) House in Order
Anyone who has ever gone through the process of decluttering knows that it can be a gut-wrenching experience. Prioritizing your possessions, deciding what stays and what goes, and then making the conscious effort to not bring any more clutter into your home? It’s never as easy as you think it will be.
Getting your financial house in order is a lot like getting your actual house in order. Though neither are painless, they’re both instrumental in creating a sustainable life that actually aligns with your values.
Photo Credit: contentcashsecrets.com
First, it’s important to decide why you want to get your house in order. Don’t do it because an “expert” on Good Morning America says you should. Decide what ends you hope to achieve.
For me, the immediate reason was that I needed more space in my apartment for my boyfriend. That snowballed into donating DVDs I had watched a hundred times because I knew there were better ways to spend my time.
And you know what? There were also better places to spend my money. Once I felt the freedom of not owning things for the sake of owning them, I knew I wanted more.
I canceled my tanning bed membership. I began grocery shopping to save money on food. I used the library for all books and DVDs.
My goal was debt freedom. I wanted to pay off all credit cards and follow that up by paying off all of my student loans. I knew the freedom that came with not having debt would allow me to focus on things I really loved – specifically travel. It would also afford me the opportunity to do lower-paying work that I was passionate about because I wouldn’t need $400 each month for a debt payment.
Before doing anything else, get your reasons down on paper. Whether it’s to save up for a house down payment, travel, clothes, or even just living without creditors calling you three times a day, you’ll need these goals as reminders to keep you motivated.
Track your spending and create a budget. Ah, now we get to the grunt work of getting your financial house in order. Have you ever listed out your possessions on paper to give you a better idea of what you have? A possessions inventory is a great way to help us realize what all we have. Suddenly, we see that we have five pairs of black pants and 12 pairs of flip flops. It makes the decision to donate or sell our things a lot easier.
A budget operates in much the same way. First, track your spending for 30 days. I recommend using your debit card because it’s often easier to track expenses through online banking than through cash and paper receipts.
Review your spending for the month. Does every expense represent your priorities? If you’re spending $400 a month eating at McDonald’s even though one of your priorities is to eat healthy or get out of debt, you’re probably not using your money wisely.
Your money should be used to represent your values. If it isn’t doing that, it’s time to make some changes. And if you’re spending more than you earn in a month, you definitely want to make some changes quickly!
Create a realistic budget by first listing out all of your monthly expenses. These should include your rent or mortgage, utilities, Internet/cable/phone service, cell phone service, water, insurance, etc. Then you’ll want to create separate entries for things like groceries, gasoline, entertainment, charity, debt payments, etc.
When I say “be realistic,” I mean there’s no need to give yourself only $50 for entertainment in a month if your tracking revealed that you spend $200. Don’t push yourself too hard in your first month of budgeting. You don’t want to equate “budget” with “punishment.”
Photo Credit: financialfreedomtrail.com
Find areas to cut back. The easiest way to put extra money to your debt is to find the extra money in your budget. There are other alternatives, like getting a second job or getting a raise through work, but I find cutting my monthly expenses is the most painless way to find extra cash for debt and other priorities.
For me, the first thing to go was a tanning package. Then I cut the expensive cable. After all, most TV shows are available online. Netflix is another low-cost alternative to cable.
Maybe you can go without Internet because your job allows you the freedom to read a few blogs and do your online banking. Maybe you can cut your restaurant eating back to four times a month instead of eight.
Research better deals on insurance. Get a roommate or move into a smaller house or apartment. Negotiate a better interest rate on your credit cards. Try to find free alternatives to the costliest of your entertainment expenses, like checking out a DVD for free from your library instead of paying $5 for one at Blockbuster.
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Keep your eye on the prize and set small goals for yourself. When anyone in our lives approaches us about declutting their home, what is the first thing we usually tell them? “Start small. Don’t overwhelm yourself by thinking you have to do everything right now. Do one corner of your garage every weekend until it’s done.”
The same is true for budgeting and paying down debt. Don’t beat yourself up because it seems like paying off debt takes such a long time. You didn’t get into this mess in a matter of days. You won’t get out of it that quickly either.
Getting your financial house in order is about changing behavior. It may take years to correct, but you will get there.
Celebrate small achievements, like getting your daily accrued interest down to a certain point or only spending $100 on alcohol in a month when you usually spend $200. These are not insignificant accomplishments. Be proud of the progress you’re making!
And know that, like minimalism, financial discipline is something a lot of the people around you simply won’t understand. They won’t understand why you want to save up cash for that TV when you could put it on your credit card. They won’t like that you turn down their offer to go out for the third night in a row because your debt payment is more important.
Remember when you wrote down your reasons for getting your finances together? Refer to it often. This path isn’t always the easiest to walk, but the rewards are oh-so-wonderful.
