Leaving Debt in the Dust
I have been on my get-out and stay-out-of-debt journey for nine months now and it has been quite the ride. I’ve wanted to quit many times and go wild with online shopping and my credit card, but I’ve managed to restrain myself. I’ll confess – I haven’t been perfect. There were a couple of months when I went slightly over budget and had to dip into my small savings. Creating new spending habits is a lifestyle change which doesn’t happen overnight.
Making your money work for you means taking control of your finances, then using that control to continuously improve your financial stability and security.
While working on getting out of debt, I’ve spent time researching and creating a plan for staying out of debt. Here’s what I’ve learned and will try to do in the coming months and years.
Categorize your spending
The first step to regaining power over your money is looking at where you spend. A budget can show if you are spending more or less than you can afford. Direct your money where it matters most. Once you’ve paid off some debts, re-direct those payments towards other debt, like paying down a mortgage or car loan.
Budgeting is making your money do what you want it to do, rather than spending without a plan. Assign every dollar you earn to a spending category. Important categories include:
- emergency fund;
- debt payment;
- Registered Education Savings Plan (RESP);
- vacation; and
- down payment for a house or vehicle.
Yes, vacation can be a spending category! Change your habits to save first and spend later, so budgeting for a vacation becomes a reward for great behavior. And saving an emergency fund can keep a financial emergency from sending you back or further into debt.
To help make saving easier, set up automatic monthly savings, and be realistic about how much you can set aside.
Use credit strategically
One of the most important lessons I’ve learned is not to turn to credit when I over spend. Instead, I need to go back to my budget and find an area where I can decrease my spending for that month. For example, if I spend too much on clothing, I might cut back on leisure activities, like drinks with friends.
That being said, I’m not willing to give up on credit just yet. I still feel it’s important to learn how to use this tool properly. Building good credit previously helped me get approved for a mortgage and a car loan.
To help me through this process, I set some strict rules for myself:
- I won’t use my credit card to buy things I can’t afford.
- I will always pay the entire credit card balance before the bill’s due date.
Since I’m trying to pay off debt and won’t be traveling much in the next while, I applied for a credit card that offers cash back, instead of discounts on travel and hotels. To take full advantage of the cash back feature, I use my credit card to make most of my purchases and pay off my credit card bill by the payment deadline.
Always time to save
What you save for will depend on your age, lifestyle, and goals, but it’s never too late or too early to start.
Seeing as I’m only 29, I know I’m years away from retirement, but I still think it’s important to start planning. My goal is to retire debt free or at least with only a small amount of debt, and I’m on my way to being able to do that. I hope my story will inspire you to look at your financial future.
As a member of MEPP, you have access to our Retirement Information Consultants, who are CERTIFIED FINANCIAL PLANNER® or QUALIFIED ASSOCIATE FINANCIAL PLANNER™ professionals, and are here to help you begin. Feel free to contact them with your questions at 306-787-3170 or ric@plannera.ca.