Ways to Get out of Debt & Save Money

Most people can’t tell you where their pay checks go each month. All they know is that they don’t have enough money to make ends meet. That’s like having a checking account, writing checks, and never balancing it. Don’t leave the management of your money to chance like that. Establish a budget and stick to it. However, before you can establish a budget, you must first know how much money you are currently spending each month.

Understand that there are monthly expenditures that you may not be able to change immediately, for example: mortgage/rent and car note, and there are monthly expenditures that you can change relatively easily: food, clothing and utilities. Focus on the ones you can do something about right now, and implement a budget reduction plan.

With regard to the monthly expenditures you can change immediately, review the amount of money you are currently spending, and try to reduce that amount by 25% the first month. For example, if you are currently spending $300 a month on food, try to spend no more than $225 (or 25% less). Then, after a few months, try to further reduce the amount you are spending to no more than $150 a month (or by another 25%). Keep reducing your budgeted amount until you feel you have decreased this monthly expenditure by as much as you possibly can.

The bottom line is that you must establish a budget, stick to it and implement a reduction plan, so that your financial situation won’t be left to chance. Having a budget and not sticking to it is just like not having one at all. If you follow your budget and implement a reduction plan by gradually decreasing the amount you are spending in all areas, you can increase the amount you are putting in your savings account.

Establish at Least One Goal a Month

Since we’ve established that change isn’t easy, a gradual savings approach may be best for you. If so, we’ve got just the plan: Establish at least one savings goal per month. For example, if one of your goals is to stop eating out so much, then do it. To keep that monthly goal in practice and fresh on your mind, write it down and stick it on your refrigerator door. Every time you go to the refrigerator, review that goal. Because practice makes perfect, continue to practice your goal of the month until it becomes a habit. Then, establish and begin implementing another goal.

Keep going until you have totally changed your way of thinking financially toward improving your financial condition and becoming totally debt-free. Just think, improving your financial condition can begin by establishing at least one savings goal per month.

Save! Save! Save!

If you can’t start saving 20% of your monthly net income or 75% of your monthly disposable income right now, then start off with less, and gradually increase the amount. By practicing money-saving techniques, you will find extra money during the month that you didn’t even know existed.

Once It’s in Savings, Leave It There

A good rule of thumb for us all: Once it goes into your savings account, leave it there. If you make it a habit of withdrawing from your savings for this or that “emergency,” then you will have a hard time building up and maintaining an amount in your account to accomplish your long-term financial goals.

When and only when you are ready to complete one of your financial goals, like to pay off your car or mortgage loan, should you withdraw the money from your savings. By following this simple rule of thumb, you should expect to accomplish your goals and at a much faster pace.

Establish a Cash Reserve

A cash reserve is a portion of your income you’ve saved that you can fall back on if you ever have to. Hopefully, you will never have to, but it is better to have it if you ever need it, than to not have it and really need it. We recommend that you build up and keep a cash reserve that is equivalent to your living expenses for six months. By doing this, you will have several months to regain financial stability in case of a sudden loss of income.

This money should be liquid, meaning easily converted to cash if you need it. In other words, this money should not be saved in a certificate of deposit. Also, the money should be separate from your other savings account(s) that will be used to accomplish your long-term financial goals. In the event of an emergency, your cash reserve should prevent you from having to withdraw money from your savings account(s) specified to accomplish your financial goals.

In addition to continuing maximum contribution toward your savings account(s) to accomplish your long-term financial goals, you can build up and keep this cash reserve by putting a portion, over and above your regular monthly living expenses and the amount you allocate toward saving, in this cash reserve account. By directing some extra money you would normally spend on clothes or entertainment to your reserve, you will have sufficient money to cover you in the event of an emergency. Although you may not have bought a new outfit for the week or month, by establishing a cash reserve, you have purchased something more important: some peace of mind.

Earmark Your Savings for a Payroll Reduction

Select a certain amount to be deducted from your payroll check and deposited right into your savings account. So, before you ever see it, it’s already in there. (If you go and withdraw this money each time you say you need it, then you’ve defeated the purpose.)

If you can, select a certain percentage of your income, for example 20% of your monthly net income or 75% of your monthly disposable income, to deposit. Then, as your monthly debt decreases and your income increases, you should increase the amount going directly into your account. Pretty soon, you will have a nice savings.

If You Get a Loan, Repay It Immediately

If you can go through the rest of your life and never have to get another loan, then do it. This is possible once you’ve become debt-free and have become accustomed to keeping enough money for unexpected expenses. In the meantime and under limited circumstances, you may have to get a loan. If you must get a loan, make every effort to repay it as soon as possible. By doing so, you will save money because you won’t incur any unnecessary interest charges.

Create Your Own Ways to Save

This article has given you a few ways to save, however, there are thousands more. It doesn’t matter whether you use all of the techniques that worked for other people or come up with your own. What does matter is that you develop a plan to save and stick with it until you become 100% debt-free.

Make Budgeting and Saving Rewarding

Every time you save a buck by implementing creative and common sense ways to save, put it into your savings account. Keep track of the amount of money you are saving. Make sure you use an interest-bearing savings account.

Each month reward yourself by withdrawing only the interest you’ve earned by saving, and buy yourself something special. Of course, the more you add to your savings account, the more interest you accrue each month.

Beware of Financial Planners

Because they are in the business of making money. Financial advisors may be trying to sell you products and services that make them money at your expense. If you are serious about improving your financial condition, don’t get further in debt to receive help. Instead, use free or low-cost information and guidance to assist you.

Become Organized

In everything you do, become organized. Whether it’s implementing some of the ideas mentioned here or others, the more methodical you are, the easier you make it on yourself. You will find when you become organized you are bound to save both money and time.