When January 1st comes around, and after the ball drops in Times Square, a new year begins. With that new year, is an opportunity to press the reset button. For many, that reset comes in the form of new years resolutions. The top 3 new years resolutions this year (are the same as last year and the year before) are to Enjoy Life to the Fullest, Live a Healthier Lifestyle and Pay Down Debt.

Debt Free
How to be Debt Free in 2018

It makes a lot of sense. Most people want to be happy and live a happy life.

Live Happy

Happiness doesn’t come from a fancy sports car, a big house and a big screen TV. Although alot of people think they will be happy with these things, that isn’t the truth. People are happy when they are healthy, when they have less stress in their lives, when they can spend time with people who love them and care for them. A happy life is about having enough money and resources that they can eat, drink and provide for themselves and their family. Another part of living a good life is doing something that is meaningful. You want to know that you are making a difference on this Earth.

I’m not saying that driving a nice care, living in a nice neighbourhood and living in a nice house isn’t something to strive for. What I am saying is that those things shouldn’t come to the detriment of everything else we discussed. Going into debt to own the nice car, so much so that you can’t afford the payments, or stay up at night worrying about the payment being missed is a tough life. Achieve happiness by living beneath your means, and being healthy. If life provides more than this, than you can spend on the extras.

Debt Free Healthy Happy
Happy Life

Destroy Your Financial Stress

Financial stress isn’t a one time stress. The stress isn’t here and then gone. It is always there, in the back of your mind. Sometimes, when a bill comes in that needs to get paid, and there isn’t enough money in your account, your financial stress will peak. When you live paycheck to paycheck. When you live above your means, it means that you are always spending more than you are making. It is a very stressful lifestyle and that stress can cause medical issues.

When you live beneath your means, wonderful things start to happen. Your debt goes down, your savings increase, your stress goes away. You can start to buy things with cash, instead of debt. You can afford to travel, and you can plan for things like retirement and your children’s education.

For many, their stress levels would decrease if they simply lived beneath their means. There are a few different ways to get there. You need to spend less, earn more, or even better, do both at the same time.

Step 1. Earn More

Live debt Free
Reduce Debt Interest

How much do you take home as income every month? What can you do to increase your monthly income? Can you work overtime? If you are on commission, what would it take to earn more? Can you ask for a raise? If you aren’t able to make more from your current job, can you start a part-time job, or would you make more with a new job at a different company? Perhaps you can start a side hustle online, or offline that will bring you extra money every month.

Step 2. Spend Less

Financially Fit
Debt Free

You need to make a budget of where you spend your income. A budget sheet tracks what your fixed expenses are, such as mortgage, rent, taxes, insurance, etc. You also need to track your variable expenses, such as food, groceries, restaurants, etc. This is where you have much more control, and can reduce your expenses. Because this is usually where people spend blindly, and unconsciously.

Spend Consciously

It is so easy today to spend unconsciously, because of debit and credit cards. When the money comes out of your account without you touching any cash, it becomes easy to overspend. By simply tapping your debit card, it is as easy to spend $97 as it is to spend $1.

If you can learn to control your spending, you can quickly make a new habit that will provide you with extra cash in your account. So how do you spend consciously? One way, which I recommend, is to give yourself an allowance every week that can be spent on things like restaurants, groceries and coffees. Take that money out of your account in the form of cash. Just spend that amount every week, and no more. That way, you know that you spending within your budget.

Reduce or Eliminate Your Debt

Everybody hates to waste money. The biggest waste of money for some people is the interest payments on their debt. It can add up to hundreds or thousands of dollars. The interest accrues on every debt, whether it is a mortgage, loan, line of credit or a credit card. The interest rate accrues and multiplies and can become the largest monthly expense very quickly without people realizing it. If you can become debt free, that money that was being wasted on interest, can now be used to accumulate savings.

Debt Snowball

Start by adding up all of your debts. How much do you owe to others. Include all of your debts. Make a list of who the debtor is, how much is owed, what the interest rate is and how much the minimum payment is. When you have the list, put it in order of least amount owed to most amount owed. Your focus is going to be to pay off your debts in that order. Pay off your smallest debt first by allocating any extra income you earn towards that debt.

When the first debt is paid off, put the payment from that debt, plus the extra income towards the next debt until it is paid in full. Continue the process, until all of your debts are paid.

Interest Debt – The Real Dream Stealer

An interesting exercise is to determine how much you are spending on interest every year. One way to figure this out is to add up the interest payment from each statement. This will give you an accurate amount. To get a ballpark figure, determine what your average monthly balance was for each debt and multiply it times the interest rate and multiply times 12 to get your annual interest payment for each debt. Add together all the interest payments for all the debts. That should provide you with the incentive you need to change your habits.

If the interest payments were used for travel, or for house renovations, or for your children’s education, rather than being given to the bank , would that be enough to change?

Your ability to save is determined by your ability to live beneath your means. If you constantly increase your expenses every time your income goes up, you will never get ahead. You will always have debt stress in your life. You will always live paycheck to paycheck. So please, make this commitment to yourself to control your spending and get out of debt.

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