How To Save While Paying Off Debt
According to a debt study conducted in 2019 by Experian, the total consumer debt in America has peaked to up to $14.1 trillion with Americans carrying $90,460 of personal debt on average. Over the years, the trend of economic challenges among median American households has become a massive issue putting a huge gap between their ability to pay their debts while setting aside money for savings. The good news is that, while it is a challenge, it isn’t an impossibility. There are still ways for you to become financially independent while putting away money for your emergency fund, or, your dream vacation.
A few key strategies will make debt payments more manageable while saving, however, while the process isn’t tedious, it does require a great amount of control and financial responsibility. These are the steps that can help you work your way to a better and more adaptable economic lifestyle:
1. Draft a Budget Plan
Like all other blueprints and strategies, a budget plan should be something that you can visualize so you can actually see and internalize the figures and see how much your income goes into expenses and how much could potentially go into savings. The goal is for your expenses not to exceed your income and should follow the 50-30-20 rule.
The 50-30-20 rule is a pretty common method used by many financial gurus where 50% of your income is allocated to the things that you need, including mortgage, rent, food, bills, etc. The other 30% goes to the things that you want while the remaining 20% is allocated for paying off debt and for savings.
Drafting your budget plan is similar to constructing your business plan. It should be realistic and attainable. Not including a few indulgences within your plans such as entertainment or clothing could make you lose track of your financial blueprint and eventually lead to its failure. A few indulgences once in a while isn’t necessarily a bad thing, you just need to make sure that you don’t go overboard and that you stay within your budget.
If the budget for your debt repayment isn’t enough to cover your savings fund, recheck and rethink your plan, see if you can cut back on some expenditures such as canceling an online subscription or putting off a purchase for something that you don’t necessarily need right now. If cutting back on costs isn’t a viable option for you, try to consider other ways for you to increase your revenue.
2. Set Aside Emergency Money
Americans aren’t typically huge savers, most of us rely heavily on credit, which is ultimately not a healthy way of keeping your finances in check. Most of the time, we are caught off-guard with retrenchment or unexpected expenses because we don’t make planning and saving up for emergencies a priority.
If you don’t have an emergency fund just yet, get started on it. Before saving up for bigger projects like house remodeling or buying a new car, you’ll want to focus on having money for emergencies so you won’t be taken by surprise or rely on credit when unforeseen expenses get in the way. A good rule of thumb is to have saved enough to last you for at least 6 months.
3. Reward Yourself
There’s nothing more demotivating than having to work hard only to have your paycheck gobbled up by bill payments and debts in a matter of seconds. Give yourself a pat on the back and make sure that a part of your hard-earned money also goes to you. Invest your money where it exponentially grows, or, consider setting up auto-payment transfers to your savings account so you can allocate a portion of your paycheck for yourself.
4. Get into a Debt Consolidation Program
It’s always best to pay your debts off and pay them on time. However, if your finances seem to have gotten awry, you might want to contemplate getting into a debt consolidation program. Debt consolidation programs are often the best go-to plan if you have too many credit card debts that have gotten more challenging to pay for and to pay for on time. Debt consolidation lets you transfer the balance of your existing cards to a new card with a lower interest rate, which means that you’ll be paying less in the long run while putting more money towards your principal. This scheme does not just simplify your payments, it is also a more cost-effective solution for debt repayments.
5. Review Your Options and Expenses
The best way for you to understand your finances and your budget is to take a step back and to review your expenses as well as the other options that you can consider to cut down on costs. Realistically speaking, the only way for you to have enough money to pay for your needs while paying your off debts and also saving up money is to have more money.
You might want to revisit your home or your closet and see which items are no longer useful for you which you can sell. Put your proceeds into a savings account. Alternatively, you can also look for a side job to help you earn more.
Reviewing your expenses can also help you recheck on the things that you’re paying for but you do not ultimately need like preparing your lunch at home so you don’t have to spend on money for food outside, or, abstaining from outdoor entertainment to save up.
Balancing your budget does not have to be a challenging feat, it just needs control and a proper evaluation of the things that you need right now versus the things that aren’t an immediate necessity. Like, do you really need to renew your magazine subscription? Or, do you really need to buy another red dress?
You’ll be surprised by how much you can cut back on expenses and save up just by weighing the essentials from the non-essentials. It’s doesn’t take an extensive strategy to plan your budget, it just needs a little organizing and careful planning.