There are a lot of stories about couples paying off a bunch of debt in short periods of time. Today, I want to give hope to all the single folks out there. If you’re single, I want to show you how to improve your finances on a single income. I think there are three fundamental steps you can take right now to kick start your financial makeover and start reaching your goals.
Step 1: Make a Budget
If you don’t have a budget, start one now. It is the single biggest reason that I have turned my finances around. It was the first domino in a chain of events that made me more responsible and proactive with my money. If the thought of a budget feels overwhelming or restricting, stay calm. A budget doesn’t have to be a scary thing. It’s a written plan of how to spend your money each month.
Chances are you are already spending your money each month, creating a budget is just writing down where your money goes before it leaves your bank account. If you’re not sure where to start, write down (on paper or an Excel or Google spreadsheet) a few basic expense categories.
Your expenses can be broken up into fixed and flexible categories. Fixed expenses are the same every month, like rent, loan payments, cell phone, car insurance/payment, and internet. Flexible expenses might fluctuate so don’t be afraid to estimate when you first start out.
Your Budget Doesn’t Need to Be Perfect; Guess If You Need To
You probably don’t know exactly how much you spend on groceries off the top of your head. That’s okay! To get started, make an educated guess at how much you spend each month. It might not be perfect, but it’s a base line. Next, do the same thing for gas, utilities, going out to eat, entertainment, etc. Once you have all of your expenses and income written down, it’s time to test it out.
During the next month, start tracking where you actually spend your money, making notes in your newly created budget. At the end of the month, you will see how close your estimations were. Repeat this process for a couple months to get a more accurate idea of where you spend your money. The important take away is to see if you are losing money each month or if you have a surplus of unspent cash, with the goal being a surplus.
If you have a surplus, that means you will have extra to put toward paying off your debt faster (the main goal)! After sticking to your budget for a few months, you can look for ways to cut out extra expenses or trim back other flex categories like gas and food. It’s amazing how easy it will become to reflect on your spending.
Step 2: Make a Debt Log and Set Goals
Once you have your budget in place, you will start to see where you can save money each month. The next step is to crunch numbers and see how long it will take to become debt free using a debt log and a debt snowball. I have a how-to guide for creating a debt log and a debt snowball to aggressively attack your debt, so I won’t go into a lot of detail on that now. Instead, I want to show you the value it has in painting a realistic picture of when you will be debt free.
In basic terms, a debt log is a spreadsheet list of your current debts with interest rates, the minimum payment each month, and some simple formulas to auto calculate your monthly payments. A key point is to apply any surplus money from your budget to your smallest loan each month until it’s paid off.
Then, when you pay off that loan, you roll, or “snowball,” that payment amount (along with any surplus) into your next smallest debt. It will increase the monthly payment, resulting in a quicker pay off date. Then continue that process until you are debt free! It truly is amazing how fast your debt disappears when the momentum starts rolling. Our debt log has been so critical to paying off $90,000 of student loans in four years.
Set Achievable Goals You Feel Confident Achieving
When your debt log is finished, you will have a pretty good idea of when your debt will be 100% paid off! Now it’s time to set goals (with dates) to pay off each individual debt. A goal without a date is a wishlist, so write a specific date and put it where you will see it. I have more hope and confidence when I set goals.
If, on the other hand, you feel overwhelmed looking at your payoff dates, remember, it will take longer if you make the minimum payments. If you are throwing every available extra dollar toward your debts, you will pay everything off much faster.
Our original debt log had us paying off our loans in 10 years, but through adding extra each month, we whittled that down to four. I believe that if you buy into this idea, you will trim years off of your repayment period. Set your goals and stick to them!
Step 3: Learn to Say No to More Debt
Budget: check. Debt Log and Goals: check. Now it’s time to get really disciplined and learn how to say “no”. If you are a recent college graduate starting a new career, it can be tempting to live the millennial lifestyle and start spending your big salary on luxury items. If you have an old beater car, why not buy a new one? Renting and roommates can be a real pain, so buying a house might be appealing. Or you could celebrate with a big vacation.
There are so many ways to spend money, especially if you are still in the grace period before reality (your loan payments) sets in. The best thing you can do is to say “no” to these big ticket items. Remember back in step 2, you made goals to get rid of your debt as soon as possible. Don’t do all that work just to go into debt again.
If you see your friends or coworkers spending like crazy, it doesn’t give you permission to do the same. Chances are, you don’t know what their finances look like. They could be swiping a credit card and going into even more debt! One of the worst things you can do is compare your situation to other people. It will only make you more disillusioned, and create more obstacles.
Radical Decisions Make a Big Difference
One radical decision my wife and I made was to stop going out to eat. The only exceptions were dates we specifically saved up for and paid cash. You don’t need to go to this extreme, but we had a burning desire to be debt free. We didn’t want unnecessary spending get in the way. Learn to work your butt off and say “no” to anything that doesn’t align with your goals of being debt free. It is definitely counter-cultural, but so is living a life without debt.
Being single isn’t an excuse to make poor financial decisions. I truly believe that getting out of debt starts with making a budget and a debt log. Once you do that, set attainable goals and say no to anything that gets in the way of your goals. Start making changes today to see your finances transform your future.
Let Me Know in the Comments
What are your debt free goals? What have you chosen to say no to?