Reduce Debt Increase Wealth

Spending

June 20, 2021 MisterChuck Season 2 Episode 66
Reduce Debt Increase Wealth
Spending
Show Notes Transcript

How to reduce your spending. Get spending under control is the most important thing to do when reducing debt. First make a Financial Plan, and a Debt Reduction Plan.

 Article Links:

https://www.clevergirlfinance.com/blog/how-to-stop-spending-money/ By Bola Sokunbi

https://www.fool.com/the-ascent/banks/articles/how-stop-spending-money-you-cant-afford/ by Christy Bieber 

Charles McDonald:

Hello, I'm your host, Mr. Chuck. I'm a retired accountant turn truck driver, I have reduced my debt to zero in a short matter of time. debt reduction to achieve financial freedom takes commitment, confidence determination. Getting your spending under control is the most important thing you can do to help pay off your debt. The last episode I talked about helping my friend set up the budget. And before that, I talked about how he got his credit card under control and start paying off not only his credit card, but all of his debt, and it all comes down to spending. Once you have a budget set up, you can see where your money is coming in from and where is going out, he can then start deciding those things that you no longer use or need ageing, start canceling them, you can also see where money is maybe be wasted. If you have a cable subscription for TV plus two or three streaming services, you need to decide which is most important, which do you use the most and which you can get along without, and go ahead and cancel those. And that's what my friend did. He canceled his TV cable bill because he wasn't watching it all that much. And that alone saved him somewhere around $150. He had the premium package and paying for movies and everything that he wasn't really watching a whole lot later on. In this episode, I'm gonna talk about extreme measures you can take that may seem strange at first. But over time, you've decide, oh, he knows what he's talking about. Maybe I'll give that a shot. Before you start cutting back on your spending. There's a couple things you should be done first, one of the first things you need to do is create yourself a financial plan. a financial plan is your overall plan, or your goals that you're trying to achieve. An example for a long term goal would be saving for your retirement, whether you're doing it through your work with a 401k or at any other retirement plan, or you're saving for your children's college education through whatever plan you're using for that. These are goals that you set for yourself, that help keep you on track and focus on the things that are most important for you. And he also would have short term goals and intermediate term goals. He may be trying to save money for maybe a larger down payment for automobile purchase, or may be paying cash for a good use automobile or bigger down payment for when you upgrade to a larger home a home has more bedrooms or bathrooms and all those type things. That second plan you need, if you have credit card debt is a debt reduction plan. What do I mean by a debt reduction plan? Well, you spell out the steps that you're going to try to maintain so that you can get your debt paid off. The number one thing you have to do is quit creating new debt. number two thing, set up a savings account. If you don't already have one and build up an emergency fund. Your first goal may be to get $500 set aside. Then after a little bit of time you retrieve that then and you pay down a little bit on your credit cards, then increase it to $1,000. The reason you have that if something would happen and you have a wammy expense, or an emergency expense, such as the hot water heater in your home going out your car breaking down or needing new tires for the cars, you have the money in a savings account to pay for those items that happen that you need. That way you can stay on track of not creating new debt. That's all to it. Number three is paying the minimum balance on time every month on all your debt, be your credit cards mainly put them in order the highest interest rate on top, the lowest interest rate on bottom. After all credit cards are probably going to be close to And around the same rate, once you get your emergency fund set up and fund it, and you just keep putting more money in there. And once you get $1,000 $1,500 or $2,000, above your emergency fund, then you take that extra money and apply it to one of your credit cards, I always would recommend the snowball method for the very first one, pay off the card with the lowest balance first, no matter what the rate of interest, that way you have a card with a zero balance, you have cheap something after that card, you start working on your card with the highest rate of interest. In order to do that, to reduce the amount of interest you're going to pay over the long term. Because the less interest you pay, the more principal you're gonna be paying. And the more principal you pay, the less debt you're gonna have. That's all is to a debt reduction plan, stick to it, stay the course, in order to do that, you need to have your budget. Once you have your budget, you can identify where you're wasting your money, where you're spending money they can cut back on so that you can put more money into your savings account, get that debt paid down quicker, stop spending, how to keep your spending under control. I have two articles in my show notes that you can refer to if you're interested in reading them. The first one is from clever girl finance, calm, how to stop spending money. And you really