Starting Over: Ending the Cycle of Debt
Becoming both financially stable and financially independent are two things many of us dream about but find difficult to put into action. There’s always something which we seem to be paying off and as a result we never seem to be escaping from the jungle of student debt, mortgage payments, credit and store cards alongside car payments (tip, use a great car payment calculator). Whatever it is there is always something demanding our money and before we know it we have very little to work with in terms of budgeting (with in the worst cases nothing to budget with by the time our monthly payments are made). So what can we do with this? I’ve collected a few simple tips for finance management which serve for helping us manage our finances better.
The best way to start over and end the cycle of debt is to question every purchase and bring it into your conscious awareness, as this can help us evaluate whether or not an item we want to buy will really benefit us and justify the investment we are prepared to enter into before money exchanges hands. Being practical about our future finance situation is about justifying each and every spend, however with my own experience of getting my finances back on track one of the best ways to do so is to start saving
- Save 20%-30% of your monthly income. This is an invaluable habit which means you will only need to borrow from yourself in future and it will help you cover those unexpected financial situation. On the date which your paycheque or other income enters your bank account have a standing order set up to have 20% of this value head straight to a good ISA or other high-interest savings account. By doing this religiously, it should become a habit and this ultimately means that when unexpected expenses creep up in the future you won’t be forced to go to the bank or any other source of temporary finance to borrow from. Also save to pay off your debts early and there’s a host of resources out there to help you manage this realistically in line with your budget such as numerous early payoff calculators.
- Set up a Joint Account. Living with a partner? Pool your joint living expenses such as rent/mortgage and utility bills together to have them come out of one single account. For an experts review have a look at Should You Open a Joint Account by Jessica Bown. Myself and my fiancé have been doing this since we’ve lived together and this is an amazing way to ensure that all of your bills are paid for and great for avoiding any unwanted charges such as if a direct debit were to bounce, which leads me to…
- …set up a Direct Debit for Everything! You would be surprised to see just how much of a weight is lifted from your shoulders when you realise that all of your bills are taken care of. Set up a direct debit for every bill and if you do have a joint account with your significant other then making sure your rightful half of your monthly paycheque is also transferred to this account ensures that everything is taken care of without a second thought. Spend one free weekend morning going through all of your accounts, monthly bills and charges to make sure that they are taken care of in this way and you’ll appreciate how smoothly your finances can run – for more have a look at Making your finances automagical by Leo Babauta of Zen Habits.
- Check Your OnlineBanking Daily. So many people may feel that this is obsessive but the first thing I do every morning is check my bank accounts to make sure everything is as it should be, this also ensures that if an unexpected debit comes out which leaves you in the red then you can move money around to make sure its covered. At one point doing this saved me £400 through banking fraud as someone decided to use my card for online gambling. I checked on Boxing day to see that may available balance was suddenly £400 less than it should have been even though the individual transactions hadn’t appeared at this point, phoning the bank early meant that I took advantage of a three day hold period in which the money hadn’t actually left the bank so I caught myself from losing this money. Checking daily really can pay off.
These are tips which I myself have in recent weeks began to adopt into my daily routine. Sometimes you will slip but its understandable after a lifetime of splurging uselessly and giving into the short-lived feel good factor which comes from impulse buying. There are some great debt advice services out there such as Step Change who even offer tailored advice to suit your needs and will work with you to create a budget too. Either way using the savings habit from tip one can help you pay off your debts early and this is usually the best way to avoid even higher interest charges. Remember we all have the power to take control of our finances no matter how deeply in debt we are and there is always a light at the end of the tunnel.
Laura O’Hanlon is a freelance writer and the creator of the blogs Living Minimalist and Sweeter Business. She is the author of the Amazon book The Amazing Nine to Five and writes daily on finance management, minimalist living and small business ownership.