The first article in our reducing debt series discussed getting out of debt, after finding out where exactly your money is going you need to figure out where you can cut back to reduce your spending. This is next most critical item that is necessary to help reduce your monthly expenses so you ensure you earn more than you are spending.
That is why the first step of getting out of debt was to calculate how much you are spending on average each month, now you can easily and accurately determine how much you need to cut back to reach your goal of being able to lower your overall debt and save more.
Where can you cut back? Well the first thing I would look at is anything that is a recurring monthly payment.
Kill The Monthly Recurring Payments
1) Cable TV, do you really need HD cable right now or if you have a service like Directv do you really need to have the service in 4 different rooms? Consider cutting back the amount of channels if it will allow you to save some money.
Some people go to the extreme of getting rid of cable all together. You miss it at first but after some time you find other things to do to pass the time that are more productive.
2) Phone service – Do you really need a cell phone and a house phone? Currently I do not have a house phone. When I suggest this people usually ask don’t you always go over your minutes? Personally no I do not. Most of my friends are on the same cellular network and we get free mobile to mobile. I have also cut back on the amount of time I am on the phone which also helps reduce minute usage.
Also see if you can cut out extras on your cellular plan, do you really need those 500 text messages per month, texting is a pain anyways, I used to get a lot of them and the small fees add up.
I would tell people I didn’t like then and they would still keep sending them to me. Finally I just would not answer unless someone called instead of sending a text message and slowly but surely they stopped.
I have a few friends who are monthly subscription addicts. Some of the actually spend more than they make just in monthly recurring purchases such as, house and cell phone, TV, XM Radio, house payment, car payment etc…
He has no choice but go into debt to buy food and any other normal expenses.
After killing recurring monthly expenses I then would look towards things that you may not really need. Such as going out drinking every weekend. If you buy a case of beer and invite some friends over you can save more money that just buying your own drinks out at a bar.
You do not have to cut out all the things you like, but do not need… You just need to cut back. That is a big difference when you actually start doing it.
This next post will focus on the other way to attack your debt earning more money!
Derrick
A reader just emailed me through this blog and asked if I could recommend a few more personal finance blogs. I figured I would answer here rather than just have email conversations. I will recommend a few quality “second tier” (in my opinion), blogs that you should read.
Derrick
I am one of the lucky ones, to be 100% honest with you I have never been in debt other than an auto loan and mortgage, never had a credit card that I couldn’t afford to pay off at the end of the money. This doesn’t mean I cannot relate to exactly how someone in debt may feel. Working for a rather large bank I used to see daily the destruction lack of financial responsibility can cause someone.
Many people who have dug themselves into a financial hole do not know where to start to reverse course.
The first think you have to do is figure out exactly how bad it really is. Most people who are in great debt do not even know how much they owe, or how much they need to pay each month to just cover the minimum.
The reasoning is if I do not pay attention to how bad it really is I will not have to face the music and do what needs to be done.
So if you have no guessed it yet you need to figure out how bad it is. Sit down right now and figure out exactly how much you own, the interest rates attached to all debts.
Next you need to figure out exactly what all your monthly expenses are(rent or mortgage, utilities, telephone, cell phone etc..), do not skip a single thing.
Figure out what you can cut out that is a recurring monthly expense. Do you really use the high speed internet that much, do you need a telephone and a cell phone? Most people have financial issues because they signup for these monthly obligations that are more than their income.
Next you have to figure out exactly how much you make every month. This includes any interest income, even money you find laying on the ground or returning soda cans.
You have to spend less than you make, 99% of the time people having trouble spend much much more than they bring in each month. So the solution is simple spend less! Ok, I know it really isn’t that simple. But you need to cut out things, even things you may enjoy, like TV until you can get your bills under control and consistently make more than your monthly obligations.
The other option if you cannot cut out anything is make more money. This is possible in many ways, starting a home based business, picking up a second job or working more at your primary job.
In the next blog post I will focus on how to cut back.
Derrick
There are a ton of high quality blogs on the internet about personal finance, you could literally read for hours upon hours and learn so much. I see no reason for you to ever have to buy another finance related book again. Unless you are like me and are a personal finance junky.
1. Get Rich Slowly – Great blog with informational posts that give a lot of high quality information. The blogger posts nearly daily with well thought out, well researched posts, while also providing many examples from personal experience. In a recent blog post he discusses having mail stolen out of his mail box.
2. Personal Finance Blogs – This is a great little site where you can actually create you own personal finance blog and not worry about buying a domain or anything like that.
3. PF Blog – This blog has been around since 2003, it really is a great blog, the blogger actually discusses his personal finances. In the recent stock market downturn the blogger lost $60,000 in January alone! Some interesting reading.
4. My Debt Free Goal – This blog isn’t really about personal finance, but it is about the bloggers journey to get out of debt by building and maintaining an online business. She has paid down over $11,000 in debt since starting her online business and looks to be debt free in the near future.
5. Living Off Dividends – This one of my favorite investing blogs that also discuss personal finance issues. Dividends are a good thing and learning about how to successfully invest to have dividend income is something that we all should look into.
In the coming weeks I hope to write more and more about my thoughts on personal finance. Am I am expert on the topic of personal finance? No, likely not, I am constantly researching finance related topics and expanding my skills. I do have a lot to share with you though, I have been reading and writing about personal finance for many months and I also worked for one of the major(top five) banks in the world.
I will be putting a comments section on the blog so you can suggest topics about things you would like to see me write about. I am truly and here to serve you.
Derrick