don't stop spending money because you got to pay for things. So you're going to be spending money. And the number one thing she has in her article to help reduce your spending is number one, eating out and on eating food. So if you go to a grocery store and buy a bunch of food, and you never eat it, and you're throwing it away, because you're going out to eat all the time, you're wasting money, so do quit going out and quit not eating the groceries you buy the number two item, clothing and accessories. Number three item expensive coffee, the number four item, which kinda is number two and three, also unnecessary things. And number five credit cards. If you quit using your credit cards, and start paying for things as you go. That's gonna help reduce your spending. I know that I talked about this in the past, but it's areas that you need to focus on. areas to focus on stop is eating out and uneaten groceries, clothing and accessories. Clothing accessories should be a miscellaneous item, and your budget that you budget for that you don't go out and buy new shoes because you want them you go out and buy new shoes because you need them. Same with your clothes, clothes wear out, I understand that they go out of fashion. But don't be just replace in clothes because they're out of fashion. You should be replacing clothes because you wore them out expensive coffee. I'm guilty of that. I like to have my latte. I went out and bought a latte machine $600. So I could do it at home, figuring over time, the years that I have that machine, I'm going to save more money, because now I'm not going out to buy my coffee when I'm home. I'm going by an expensive coffee, when I'm working on the road and not home. Quit spending money on unnecessary things your wants versus your needs. Don't buy something because you want it and definitely don't buy anything because you're trying to impress somebody. And that's the problem. My friend had. Hey, thought that he if he had an expensive car, he wouldn't impress the boss. impress his clients. Well, he may be impressing his clients. But then the boss sees that he never know what he's thinking. Maybe the boss is thinking. I'm paying him way too much if he can afford a car like that. You never know. So be careful on why you're doing something. And you need I mean everybody needs transportation. Do you need the most expensive transportation? No, you need transportation, they get you from A to B, it could be nice, just don't go overboard. And credit cards, credit cards get you in trouble because it's money you don't already have. And you can go ahead and buy something when you want it not necessary when you need it or not necessary when you can afford it. And the rest of the article goes into detail like making a shopping list when you go to the store. That way, you just buy what's on your list, and you don't have any impulses to buy something you don't need. Course some people is going to say those clothes you quit wearing or clothes you never wore, you can sell them. But that's still a waste of money, because you're not going to sell them for what you paid for them. So you still wasted some money you recoup some of it, you still waste is. And here's the expensive coffee, coffee, we get it drinking coffee is like breathing air for some people. It can truly make or break your day. But it doesn't mean you have to break the bank to reap the benefits for your coffee at home, you can easily save $20 plus a week doing so test alternatives such as good tea, which also contains good doses of antioxidants and minerals. And cutting down a coffee as an excuse to ramp up on drinking water. Other healthy alternatives such as coconut water, which is not cheap. stop spending money on unnecessary things. Shopping has never been easier a click of a button you can have exactly what you want at lightning speed. Thanks to online shopping. If you're spending a lot of money online, you got to stop doing that because that's a spending problem. Maybe a buy in things you don't need maybe you bought it because was on sale. Just because you can get a good price on something if you don't need it. You shouldn't be buying it. article says stick the cash I kind of dispute that. I think if you keep your debit card, you keep track of your spending, you manually enter everything you spend money on and to your account. So you know exactly how much you have. That might be better than using cash. Because some people use cash on they're gone. Oh go bank get more. They don't care where it's coming from. They just have it so you got to stop doing that. Credit cards can easily get you on fast track into debt. If you struggle to exercise discipline with them, it might be best to completely stop using them. And yes, treat all credit cards as if they are cash. If you don't have the money to buy something, and you're not going to have the money to buy it by payday, don't buy it That in itself if you can get in the habit of thinking that and put a delay on everything. Give yourself a 24 hour rule or give yourself a you know seven day some rule that you can stick to that will put you on pause, decide whether or not you need it or want it. If you want it Do you really need it. If you need it, why do you need it? How long have you gone without it? And how much longer can you go without it. If you're gone six months without it, maybe you don't really need it and then set up a budget clever girl finance and then we have a nother one how to stop burning money you can't afford to and this is from the fool.com how to stop spending money you can't afford make a