8 Steps for Getting Out of Debt
By Alan L. Olsen, CPA, MBA (tax)
Greenstein, Rogoff, Olsen & Co., LLP
The average American spends a great deal more than they make every year. This results in a financial pitfall later in life. If you find yourself digging deeper into the empty wallet, here are ten steps you can use as a crutch to help free yourself of the overwhelming financial burden of debt.
Create and follow a budget – Creating a monthly budget will help you track where your monthly income is going. You should add up how much your expenses will be for the month and then add up your monthly income. Once you have calculated how the money should be spent, you should have some money left over for emergencies.
Stop spending what you don’t have – When you spend what you don’t have your debt is climbing higher. If your monthly budget disables you from making a purchase, then the purchase should wait until the money is within your reach.
Learn to distinguish between wants and needs – In a world filled with mobile devices, televisions, video games, luxury cars and other costly trinkets, our perspective on wants and needs at times becomes distorted. A need is something that is essential to your survival. Although sometimes we think that we will not be able to function without that flat screen TV, waiting until the money is in the bank and paying cash for large purchases is a better option.
Spend less than you earn – After you have covered all of your monthly expenses there should be a little money left over. If not, adjust your monthly budget. You never know when an emergency may arise.
Track your spending – Many people who are in debt are unaware of where their money goes during the month. There are many inexpensive software options that are designed to help track your spending. At the very least, carry a notebook and write down every purchase you make. At the end of month, you will be able to see where your money is going.
Pay yourself – Set aside a portion of each paycheck to go towards savings. Building your savings will ensure that you do not fall into debt again. Pretend that your savings account does not exist, or that you are unable to access the money. This way, you aren’t tempted to spend it.
Use a credit card responsibly – Credit cards are convenient for record keeping and budgeting, but can be dangerous if used improperly. Only make purchases on your credit card that you are able to pay off in full at the end of the month.
Use a debit card – Debit cards draw directly from your bank account, so you will not be able to spend more than you have
Remember that the key to escaping debt is spending less than you earn.