In this How to Get Out of Debt Guide we have walked through some basic steps for taking control of your finances. For some of you it may be a lot to digest. That's okay! Remember we are trying to form habits. Habits take time to develop but once you get them nailed down your momentum will really take off. Do not be discouraged. This guide and my book, How to Get Out of Debt is the result of me failing a lot! Learn from my failures and stick to your guns. Revisit the guide often to make sure you are on the right track.
We covered a lot of material and it would be good to recap. Habits are formed by repetition!
Getting Started - Gathering
In this step we took the time and gathered all of our financial papers together. If you have a spouse or financial partner this is a good place for both of you to get involved. Sharing the task will not only lighten the somewhat tedious task but it will also get both of you on the same page from the start. If there isn't a consensus to get out of debt then getting out of debt will be extremely difficult. One of the key factors in getting out of debt is to stop spending on consumer items (any item that is not an asset; ie. doesn't make you money). I strongly encourage you to talk with your spouse and get them involved.
Your Personal Financial Statement (PFS)
After we gathered all of our bills and financial documents together we then entered them into the PFS (a free download when you register with 5 Minutes a Day). We defined what Assets, Liabilities, Income and Expenses are and saw examples of each. Remember, the PFS is your financial report card. Each month you should revisit it and update your numbers. It sounds like work and it can be but for the little amount of time you invest you will know exactly where you stand financially. This will allow you to make good informed financial decisions.
Where You Stand on the Financial Podium
By looking at our personal financial statement we could easily determine our NET worth (what's left over after you subtract all of your debt from all of your assets). Hopefully you had a positive NET worth! Based on your NET Worth and Cash Flow we placed you on the financial podium - Gold, Silver, Bronze or Honorable Mention. Remember, there are no losers. We are looking forward to where we want to be not backward on any mistakes that we made. Yes, we will try not to repeat the mistakes of the past but we will keep our focus on the big, successful future ahead of you. Ultimately we all want to be off the podium and standing all alone on the Platinum stand. When we reach Platinum we are not only set financially but we are also mentoring, nurturing and positively influencing others around us. Don't wait until then to start developing these character traits!
Devising an Action Plan
A road map or plan is always a good thing. It saves time and keeps you focused on your goal. It is just like your ultimate picture of the "perfect" life. Living on the beach? Writing novels? Traveling through Europe? Having a plan on how to reach that goal will save you time and money and help your daily spending decisions. Quite simply, there are two action items that you need to be concerned with.
- Increase your Assets
- Decrease your Expenses
The KO Debt Plan™
By eliminating bad debt we become empowered to invest in good assets that make us money. The KO Debt Plan™ is a simple way to knock-out each debt one at a time. The more debts we KO the more momentum we have in becoming debt-free. It's as simple as starting with the smallest debt. Pay an additional $100 on your smallest debt and continue to make the minimum payments on all other debts. Start small and enjoy a quick victory and move on to the next smallest debt. Controlling your spending is a must. You won't be able to get out of debt until you stop adding new debt to your plate. This is the fastest way to pay down your debt. Trying to pay all of your debts down at the same time will take more effort, time and be much more difficult to accomplish. Start small as a Featherweight. Give yourself some time to become a Heavyweight in the ring.
My hope is that you know there are no losers when it comes to finances or life. We all have set backs but with some minor tweaks and education we can get on the right track. The financial podium's lowest step is Honorable Mention. We all have value even if we're not perfect in our financial lives. Having a plan is step number one. Use this guide as your plan and stick with it. Sit down with your personal financial statement 12 times a year. Yes, only 12 times. That is once a month. Reassess where you currently stand. Look at what you did right and what you can do better. Keep copies of each month so you can track your progress.
While you follow the steps in this guide:
1. Celebrate! - when you pay off a debt enjoy a treat like an ice cream soda or a modest dinner out with your sweetheart. Something you can pay cash for; no credit cards!
2. Focus on the big picture - what is your dream? What do you really want in life? Write it down and look at it first thing every day. Maybe it's a picture of a beach house or a blank piece of paper that has a headline of "My Debts" and directly under it it says, "NONE".
3. Remember you are not alone - Deuteronomy 6 says, "6 Be strong and courageous. Do not be afraid or terrified because of them, for the Lord your God goes with you; he will never leave you nor forsake you."
4. Don't give up! - Proverbs 13:4 says, "4 The soul of a lazy man desires, and has nothing; But the soul of the diligent shall be made rich."
Thanks for reading,
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