Do you want to be debt free but there is no end in sight? Living under monthly debt is difficult! But there is a way to pay that off and see the light at the end of the tunnel. The first step is keeping track of your finances… every cent. There are a couple of options, depending on how much self control you have. =)
When we were newly married, we used option one. The envelope system. In todays post, I will share how it works.
- Create a budget for your bills. For example:
- Household Expenses – this envelope contains the mortgage payment and utility bills
- Vehicle Expenses – this envelope contains the car payments, car insurance, car registrations fees and gas money
- Credit Cards – this envelope contains the monthly payment for the credit cards
- Other debt – this envelope contains the monthly payments for other debt
- Internet and phone – this envelope includes cell phones and home phones
- Miscellaneous – put cash in this envelope for anythingthat doesn’t fit in other categories
- Grocery – self explanatory… your monthly grocery budget goes in this envelope
- Entertainment – include your cash for movies, eating out, Netflix, cable, bowling, sports, gym membership and any other entertainment you participate in
- Clothes – put your budget allotment for clothing in this envelope
- Health care – this envelope would include cash used for deductibles, health insurance payments, and dental costs
- Child care – if you have child care costs, place the cash in this envelope
- Charity – ideally this envelope will have 10% of your take home pay
- Emergency savings – deposit monthly into this envelope until it has 1000 and then don’t touch it unless it’s an emergency. Keep adding to it as you are able.
2. On the outside of each envelope, write the amount of each bill and then total them and write that as well.
3. At the end of the month, put that amount of cash in each envelope. Once the envelope is empty, do not spend in that category any more.
4. Next, look for things you can sell to fill the envelopes quickly. It will be amazing how good that feels! Have a garage sale! Sell on eBay or Amazon!
5. Find ways to cut back on expenses. Here are a few ideas:
- Buy a flavor and a frother and make your coffee at home.
- Make eating out a special occasion instead of an every day occasion.
- Pack a lunch instead of buying lunch.
- Do your own nails instead of getting them done.
- Choose a lower cable/internet/phone package.
There are many ways to save. Every little bit adds up!
6. The final tip I want to share today is the debt snowball. The way this works is to pay extra on your smallest debt until it’s payed off. Keep paying the minimum on the other debts. Once the smallest debt is paid off, take the money you were spending there and add it to the next smallest along with the minimum payment. Do this until the second debt is paid off. Keep doing this until all the debt is paid off. When all the debts are paid, start using the money for investing!
What other ways do you strive to be debt free? Share in the comments below and pass this along to friends! Stay tuned for more tips next time!