Debt is a common, if not inevitable, problem that most people face. Whether it’s student loan or credit card debt, owing money is a tough spot to be in. It can be tough to go about your life paying rent and buying other things knowing that you have loans to pay off. Whether you have been trying to become debt-free for awhile or are just starting your journey, we have tips that will help you navigate the process in 3 easy steps.
Step 1: Develop a Savings Strategy
When creating a strategy to meet your savings goals, it’s important to do your research. There are a wide array of budget plans out there. While they are all accomplishing one universal goal, there are different methods that work for different goals and lifestyles. Do some research and find out which plan works best for you based on your savings timeline.
50/30/20 Budget Plan
The 50/30/20 is a popular budgeting method that can be used by most people. This plan was coined by Elizabeth Warren—U.S. Senator from Massachusetts and named as one of the 100 Most Influential People in the World by Time Magazine. This has turned into the budgeting rule of thumb for those just getting started with managing their money. So how exactly does it work?
- 50% of your income goes to needs (housing, groceries, utilities, insurance, car payment, etc.)
- 30 percent goes to wants (shopping, dining out, hobbies, etc.)
- 20 percent goes to paying off debt (credit card, student loan, etc.)
60/20/20 Budget Plan
This plan is similar to the 50/30/20 plan, however the percentages vary more in favor of needs. The 60/20/20 budget plan is perfect for those who may live in an expensive area and need more of their income targeted towards things like food and rent. In this plan:
- 60% goes to essentials rent/mortgage, groceries, utilities and transportation
- 20% financial goals debt reduction, emergency fund and investments
- 20% wants entertainment, travel and eating out
The zero-based budget is a method that requires you to utilize your entire paycheck each month. Don’t get too excited. This doesn’t mean you get to have a shopping spree every month. The zero-based budget forces you to put use to each dollar in your account. For example, if you make $2,000 per month, you will need to properly disperse this into spending, saving, and investing until that amount hits zero.
Starve and Stack
- Combine finances and create a joint bank account
- Only live on one income while putting 100% of the other income in savings
- Do this for 18 to 24 months
The idea behind this is that you will be able to efficiently save enough money to pay off debt as a team. By living off of only one income, you will be able to save a lot of money, fast. You will have to live a fairly frugal life, but the payoff will be worth it.
Step 2: Work Extra Hours
Let’s state the obvious: having extra spending money is never a bad thing. In fact, it’s a beautiful thing. And when it comes to pursuing a side-incomes, two is better than one. Couples tackling the side-hustle game can find themselves having more financial freedom then they ever imagined. You don’t have to be a business savvy couple to take your finances to the next level.
Start a side hustle
While working after your full time job may sound like the last thing you want to do, it could help you pay off your debt twice as fast. You can take up photography, proofreading, dog walking, social media management, selling items, and so much more. Starting a side hustle can help you to pay off debt twice as fast! Check out this list of side hustle ideas to find your match!
Work from home jobs
You don’t have to work 9-5 at a desk to earn a solid income. Whether you’re a stay-at-home parent or want to travel the world, there are still effective ways to earn money remotely. Working remotely can help you pay off your debt fast by giving you a chance to work at off house and earn extra cash. Take a look at this list of 7 full-proof work-from-home jobs to get started earning money from anywhere you desire!
Step 3: Establish a Budget Friendly Lifestyle
Part of saving is making it embedded into your daily life. You want to create a set of money-saving habits that become like second nature and you don’t have to think about it. This will make it easy to start saving money fast without much effort.
Quit budget breakers
We all have a mental list of things we know we shouldn’t buy. We try to stay away from custom lattes, fancy boutiques, and limited edition sneakers. However, there are routine purchases that many of us make that can easily ruin our budgets. It is surprisingly easy to look over these commonly bought items. These habitual purchases can cost you upwards of $1,000 extra per year. This is precious cash you could be using to pay of your debt faster. If you eliminate these 7 things from your budget, you are going to be shocked at just how much money you save!
Limit your monthly bills
There comes a time every month where we wait for the results to come in: how much will we be paying for utilities? Some months we do great! We successfully saved water, electricity, and money! While other months we stare at the bill wondering where we went wrong. The truth is, there are a number of ways people can save hundreds on their monthly bills that they never think to do. A few simple changes can make a huge difference in your expenses leaving you with more money to pay off debt at the end of the month. You’ll find yourself have more spending money, more in your savings, and feeling less anxiety when it comes time to pay those pesky bills. This is your fool-proof 3 step plan to achieving debt-free success! For more tips on paying off debt, click here.