1. Get a clear snapshot of your current financial situation.
How bad is it? You need to know exactly where you stand. Only then can you make actionable goals to tackle your debt. In a previous post, How to start a budget, you will find the steps you need to take to gather all the information you need to get a clear view of your current financial situation. So the first step is to consolidate all your debt and get a total full view of your financial position.
- Assess and evaluate.
Now that you have all of your numbers in front of you, it is time to find where the biggest spending errors are and what debts need to be tackled. Categories to look at:
amounts spent on non-essential items like eating out, clothes, entertainment
list of consumer debtors
interest rates of all debt
expenses that can be reduced or eliminated like entertainment and spending on clothes
savings that can be made for essentials like groceries and utilities
- Don’t play the blame game.
It is what it is. You are here now and you are going to do something about your situation, so there is no point in beating yourself up with the “you should have known better blame games” In order to move forward and make true progress, it is important to know the why and how you created this present situation so that you can prevent a repeat but don’t let yourself get stuck in remorse. Consider those mistakes a lesson and remember them.
- Set specific goals and timelines.
Poor goals:
I want to be debt free
I want to quit my job
I want to retire
I want to go on vacation
Better goals:
I want to pay off all my credit cards
I want to quit my job next year
I want to retire at 55
I want to go to Europe in the winter
Best goals:
I want to reduce my debt by R20 000 by December 31, 2017
I need to make R25 000 a month and reduce my household budget to R5,500 a month to be able to quit my job. I want to accomplish this by June 30.2017
I need to have a passive income of R10 000 a month and a savings account of RXX XXXX to be able to retire. I want to do this before my 55th birthday
I have researched the vacation I want and it will cost me R20 500. I need to have this amount by March 2018 to be able to pay for the trip I want to take in July 2018.
The more specific and time stamped your goals, the easier it is to plan the course to accomplish them. You must be very clear. Include Rand amounts and dates. Don’t worry about being too enthusiastic or optimistic.
- Work backwards.
Now that you have very specific goals and deadlines, you work backwards in order to know what you need to do every day to make sure you achieve them.
For example, using the first goal from the previous step:
If you need to pay off RXX XXX in 18 months, you need to reduce your debt by RXX XXX/18 monthly or RXX XXX/month. If you currently get paid bi-weekly, that’s RXXX/bi-weekly. How are you going to be able to put that amount directly on your debt monthly? Again, be specific.
eliminate my data bill and save RXX/month
reduce my entertainment bill by RX XXX/month
meal plan and reduce my grocery budget by RXX/month
increase my income RX XXX by working 2 overtime shifts a month or get a second job
renting a bedroom in my house for RX XXX/month
If you have completed steps one and two above, it will help you find more money saving opportunities to reach your goals. After intense examination, if you find that your goal is unachievable, extend your timeline and adjust your numbers. The worst thing you can do is put too much stress on yourself and end up giving up all together.
- Become super focused.
Just like starting a new diet, money saving and reducing debt has to be in the forefront of every thought and action you have. Every minute of every day, you have to think about how you can save money. I know it sounds intense but until you form some solid money saving techniques and habits, it has to be your new obsession. Until your processes become second nature to you, it has to be your focus. As time goes on, it will get easier and you won’t have to focus quite as hard to stay on track.
- Keep track of success and failure.
In step #1, you created a snapshot of your current financial situation at that moment. It does not end there. You must keep up with your logging of all of your expenses. Only then can you see your progress. Remember, any steps forward, no matter how small, should be celebrated. Not with spending of course. lol Don’t worry if your goals were too ambitious and you fell short in one month. Look for more opportunities to make up the difference the next month.
- Be flexible and adjust.
If you consistently cannot attain your goals, re-adjust them. It is important to stay motivated and excited about your progress. Falling too far behind may trigger you to give up. It is better to log and evaluate your failures and adjust your figures.
Conversely, if you are blowing your goals out of the water, why not move your deadline and fast track your goals. How inspiring and motivating would that be for you?
- Form support groups and accountability.
Why do people go to the gym when they have all the same equipment at home? Why do people go to AA meetings? Why do people join and attend weight loss facilities? Because it is easier to stay on track and get motivated when you have other people who are reaching for the same goals and support you in your progress.
Don’t do this alone. Find a friend in real life or an online community. Finding a support group is crucial. Not only will they be there for you with tips when you are struggling, you will find it very motivating to help others too. It is amazing how helping someone else achieve their goals, keeps you on track and accountable to your own goals. Hence the whole purpose of having sponsors in AA. Find your financial sponsor/mentor and be one for someone else. It will make this whole process easier and will make you feel really good about yourself.
- Practice eating your peas first and then you can have desert.
Did your mother ever say that to you or did you say that to your children? We live in a society where we are obsessed with instant gratification. Just as we teach our children to be patient and wait their turn, so must we be with our financial needs and goals. Every purchase and expense should be weighed against your future goals.
Does this purchase take me closer or farther away from my financial goals?
Is it a want or a need?
Can I live without it?
Can I make room for it in my goals and save for it?
Can I get it used or for free through another avenue?
Is there a less expensive alternative?
Gone are the days where you mindlessly pull out your plastic and buy something because you want it now. Keep your eye on the ball and the end results you want to achieve.
- Organize and declutter the rest of life.
Have you noticed that not only your financial life but your physical environment is a mess too? I am SOOOO guilty of this. When I let things slide, I let everything go. A decluttered and unorganized house makes it difficult to concentrate on anything.
#MoneyMonday
#GeniusLevel
