Drowning in Debt - 6 THINGS YOU CAN DO IN 2018 TO GET BACK ON TRACK
When we were four, the boogeyman was some horrifying figure that we didn’t know too well, but that was likely to show up in the middle of the night and eat us. Now that we’re older, the boogeyman is named debt and it’s been riding our backs from the day we left college (or high school, in some cases). It’s time to get back on track! Managing debt as a Millennial is a difficult task because of how we grew up, we need to get back on track. The difficult problem about debt is that it’s not JUST your problem, its ALL of our problems, partially because of how we think about money, which brings up the first point about how to successfully stay afloat in 2018.
1. Think Differently about Money
Seems sort of silly, doesn’t it? Litte pieces of paper we exchange for goods and services. If we run out of small pieces of paper, we might go hungry, lose our apartments or cars or even end up in jail, depending on who we own theses pieces of paper to (you don’t want to owe money to the government! They don’t mess around). But money itself is more than just valuable pieces of paper. Money is essentially a placeholder for value. We get paid by our job based on how much value is brought to the table for the company (or at least we should). So how do we think differently about money? And how will that help us wade out of the ocean of debt and get back on track?
The answer is as simple as two words: Cash Flow. When we get paid, money ‘flows’ into our account and then we get money ‘flowing’ out of our account to pay for necessary things (sometime uneccessary things). Understanding this ‘flow’ as something we can control is like installing a pipe that we can fiddle with to help us control how fast the ‘water’ in our tank runs out. To get back on track, assuming you were on track at some point, you have to have your head wrapped around this one. The next one sounds like old-school knowledge, but it’s still talked about today for a reason, because it definitely works.
2. Set a Budget AND STICK TO IT
Just after college ended (or high school for some of us) people started telling us the importance of budgeting. Budgeting is important because it comes from that thing we mentioned before about thinking differently about money. Debt is, not having enough money to get you to your next cycle of inflow (this will usually cause you to use a credit card or line of credit to make up the difference). What you end up using after your money runs out until the next inflow is Debt. It’s when we run out of money or borrow money in order to fulfil our obligations. The problem with that is that once we borrow money, the next time we get paid, we have less money to deal with and that ends up leading us to borrowing again. It’s a vicious cycle! So what’s a budget got to do with keeping us away from the borrowing trap?
Budgets allow us to figure out roughly how much we earn and how much we can safely spend. That includes taking out all the money for necessities such as bills, groceries, and even leisure money for watching movies and eating out. By developing a balanced budget and sticking to it, we can avoid swimming deeper into the ocean of borrowing in order to make ends meet. By setting up a budget, it can help us with the next suggestion.
3. Pay Yourself First
Of course the place you work at pays you, but how do you pay yourself? Well, think about two versions of us, the us existing on payday and the us that’s half a year ahead of this payday. When we get paid, we can think about the us that’s here, right now on payday and figure out the things we need, because, hey, we have the money. We can do that even within our budget. But we’re thinking long-term here, bailing ourselves out of debt into 2018 and having something that we can play with. So for that, how about we add another entry in our budget that counts as our “stash-fund.” If we put fifty bucks in our “stash-fund” every time we get paid, six months down the road we’ll have three hundred bucks that we can use for anything we want! If we keep it up, we can save up enough so that we can have a whole extra paycheck!
The reason why “stash-funds” are important is because nobody can tell what’s going to happen with your life over the course of a week, a month or a year. Emergencies happen and sometimes when we have to deal with these emergencies, we have to borrow money, and that lands us right back in the hole we’re trying to dig ourselves out of. The “stash-fund” is a buffer so that while we start treading water and climb out of debt, we avoid the swells that would pull us under all over again. Think about it as staying ahead of the game. And staying ahead of the game is exactly what our next suggestion helps with.
4. Build a Cushion
No, not the kind with stuffing and fabric. ‘Cushioning’ allows us to get ahead on your bills, so much so that we no longer cringe when we see a bill some in. We’re actually excisted to see how much THEY OWE US! Cushioning is taking a little more than necessary to pay off a bill and repeating that each time until you’re one full bill ahead. So instead of a hundred bucks for the cable bill, we pay a hundred and five bucks. That five bucks hangs out in the account and adds up every month. After paying for twenty months of cable it’s like we get a month free. It might not sound like such a big deal, but it ties back into that whole thing of thinking about money differently.
This helps us to weather a debt wave for a month without needing to pay the entire amount of our bill because, thanks to our foresight, we’ve already gotten a bit of it paid over the past couple months. This means that we can redirect those emergency funds without damaging our overall cash flow. And the best part? It takes very little effort on our part to make it happen – simply increase the amount we pay on our bills by a tiny amount and let it run. You won’t even notice the difference in your cash flow. Framing our mindset around thinking about our payments like this helps us to be mentally prepared for managing our bank balance. Which leads to our next topic of discussion.
5. It’s All in Our Bank Account
There are times when we sit back and look at how much we get paid and wonder, “Where does it all go?” While the budget helps us to pinpoint where the money goes, it needs help to keep us on track, and that’s where the mental framing for saving comes in. Remember earlier when we talked about cash flow? Money comes in from our income and then it’s spent, going out from our pockets, ‘flowing’ like a stream of water. Water is something that doesn’t hold shape and is fluid, and so too is the money in our accounts. So how do we give it some shape so we can get a feel for what we actually have available for us?
One of the strategies to do this easily is to frame our flow. You do this by making sure that all your payments come out of our account the same day our salary is deposited into our account. You should see “inflow” and then “outflow outflow outflow outflow” and what’s left over is what you have until the next “inflow.” The reason for this is because we won’t look at our account and wonder if we have to brace for when the cable company takes their hundred (and five!) bucks and try to factor that in to how much we can spend. You account for all your expenses and make sure you pay them the same day you get paid. It keeps things simple. What we see in the account is what we get! But of course, one of the best ways to see more in our account is to make more available to us.
6. You need a side hustle
Got stuff hanging around the house you don’t use? Get on eBay and move them; someone else might be able to use it and we get a little bit added to our income for that month. Maybe we can spend some time picking up some odd jobs around the neighborhood or even online. Adding additional streams of income means that when our cash flow happens, there’s more of it coming in. And to be honest, the more we have, the less likely we are to end up back in the debt ocean. Check out our article on 10 SIDE HUSTLES YOU CAN START TODAY FOR 2018 on some easy ways to increase your income and get back on track.
Refinancing debt is a good idea to look at for making our debt payments easier to handle. It helps us get back on track since it’s much easier for us to pay a single payment than for us to see a load of deductions from our account for debt payments and keep track of them all. WARNING!!! This only works if you don’t go back into debt. You need a good plan, good tools & support to make sure you don’t fall back into your hold habits. You are ahead of most people as we assume since you’re reading this you’re also using the Sprout App to help you keep everything in order. Our App teaches good financial habits while having a bit of fun by challenging yourself to stay on track.
We also have to keep an eye on how we spend with our credit card and keep paying it off. Nothing mounts up faster than credit card debt and missing even a single month can dump us right back in the debt ocean. It also hurts our credit score if we don’t make our payments on time.
By themselves, each of these suggestions can help us chip back on our debt until it’s a manageable size. Together they make for a formidable arsenal that can grind even the largest debt down to dust. The feeling of seeing an account end up back in black is one of the best feelings in the world – like coming out of the ocean after a swim feeling refreshed and invigorated. Let’s leave the ocean behind. We’ve already spent too much time in there anyway.
“Rather go to bed supperless, than rise in debt.”
We’d love to hear about some things that work for you! Let us know what works, what doesn’t and any other tips for keeping our money in order! Comment below.