How to Get Out of Debt Guide – Part 4 of 6

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Is failing to plan really planning to fail? Personally, I do not think it is as clear cut as that. Nobody wants to fail and most people have a rough idea of what they are trying to accomplish, even if the plan is just in their mind. Having a plan is a good thing though. By having a road map or list of what you are trying to accomplish it will keep you focused and on track to accomplishing your goal. Plenty of tasks get done without a plan. Maybe not as quickly, efficiently or as cost effectively but in the end the job gets done.

At this point in the How to Get Out of Debt Guide it is time to devise an action plan that is specific to where you landed on the financial podium. The goal is to form habits that keep you out of debt and living a debt-free life. Our financial life is about income, expenses, assets and liabilities. By doing simple small things we will be able to increase our income, decrease our expenses, increase our assets and decrease our liabilities.

Below are the action items for each level of the podium.

Gold

  • Keep assets greater than liabilities
  • Keep expenses less than 65% of NET income
  • Donate at least 10% to charity
  • Freedom Fund should have at least 3 months of NET income
  • No consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Silver

  • Keep assets greater than liabilities
  • Lower expenses to less than 65% of NET income
  • Donate to charity
  • Freedom Fund should have at least 3 months of NET income
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Bronze

  • Keep assets greater than liabilities
  • Increase income or lower expenses
  • Lower expenses to less than 65% of NET income
  • Donate to charity
  • Freedom Fund should have at least 3 months of NET income - Backburner for now!
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Honorable Mention

  • Increase assets or lower liabilities
  • Increase income or lower expenses
  • Lower expenses to less than 65% of NET income
  • Donate to charity - consider your time as an alternative to cash
  • Freedom Fund should have at least 3 months of NET income - Backburner for now!
  • Remove consumer debt - credit cards, loans(personal, auto, boat) - mortgage is OK

Increase Income / Decrease Expenses

The easiest way to increase your income is by removing some unnecessary expenses. One major expense that is really not a necessity at all is the cell phone. Cell phones cost at least double what a landline cost. Think about it. How often do you need it? Telephones are everywhere. Borrow someone else's phone for a minute if it's an emergency. Cell phones have become such a drain on people's budgets that it should be looked at first and foremost. The second is Cable and Dish/Satellite TV. A cell phone and cable TV are not necessities. Eliminate those two things and you will probably find an additional $100+ dollars per month to pay down your debt.

Below is a list of unnecessary expenses taken from my book (How to Get Out of Debt). Boost your income by lowering your expenses.

Wants (Unnecessary Expense)

  • Car (that has a payment associated with it)
  • Cable/Satellite TV
  • Personal Care
  • Cell Phone
  • Sporting Events
  • Dining Out
  • Scrapbooking
  • Music CDs/Instruments
  • Vacations/Trips - consider a free alternative
  • Home Improvements
  • Toys
  • Full price Designer Clothing and Jewelry - try TJMaxx as an alternative
  • Gifts - make something instead
  • Children Investment Accounts - not a necessity but a huge plus!
  • Magazine Subscriptions
  • Computers/Electronics

By eliminating these purchases and bills on a daily basis you will save thousands of dollars per year. It is much easier to decrease your spending than it is to get a raise from your boss. If you take on each expense individually it will be much easier. Focus on the prize. What do you really want in life? Do you want the freedom to choose what type of work you do? How about the freedom to choose how you spend the majority of your time? Maybe your ultimate goal is to simply be debt-free. Keep your eye on that and it will make skipping the morning latte a lot easier.

Next Step: The KO Debt Plan

Previous Step: Where You Stand on the Financial Podium

Craig Kelley

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Craig is the author of How to Get Out of Debt and an avid blogger. He strives to help people maximize their time and succeed financially as well as personally. He has been a leader in several start-up companies including Mokumax Virtual Domains & Servers, Inc. and currently HealthcareSupplyChain. Read more...

Trackbacks and Pingbacks:

  1. How to Get Out of Debt Guide – Part 5 of 6 -5 Minutes a Day - July 18, 2012

    […] to spend. It may not be an option for everyone. Another way to increase your income I mentioned in Part 4. It’s by lowering your expenses. It may be difficult to do that. Take a look at the […]

  2. How to Get Out of Debt Guide – Part 3 of 6 -5 Minutes a Day - July 18, 2012

    […] Next Step: Devising an action plan […]

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