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A Guide to Financial Independence

A Guide to Financial Independence

Transitioning from being a carefree college student to a financially responsible person can be a huge shock for young adults. As many young professionals can attest, entry-level positions often come with meager salaries — but even with a small paycheck, saving is still possible.

If you find yourself in need of help when it comes to financial independence, try a few of these tips to implement a smarter savings plan.

1. Write Down Expenses

If you’re a budget newbie like I was, start by writing down all of your expenses and analyzing your spending. Little things like a $4 coffee may not seem like a big deal, but if you do that every single day, you’re spending over $100 a month on coffee. Managing my budget became a lot easier once I saw where I was wasting money. Cutting out the daily lattes and opting instead for a cup brewed at home helped me save around $100 a month. If you struggle to follow a budget, try an app like Mint to help you stay on top of your spending.

2. Apply the 50/20/30 Rule

Now that you know where you’re actually spending your money, figure out where you should be spending your money. I began by implementing the 50/20/30 rule that many budget experts recommend. You’ve probably heard of it, but this rule puts your budget into three simple categories.

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50 Percent: Absolute Necessities

This includes all necessities, such as rent, food, and utility bills like water and electric.

20 Percent: Financial Obligations

I put 20 percent of my salary into my savings account, a 401(k), and toward paying off my student loans. To help stay within this percentage, I negotiated an income-based repayment plan for my student loans, which drastically lowered my monthly payments to a more affordable range.

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30 Percent: Personal Purchases

Everything extra goes into the personal purchases part of my budget. My cellphone and Internet bills are included within this 30 percent. If you are having trouble staying under the 30 percent mark because of increases in your bills, consider going with a cheaper plan. Many people don’t realize that they are actually overpaying for Internet and not even utilizing the high speeds they pay for.

3. Follow the Rent Rule

Housing makes up a significant portion of most budgets. Many financial experts recommend spending no more than 30 percent of your gross income on your rent or mortgage per month (though that percent seems to be increasing as housing prices continue to increase). Like many young adults, I quickly realized that buying a house straight out of school was not in the cards for me. Though I dreamed of living in my own little home, I followed the “rent rule” and allotted 30 percent of my budget toward rent. Staying within that price range kept me from looking at apartments I couldn’t afford.

4. Consider a Roommate

I wanted my own place when I got out of school. I had spent my entire life living with other people, so why couldn’t I get a place of my own now that I had a reliable paycheck? After looking carefully at my finances, I decided to get a roommate instead — just for a bit. This cut my rent cost significantly, allowing me to save even more money every month to put toward a place of my own. While having a roommate may not be ideal, it is becoming more common for young adults fresh out of college. A few years with a roommate, especially if you’re living in a pricey downtown neighborhood, could allow you to save thousands of dollars that can be put toward the down payment on your first house.

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5. Cut Down on Dining Out

Food is a necessity, but going out to eat can get expensive fast. I would often rationalize eating out by thinking that I could get a cup of soup and a side salad cheaply at a restaurant, which is probably just a bit more than what I would spend on a meal at the grocery store anyway — plus it was so much more convenient! But add a drink and an appetizer, and my bill would always end up being more than what I intended on spending.

I quickly realized that those frequent restaurant meals had to stop if I was going to begin saving effectively. Now, I allow myself one good meal out each week and eat the rest of my meals at home. I also make it a rule to always bring my lunch to work; the only day I go out for lunch is Friday and I give myself a $10 limit. If you find this difficult, set aside an hour every week and plan out your weekly menu or use a meal planning app. Make a grocery list of everything you will need for the week: following a list prevents you from spending extra money on impulse shopping when you get to the grocery store.

6. Make Do with What You Have

After getting out of school, I felt like I had earned the right to buy the newest of everything. I worked hard — didn’t I deserve to treat myself? Unfortunately, spending on big-ticket items like a new car can stop you from saving money and push you further into debt. Although it wasn’t what I really wanted to do, I decided to stick with my old car instead of buying a brand-new vehicle.

Before you make expensive purchases (like that next-generation iPhone when your old one works just fine), ask yourself, “Can I do without this?” It’s tough to go without the things you really want, but saving your money now means you’ll be able to make more important purchases down the road.

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7. Look for Free Events

One of the hardest parts about budgeting is feeling like you don’t have any money left over after paying your rent and utilities, buying groceries, and setting aside some savings. Don’t forget to dedicate some time and resources to having fun and cultivating your hobbies. It’s important to have fun, but your slush fund doesn’t need to be big to be effective. Instead of expensive concerts or sporting events, find out what free events are available in your area. By seeking out these free events, I could make plans with my friends that didn’t involve spending a lot of money.

Although saving can feel impossible, you can get started with a few simple changes to your lifestyle. Take the time to set a budget and analyze your spending habits, and like me, you will find that adjusting to a savings plan is completely manageable, even on an entry-level salary.

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Published on January 8, 2021

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

Ever wondered whether your credit card debt is the reason you’re in a bad financial situation? You can’t enjoy any fun activities because a good chunk of your money goes toward debt payment. Heck, you’re even behind on some of your monthly bills.

The effects of clumsy debt management are too many to list here. This guide is going to help you discover how to pay off credit card debt fast and start chasing your financial goals.

Debt problems are the last thing anyone wants to encounter. But things can get out of hand when all the “little debts” you take accumulate in interests.

What if you knew some simple and proven ways to be debt-free quickly? Implementing them would mean better financial health for you. It becomes possible to free up cash for your “wants.” These include taking a trip or buying something you’ve always desired. All that while paying your bills on time!