detailed budget keep track of every dollar you spend switch to cash temporary and use an envelope based system which is out of date. Instead of the envelope based system you can use gift cards instead buy a gift card for say your entertainment amount by gift other debit cards you can get debit or prepaid credit cards or earning they come with expenses and fees institute a 24 hour rule. Take your credit cards off your online accounts. automate your savings. Well, we never talked about that. If you set that every pay day 10% is going to go in your savings account and you don't have it in your checking account. Maybe you won't spend it. Remember, he can only make six withdrawals a month from a savings account. After that. The bank will start charging you a fee. And that's not the bank that's a federal rule. allocate a set amount of fun money you don't exceed. That should be part of your budget. I call it miscellaneous. If you like going out say every Friday having a few drinks, maybe having dinner with friends Saturday. aside that money, put it in your budget, but don't exceed what you set up. Be reasonable. Don't pay for drinks for everybody, every week, keep it under control. And now it's got a lot more detail on that. So you can go and check that out. Once you realize you have a spending problem, and you identified that, and you got your budget set up, you go through your budget, you figure out what you no longer really need, and you get a canceled, the next step is to like your cell phone, and your internet provider, call them see if they have any other plans where you could save 1015 $20 a month. Because every penny really counts, the less you pay for the things they have to pay for a month in and month out, the better off you're gonna be. Why pay more, when there's plans out there that you can get maybe a better service, more service for less money, take advantage of that, yet maybe a faster internet connection for less money by switching providers. That's always the case, most likely. And the thing I told my friend that he was absolutely against doing, which about a year or so after he was into his debt reduction plan. He realized he could really speed up his payoff, if he did what I suggested. And I said it before, he bought an expensive car was paying $650 a month for a car that he only drove a few miles every day. And he did that to impress his boss. He really didn't really see clients. So he didn't need it for that. But he really confessed to me, I was trying to impress my boss. And I said, Well, your boss may think that he's paying you too much. So he may be slow and giving you a pay raise. And he agreed with me that maybe he didn't get pay raises or as big as pay raises, because his boss might have thought that so we never know what I did. I looked at his budget, and he had a big percentage way more than his 15% for transportation. And that was because of that car payment. And I suggested sell this car, how much is the car worth today, if you would try to sell it and do you owe less on it, then what you would sell it for? Well, he he rolled over financing on this previous car so he was upside down on the car. So I suggested, get your credit cards pay down and then get that loan, pay down so that he can sell a car and have enough money from the sale to pay it off. Take some savings and all your emergency fund. Use up bigger downpayment and buy yourself a used car a whole last amount and get that turn $50 a month payment down to 200 to $300 a month. And that will free up a lot more money to help you meet your goals a lot faster than before. And once you have a emergency fund set up three to six months of expenses, you have your debt paid off, you have your house paid off by the car, you won, you earned it, you worked for it, and you earned it and then do it at that particular time. I'll be back with my final thoughts after this. If you listen to this podcast using an apple podcast app, please rate and review this podcast. If you don't know how to write and review within the apple podcast app, do a search even if you're already at reduced that increase wealth. You do a search once the search is done you click on reduce that increased wealth. He then scroll down through the episodes and towards the bottom. You'll see write a review. You can rate the stars. If you click on write a review. You can write your comments and then click on the number of stars you wish to select. For all of you that have credit card debt problems. You're trying to get out of debt. It all comes back to one thing, you have a spending problem. If you reduce your spending on those things you don't really need but you want, you can get out of debt quicker. And stay that way. Like my friend that I helped get out of credit card debt. Once I had the budget set up for him, and he could see where his money was going, he realized he had a spending problem. I didn't tell him he had a spending problem. He just realized it on his own. He took the steps he needed to do to get out of debt. Everybody can do the same thing. Set yourself up a budget. Identify the things you need to pay every month. Keep track of your money on a daily basis. manually enter everything you buy into a check register. Know how much money you have at all times, so that you don't overspend. Quit using those pesky credit cards. Quit creating new debt and your debt reduction plan will succeed. And when you say you will be much happier debt reduction to achieve financial freedom takes commitment, confidence, determination. You don't have that. You may struggle to get your debt paid off.