Good morning everyone! Please help me welcome John and David A.K.A. the Debt Free Guys, who want to help you live a debt free life. Let me know if you would like to guest post on Savvy Scot!
It’s the time of year when you wonder what happened to the excitement and motivation you had for your New Year’s resolutions. You’ve slowly crept back to your old habits and are no longer getting to the gym, refraining from high calorie food and paying off debt. What happened to that well of excellence you had January 1st?
As Aristotle said, “We are what we repeatedly do. Excellence, then, is not an act, but a habit.” By now, many have given up on excellence. We have evidently become comfortable with where we are. How do we change that? How do we develop the daily habits that help us have the life we want, especially with eliminating our debt?
In our book, 4: The Four Principles of a Debt Free Life, we lay down the four keys to live debt free. The first key is to “Be Money Conscious”. Being aware of who we are makes all the difference in how we behave and how we spend.
We often say that if everyone was aware of what they looked like from behind, many would make different eating and clothing choices. (we’ve gotten used to the full length, three-way mirror ourselves). The same is true with our finances. If we are truly money conscious and know what our finances look like from every viewpoint, we may make better spending decisions.
What does it take to be money conscious? Below we outline three important steps to be money con-scious:
• Know how much money you make
• Know on what and where you spend Your money
• Have a plan to get out of debt
Step 1: Know How Much Money You Make
One error many of us make has to do with how much money we earn. We often think that if we earn $40,000 a year, we can spend $40,000 a year. Wrong! We forget taxes, health insurance and retirement savings – and we better have some because social security as we know it won’t last much longer. Many items are deducted from our paycheck even before we receive it, so the easiest way to determine how much we can afford to spend is to look at our pay stub – specifically our net pay.
Your net pay is the amount deposited into your bank account each payday. If you’re paid weekly, take that net amount and multiply it by 52 and then divide it by 12. If you’re paid twice a month, multiply the net amount deposited into your bank account by 2. The total of that calculation is your net-monthly budget or how much money you can spend on a monthly basis. For example:
• Take home of $437.50 every week = $437.50 x 52 / 12 = $1,895 per month
• Take home $1,700 twice a month = $1,700 x 12 = $3,400 per month
Step 2: Know on What and Where You Spend Your Money
How much do you spend and on what? Do you even know? To become money conscious, first add up all your monthly spending, including your mortgage or rent, insurance, groceries, social life, car payments, clothes, etc. You may have to total a few months to calculate an average. Then, subtract this total of your monthly expenses from your net-monthly budget calculated above. If you have money left over after paying your monthly expenses, hooray!
What happens if your monthly expenses total more than your net-monthly budget? You have too many monthly expenses and you must make adjustments. Get your monthly expenses at or below 90 percent of your net-monthly budget. Here’s where you distinguish between wants and needs. No matter who you are, you can reduce your wants and this reduces your monthly expenses.
Find a simple way to track your spending. If that means daily or weekly totaling your spending on a spreadsheet, then do it. If you can only do this once a month, fine. Whatever money tracking habit you adopt makes you more money conscious of your spending and less susceptible to overspend.
Step 3: Have a Plan to Get Out of Debt
Finally, create a debt-payment strategy. Use your net-monthly budget calculated above as the basis for calculating this strategy. Subtract 90 percent from your net-monthly budget to pay your monthly expenses. Use the other 10 percent to put towards your debt every month without fail.
We just discussed a small portion of the first principle in 4: The Four Principles of a Debt Free Life. For more details to become money conscious and to learn the other three principles to live a debt free life, along with worksheets and a 12-week action plan, invest in a copy today.
With over 14 years of combined experience in financial services, Denver CO residents David Auten and John Schneider of DebtFreeGuys.com still found themselves with over $51,000 worth of credit card debt. With their self-made plan, they paid off their credit card debt within three years. Nine years later, they’re helping others learn to be debt free. To learn the three additional principles of living debt free, buy their book 4: The Four Principles of a Debt Free Life today.
How to Save Money says
$51k in 3 years? Amazing!
How to Save Money recently posted..How to save money on baby essentials