There’s a saying that goes “You can’t know where you’re going if you don’t know where you’ve been.” This can apply to many facets of your life, one of which is your finances. For those who are working to pay off debt, it’s important to not only identify how you got to where you are, but target areas you can improve on, which gives you more money to put toward paying off your debt sooner.
For some, it may not be a series of little things that led to the current debt load: it could have been an emergency that came up. With a situation like this, it’s still necessary to analyze your current spending habits.
One approach to doing this is to track everything you spend for a full month, whether it’s bills, groceries and especially discretionary spending. Many people don’t think of those little amounts here and there adding up, but when you see it all listed in black and white it can be a needed wake-up call!
After the month is up, sit down and really look at what you’ve spent, and separate them into needs vs. wants. Be honest with yourself on this step: let’s be honest, no one “needs” the newest phone. Even if your phone breaks and needs to be replaced, a phone that’s a generation or two older is going to save you a lot of money and still provide a great deal of needed functionality.
Once your list is separated, take a close look at your “wants” list. Are there things in there that you can temporarily live without, in order to get your debt paid off? Add things you are willing to live without and put those in their own pile.
After this is completed, simply add up the things you have identified as you can live without, and use that total, or a total close to it, to add a bill payment into your “needs” column. Whatever you have currently been paying toward your debt, you can increase by a tangible number that you have calculated based on your own personal spending.
This approach may not work for everyone… at the end of the month you may realize that the only way to really take care of your debt is to find a way to generate some extra income. If this ends up being the solution, at the very least you still have a plan of attack. Any plan is better than no plan.
This approach doesn’t have to just apply to debt, either. Maybe you want to save up for a vacation and don’t feel you have the means to do that. Maybe you want to start putting money away for your children’s education. This exercise can help show you where to find the money to do those things as well.
Give this method a try today! What have you got to lose… but the debt?