A recent study commissioned by Discover Personal Loans found that many respondents understand the importance of paying off debt and increasing their savings but aren’t making near the progress on those goals that they’d like to.
This isn’t surprising. Especially since 60% of the survey respondents reported dipping into savings to pay monthly expenses in the past five years. Also, 38% were trying to save to pay off debt.
The thing is, if you’re working hard to pay off your debt, save for retirement, and build up your savings, minor unforeseen expenses can completely throw you off track and restart the paycheck-to-paycheck cycle.
If you really want to make financial headway you need to break that cycle. A good place to start is getting one month ahead of your expenses.
Acknowledge Your Situation
Before you can realistically get ahead you need to acknowledge your situation. If you pretend you’re okay, avoid looking at your bills, and completely dismiss the fact that financial health is important to your life (and stress levels) you will not get anywhere.
Accept the situation you’re in and get fired up enough to do something about it.
While it is hard to dig yourself out of a hole, it’s also completely possible if you want it bad enough. On top of that you will reap huge rewards from taking action and control of your current situation.
Ready to change your financial life?
First you need to determine whether you have an expense problem (you spend too much money) or you have an income problem (you don’t make enough to cover the basic costs of living.) You might be strictly in one of these categories or maybe you’re a little of both.
Either way, you can course correct.
Lower Your Regular Spending If You Have an Expense Problem
If you’re normally a big spender and are upset at yourself over the situation you’re in right now, I want you to stop. I’m going to pull a quote from Your Money or Your Life and tell you “no shame, no blame.”
We all make mistakes. Beating yourself up over past spending will do absolutely nothing for you right now. Instead, just accept where you’re at and make a commitment to smarter financial decisions.
You can’t undo the past but you can control your future.
So, if your expenses are much higher than they should be here are a few practical ways to lower them:
Shopping Bans/Allowances: If your weak spot is shopping try doing “no-spend months” until you’re able to save enough money to get ahead. If you know that you can’t stop pleasure spending altogether then go in baby steps.
Instead of completely avoiding buying things that you want, give yourself a budget. Just be sure that this budget is much lower than what you’re normally spending and that after this budget, and meeting all of your regular expenses, you’ll have money left over to save.
Check out this fun list of money saving challenges you need to try.
High Interest Debt – If you’re in debt, especially high interest debt, the interest payments are eating up a big chunk of your money. If you’re really committed to this process one thing you can do is roll all of your high interest credit card or consumer debt into a lower interest loan with a product like Discover Personal Loans. This is essentially consolidating your debts. You’ll now have one payment with (hopefully) a lower interest rate. This will reduce the amount you pay in interest and make it easier to manage all of your debts.
However, if there is any chance that by consolidating your debts you’ll then re-accumulate them, don’t do it.
This is only a good move for someone who is committed to staying out of future consumer debt and who wants to easily manage current debts plus save on interest.
Lower Monthly Fixed Expenses – The thing about fixed expenses is that they’re not really fixed. It’s kind of an oxymoron, I know. Things like cable, cell phones, groceries, insurance, car payments, utilities, and even housing CAN be lowered.
None of your payments are set in stone. Start shopping around, eliminating, and getting creative so that you can lower your basic living expenses.
Earn Extra Money If You Have an Income Problem
Not everyone has expense problems. I’m sure there are many of you who are very frugal but are still struggling to get ahead.
I completely understand.
However, you need to believe that you have the power to earn more money, because you do.
The internet has opened up a whole new world where with smart thinking and hard work you can make money online ethically.
A few examples would be freelance writing, tutoring, selling on Amazon or eBay, or having an Etsy shop. (Those are just popular choices and not an all-extensive list by any means.)
Then there are other options like starting an offline side business like housecleaning, babysitting, tutoring, or yardwork. You also have the option to work more at your current job if that’s possible.
Once again, you need to get creative. If you have an income problem then you’ll never get ahead unless you’re proactive about it.
Start small. Look for a way to earn an extra $50 this week. Do it again next week and the week after.
Save the Difference
Now that you’ve either lowered your expenses or increased your income you need to save the difference!
In fact, you need to automatically save the difference. If you were able to slash your expenses by $100/week then have that money automatically transferred to an online savings account. If you are earning an extra $50 a week do the same.
Make sure your newfound money is accessible but not too accessible. Since it normally takes 2-3 days for money to transfer from an online savings account to a checking account with a different bank, you won’t be able to impulsively spend the money you worked so hard to save.
Keep on saving until you’re one month ahead.
What to Do Next
I can about guarantee you’ll feel liberated once you get one month ahead. Especially, if this was something you once never thought possible.
Keep up the momentum. Set your next financial goal whether that be saving an emergency fund (recommended,) paying down debt, or saving for a large purchase like a house.
Ruthlessly prioritize until you end up where you want to be. I promise, it will be well worth all of your hard work!
A big thanks to Discover Products Inc. for sponsoring this post. All opinions are my own.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.