Financial Security

your budget holds the key to get you out of debt jail

Over the last few months I’ve become increasingly concerned about my financial situation. I’m 20 years old, I already have several (several) thousand dollars in school loans, I have virtually no savings and a credit card balance that was nearly maxed out. I was not liking where I was at so early on in my life.

There’s not much I can do about the school loans right now, at least not with credit card debt hanging over my head and no savings safety net. So I began to change my financial situation. The catalyst for this change happened when I was leaving for work one day, and I was counting my blessings. I’m so thankful for my car, I thought. Some people have cars that they can’t really depend on, but I’ve never had to worry about whether my car will start or not. And then it hit me that if something happened to my car I wouldn’t be able to get it fixed myself. I had very credit left, and pretty much zero savings; I had no buffer. I would be forced to rely on my parents for help. I’ve already relied on them enough and am trying to move more expenses over to myself. They’ve worked too hard and too long for me to keep draining their income.

That was the day that I’ve decided to make a buffer, pay off my credit card, and start paying down the interest on my student loans. I’ve come up with a couple of techniques that have been indispensable. Both financially and mentally.

1. The first thing I did was start reading about finances. I had already been reading Zen Habits for a while. The author, Leo Babauta, touches on financial things through his writings about minimalism. By reading his articles I’ve seen the grand appeal of cutting out all that is unnecessary in my life and learning to embrace a more minimalist life style. I also started reading Frugal Dad which is focused on paying off debt and consuming less.
2. Most importantly, I made a budget. I had made pseudo-budgets in the past, but never stuck to them. But this time I made a budget, carved it in stone, and stuck to it. Ever since I made a budget my spending has decreased dramatically. I can tell because I actually have money left over. A lot of money. And I’ve been putting it to good use. Some people (including the author of Frugal Dad) say to save up three months expenses before paying off your debts. It makes sense; you don’t want to have to fall back on a credit card because you don’t have a buffer. Good advice, but I decided to ignore that when I started because my credit card debt really wasn’t that large. My credit limit is only $1,000. Pittance compared to the $5,000 credit limit some of my friends have on their cards.
3. So I had a budget, but what kept me to it? I thought about making the down payment on a house. How I want to be able to live debt free for my future family. I want my children to grow up seeing how to be responsible with their money, just as I did. Set a goal for yourself and put that image all around you to help keep you in line. If you reward yourself (proportionally, of course) when you achieve a goal, you are more likely to use that momentum to keep moving. My reward was feeling better!
4. This next tip is more of a hack than anything, but I’ve decided to start filling a change jar now that I’m using cash almost exclusively. I used to spend change when buying things to avoid receiving more change, but now I try to get my hands on as much of it as I can. Any change I get goes into the jar, and it only leaves when I deposit it into a savings account. It’s not for impulse buying and it’s not for extraneous spending.(A recent comment on Frugal Dad said something like “Imagine if for every dollar that passed through your hands, you saved 10 cents. Now stop imaging and do it!” I rather liked that idea, and I feel it is a good way to frame the change jar hack.) I do have condition, though: Anytime I’m at a store and they have a change donation jar for disease research, etc., I put whatever change I do have in my pockets in. If change can make a difference in my bank account, it surely can make a difference for someone’s health.

These are some of the things I’ve come up with to dramatically improve my money situation. What have you used? What tips and hacks have you figured out to make a difference in your war with debt? Leave some tips in the comments for other readers to practice.