Wednesday, 17 October 2012

Getting Out of Debt - Part 1 - Income and Expenditure

You've managed to run up debts and now you feel like you're drowning in them. You don't know what to do, or where to turn. It's stressing you out and making you ill, so you bury your head in the sand and try and avoid it. You'll deal with it later, but even coming home from work is worrying you, because you don't want to face reading your mail or answering the phone...

Sound like you? Well it was me until I turned things around and that's not as difficult as you may think.

Realistically speaking, most people think they will have to live like paupers for several years to escape their debt burden, and this is what frightens people away from dealing with their problem. They don't want to have to think about living like that or facing up to it, and can you blame them?

This post is about avoiding that, but still coming out a winner at the end of the day.

Don't get me wrong, extricating yourself from beneath a huge mountain of debt is something that you will have to keep working at over a sustained period of time, but understand this: You can still be happy too, so long as you strike the correct balance.

So what do you do first? As I've mentioned in previous posts, controlling your personal finances and preventing them getting out of hand, is all about your attitude, but often this doesn't change over night. After all, we're only human.

It takes balls to do, but the first step is admitting you have a problem then sitting down and working out how big that problem is. Actually doing something will also make you feel better. You might come up against some scarily big figures, but don't panic. Remember, when climbing a mountain you always have to start out at the bottom, and you have to know where you are before you can map out where you are going. By simply putting one foot in front of the other, and keeping going, you will eventually arrive at the top of that mountain.

The next thing to look at is your incomings and outgoings - basically how much cash you currently have, and where it's all going. Some creditors may well send you forms asking about your incomings and outgoings as part of their process of dealing with you, but our process will be different from theirs.

Start with your outgoings

You might not always have the opportunity to earn more money, and you might not be in line for a pay rise anytime soon, but you can recreate the same effect by cutting down your spending.

Look at your bank statements to see where all your cash goes each month, (leave the debts for now, we'll get to them).Using this you can identify areas where you can make savings, making your money go further. Luxury items like satellite TV are obvious candidates for cutting straight out of your budget, but remember to use your imagination too.

For example, you might think you would miss satellite TV and all the great series and films they have on it, but there are good alternatives that are cheaper by far. You could get a freeview box that can also record programs. If there's ever anything worth watching when you're asleep or away, record it, then when there's nothing worthwhile to watch live on freeview, simply watch something from your recorded library. After the initial purchase price, it's completely free.

Then there's also online TV services. Most major channels offer catch up services, and there's also products such as Netflix, which looks ridiculously cheap. You could switch all your TV viewing to online on your PC and sell the telly...

You'll find that this principle can be applied across the board, so you won't have to compromise very much on your existing lifestyle.

Gym membership is another obvious one. If you really want to stay fit, you simply don't need a gym. All you need is your running shoes. If weight lifting is more your thing, you don't need the gym's purpose made weights either, you just need something heavy. Use your imagination and save.

Fuel. We all need it for our homes and cars alike. There's so much that can be covered here, so I'm going to cover it in another post elsewhere on the blog soon. And it goes without saying, shop around for a better deal.

Food. Most people spend way more on food than is strictly necessary, or even comfortable. For some ideas, look at saving your lunch money or getting the most out of your supermarket and don't eat out as often as you did.

Of course there is a limit to how much extra cash you can find. Cutting  back on your mortgage payments, for example, is a big no no (more on this later).

And now, a bit of psychology...

Doing this can significantly increase your spending power and it's the start of regaining control over your finances. The harder you look for savings, the more you are going to find and the better you will start to feel about the whole situation. And keep looking too. This post is quite a generalised one, but many of the other pages on this blog are filled with ideas to save, or make money in various specific areas of life.

And remember your new found attitude.

Care is now required to use your spending power in the best way possible, to improve your life from now on, which doesn't mean spending the extra on yourself. However, it is important to still treat yourself from time to time, and this is where many people make their biggest mistake.

It's all very well paying as much over to your creditors as you can, but without the occasional luxury or treat, life soon becomes unbearable, and this is the point where people snap and go on a spending binge, undoing all their previous good work, often digging themselves into an even deeper hole than they were in before.

Again this ties in with attitude. Be reasonable with yourself. You can climb that mountain, but you have to take one step after another. As time goes on, things DO get easier.

Now let's look at incomings

Most people have their wage which goes into their account every month and that's it, but have you explored ALL options for a bit of extra cash?

Can you do more hours at work? Most bosses appreciate someone who's up for helping out so this may earn you brownie points with them, as well as more dosh. Volunteering to do a couple more hours of an evening or on a saturday morning each week can really help you get by.

Think laterally - you could look to see if another department needs some help. It doesn't even need to be related to your role. One guy I know works in an office selling insurance all week, and on saturdays works as a window cleaner, for the same office. The office boss pays him instead of an outside contractor. And don't be ashamed of asking for opportunities such as this. Working for your money is not charity, and nothing to be ashamed of.

I've deliberately left out negotiating a payrise. Most companies are using the current economic climate as an excuse to not award them, although if you think it won't harm your relationship with your boss, you might as well give it a try.

Check if you are entitled to any benefits and if so, claim them. You may feel bad about doing so, but they are there specifically to help people in need, and besides, you pay your taxes anyway, right?

If extra hours at work aren't available, look at what's available outside work, such as bar jobs, or doing odd jobs for friends for cash. Even ask your family and friends for paid jobs. Be careful to check your existing employment terms though, as some companies put stipulations on this, and the last thing you want to do is jeopardise your main income, although the occasional odd job for a mate or relative should still be fine.

Utilise the internet. OK, so it's a great way to look for additional employment, but you can also work ON the internet. Many people are looking for copywriters for example. Think about your skills and how you could apply them elsewhere. Heck, if you're musical, you could always go busking in a busy shopping street...

Besides selling your labour, look at your assets. Is there anything you can do with them to generate more cash?

As a student, one of my old landlords had money problems, so he rented out his house and moved in with his girlfriend. Maybe you're married so this might be out of the question, but do you have a spare room? Could you re-arrange your living quarters to free up a room to rent out? If you live in a big city, have you thought about renting out your driveway to commuters? Using your assets in this way can be quite inconvenient, but the payoff is that you don't have to work so hard for the extra cash.

And now for the difference

By applying the principles of cutting your spending and increasing your earning, you now have more money. While that's great, you now need discipline to make sure you benefit from this by not splurging it on the wrong things.

And that's not all. The way you manage your money through each month also has a huge effect on how you feel and how things pan out, even when you're spending the same amount of money on the same things. What do I mean by that? Read my next post to find out...

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