Let’s not wait any longer. Here are 7 powerful tips for paying off credit card debt fast:

1. Pay More Than the Minimum Credit Card Payments

Many people only pay the monthly minimum on their credit cards. Truly, that’s the right amount for staying on good terms with your credit card company. But you need a different approach if you’re looking to achieve financial independence within a short time.[1]

Most of your payments go toward interest costs when you only pay the minimum amount. A substantial sum of your balance remains standing. As a result, it becomes more expensive to eliminate your debts.

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You don’t want to wait more than 10 years to get rid of debt while it’s possible to do it sooner. All you have to do is double that $100 minimum payment to $200 or go higher.

The good thing is that minimum credit card payments are affordable in most cases. By paying a higher amount, you reduce your interest costs, lessen your borrowing period, and boost your credit score.

2. Start With High-Interest Credit Card Debt

If you have more than one credit card debt, prioritize putting the extra money toward the ones with the highest interests. This debt pay-off strategy, known as the debt avalanche method, is essential for being debt-free quickly.[2]

First, you need to list down all the credit card debts you have in the order of their interest rates. Next, you choose the one with the highest interest and pay a significant amount toward it each month. It can be an amount twice or even thrice larger than the minimum payment.

At the same time, you make monthly minimum payments on the other debts. Their interest charges won’t be as costly as that of the first debt on your list. You only move on to the next high-interest debt after the first one is gone. Remember that your focus is on the interest rates and not the balances.

3. Revisit Your Budget

Budgeting is useful for tracking your financial moves. Once you create a budget, some tweaks along the way can make it work for you better. One situation that requires you to revisit your budget is when you’re struggling with debts. It might hurt a bit to slash some expenses. But you also don’t want to miss out on achieving financial freedom in the long run.

You can reduce some variable expenses to free up more cash for credit card debt payments. They’re the ones that change from time to time. Some examples are groceries, fuel, and clothing.

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Other opportunities for cutting down your spending lie in non-essential expenses. Instead of dining out all the time, you can cook at home more to save money. You can also share some subscriptions with friends and pay a fraction of the cost.

If you’re determined enough, you can eliminate all your unnecessary expenses and focus on paying off your credit card debt first.

4. Avoid Using Your Credit Cards

Do you want to know how to pay off credit card debt with a low income? One simple way is to stop using them. Having your credit cards everywhere you go means that you’ll be more tempted to buy unnecessary stuff. In this case, you spend money that you don’t really own and get deeper into debt.

The quickest fix to stop the debt build-up is spending with cash. You’ll be more aware of everything you can afford at any particular time. If you decide to keep one or two cards to ease the transition, always make wise choices. For instance, only use them when experiencing financial difficulties.

It’s best to categorize your fun activities under “discretionary spending” in your budget. This way, you won’t need more debt to kill your boredom. By halting your credit debt from accumulating, it’s easy to pay down what you already owe and be happy with the progress.

5. Start a Side Hustle to Boost Your Income

You’re probably turning away a lot of money by not monetizing your skills. Everyone has something that they’re good at doing. And you can use that to generate extra income for attacking your credit card debt.

If you look around your neighborhood, you can find several side hustle opportunities. It can be pet sitting, tutoring, or lawn mowing. You can start an online business by offering services such as digital marketing, content creation, and web development. Such skills go in high demand on freelance sites and job boards.

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Finding clients on social media is also a good strategy to utilize your skills and make more money. Facebook groups, Quora Spaces, and subreddits are some places to look for side jobs. You only have to join a niche-specific platform, share your services, and respond to any opportunities.

It’s possible to learn a skill, practice it, and earn from it. Use the free resources online or purchase some e-courses to get started.

6. Sell Your Used Items for Extra Cash

Starting a side hustle isn’t the only way to generate extra money. You can turn unwanted items into cash for paying off credit card debt. Whether it’s an old TV, book, or furniture, there is always someone itching to buy your used stuff.

A garage sale, as much as it’s old-fashioned, is perfect for getting your neighbors and passers-by to buy from you. You keep all the money because there are no business permits or taxes involved. While you may not make much cash, it’s better than leaving your stuff to go defunct in your storage.

Other than that, you can sell your used stuff on online marketplaces. Facebook groups are great places to start if you want quick approvals and hence sales. You only have to ensure that your listing follows Facebook’s commerce policies.

When selling any pre-owned items online, ensure they’re in good shape to avoid problems with your buyers.

7. Know When to Seek Help With Your Debt

Asking for help with your credit card debt can be challenging to do. But letting it drown you is a road you don’t want to take. While you may feel embarrassed at first, it’s the best way to get back on track when you run out of options.

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There are tons of non-profit credit counseling organizations that can offer you free guidance on how to escape the debt trap. An example is The National Foundation for Credit Counseling. They simply review your finances and help you determine the source of your financial problems. After that, they match you with an actionable debt management solution.[3]

In extreme cases, the debt solution can be:

  • Debt relief – where your debt is partially or wholly forgiven
  • Debt consolidation – taking out one loan to repay others
  • Debt settlement – the creditor forgives a significant portion of your debt
  • Bankruptcy – legal process for seeking relief from some or all your debts

It’s necessary to carefully weigh your options before deciding on the way to go. Find out how it might affect your credit score and any other risks.

Wrapping It Up

Debt is a major setback when you’re trying to prosper in life. Paying off credit card debt is essential if you want to reach your financial goals. That means having more free income, a good credit card score, and even a chance to retire early. You become more productive each day because of the peace in your mind.

So, you now have some tips on how to pay off credit fast. Go ahead and get rid of that good life progress killer!

More Tips on How to Pay Off Debt

Featured photo credit: rupixen.com via unsplash.com

Reference

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