Debt and fear are powerful motivators. They keep us in jobs we hate, toxic relationships, and lifestyles that suck our souls dry. The only way to really be free to live the life you want to live is to eliminate the debt and create a lifestyle you love and can afford. I know sometimes it can seem impossible – as if there is no way out. I’ve been there and know when you are in it, you can’t really imagine what freedom feels like. In this post, I want to provide you with the hope that you can eliminate the debt in your life and gain the financial freedom you crave and deserve.
I’ve spent many years working jobs I didn’t necessarily like, was uninspired by, and dreaded the daily grind of corporate politics. They paid so well that I was continually enticed by the paycheck and thought maybe this time would be different. What kept me in these jobs? Debt and Fear. It’s a vicious cycle. Once we start earning more money, everywhere we turn we are told we “deserve” more – a new car, bigger home, cable television, new clothes, more toys, better vacations, etc. So, we spend what we make . . . and then some, which equates to debt. Hence, the vicious cycle.
Sometimes we have to endure a short-term struggle for a long-term gain. This may mean doing without things we want and spending our free time working a side gig. It’s hard work but the reward of, uh, FREEDOM, is so very worth it!
I’ve outlined here five ways to get your financial life headed in the right direction and get you closer to financial freedom. These are all tips I’ve personally used to create a life without debt where I can now focus on pursuing my dream of helping others.
1. Decrease Monthly Fixed Costs
Fixed costs are things like rent or mortgage payments, car payments, cable, and cell phone bills, etc. This seems like it’s a no-brainer but it’s one of the most overlooked areas. This could be as simple as cutting your cable bill or decreasing your cell phone plan. Or it could be as difficult as selling your home and finding something more reasonably priced. Sometimes it’s easier to start small and you’ll find that the more you save, the more excited you will get about decreasing even more.
At one point in my life, I was over $350K in debt and had a six-figure job that justified having a beautiful home in the suburbs of a large city. When I decided to focus on financial freedom, I knew one step I’d have to take was selling my home which was about $230K of my debt. While I was contemplating selling it on my own, a recruiter contacted me on LinkedIn asking if I would be interested in a job opportunity in another state. I wasn’t looking for a new job at the time but I like to be open to all opportunities so figured it couldn’t hurt to entertain the idea.
That email from the recruiter resulted in a job offer that included an increase in pay and a relocation package to another state. Because I was on a mission to become debt-free, I negotiated both my salary and an increased moving package that included them selling my home for me, providing a significant cash allowance for moving, and an allowance to visit my grown kids multiple times over the next year. And because I already had a job, my negotiating power was greater. The move was to a location I really had no desire to live in. I wasn’t excited about leaving friends and family but I figured I could live anywhere for two years (my required obligation for the move package) and this was a great opportunity to get closer to my goal of financial freedom. The new job included an increase in salary so not only were they paying the realtor fees (meaning more money in my pocket), I was making more on a monthly basis. In the new location, I forfeited the offered money to help purchase a new home (remember debt keeps you stuck) and moved into a nice apartment saving almost $1,000 per month in living expenses. More importantly, I decreased my debt from $350K to $80K because I used the equity I had in the house to pay off other debt.
Another way I decreased costs during this time was not having cable installed in my new apartment. I had internet but not cable. I also used this opportunity to cancel a gym membership I wasn’t using and no longer needed because the apartment complex had a gym. Even though the membership was only $24/month, that adds up to $288 per year for using a gym maybe five times. I literally started running in place in my apartment and spending a lot more time outside.
These are all examples of fixed costs and how to decrease or eliminate them. Start by taking an inventory of all of your fixed monthly costs as well as subscriptions that renew monthly or annually (i.e. Amazon Prime, Netflix, Hulu, online magazines, makeup, clothing, food, pet subscriptions, etc.) and see what you can live without. Start with small changes, like the gym membership you don’t use. Most gyms offer a day guest pass for people traveling. That may actually be more cost-effective for you if you are only going to the gym five times a year.
Related Article: Money Saving Hacks: 13 Tips to Help You Save Money & Get Out of Debt
2. Track Your Monthly Interest Costs
This one will be eye-opening! I can’t begin to tell you what a difference it makes when you add up all the interest you paid in a month and say to yourself “I just gave that much money to other people and got absolutely nothing in return. I literally gave that money away. If I hadn’t given that money away, what might I have been able to purchase or save?”
It’s easy to think if the interest rate is low, then you aren’t really paying much in interest. Or, if you have a high-interest rate but maintain a low balance, the interest isn’t that much. That isn’t necessarily the case. I had one large student loan from a previous consolidation at 7% interest. When I started writing down how much I was paying in interest, I realized I was paying more than a car payment in interest only each and every month on just one loan. I had 8 other student loans as well! And if I continued to make the payments as the contract was created, I’d be paying that much interest for the next 20 years. Doing this was a game-changer for me and I became hyper-focused on finding ways to decrease the interest being paid out each month. I would test out if I paid $20 extra on an account, and how would that impact the interest for the month. What about $50 or $100? It became this head game of me trying to decrease that number every month.
If you have credit cards or personal debt that you maintain a balance on, this is the time to make sure you have the best interest rate possible on those cards (just call and ask for a better rate). It’s also a good time to take advantage of the introductory no-interest for 12 months cards. Just be cognizant of the fee for balance transfers, how the change will impact your credit score, and make sure it pays off for you.
Here’s how to utilize this tip. At the end of every month, go thru all your credit card accounts and installment loans and see how much you spent in interest on each one. Then total that and connect the dots.
That’s money you gave away this month to creditors!
That’s money that could have been spent on accumulating wealth or beefing up your savings.
That’s money you will never see again.
Make a plan for which account you want to work on decreasing first. There are some great financial advisors out there with different approaches to doing this. What worked for me was to pick two accounts to work on – the one I was paying the most out in interest, and my smallest total balance account. Whenever I had an extra $5, it went toward one of those two accounts.
3. Use Credit Cards to Your Advantage
Once you get out of debt, the next step is to use credit cards to your advantage. Credit cards can be a financial disaster, or they can be an awesome tool to help you achieve your goals.
Getting your credit cards paid off should be very high on your priority list.
After you have them paid in full, I recommend using them to your advantage by having the right card and paying it off in full each month. Here is why I recommend this.
I have a Chase card where I earn travel points for all purchases. I buy everything on this card each month – groceries, gas, home items, gifts, dining out, etc. These are all items I can afford (meaning I could pay for them in full right now) and would be purchasing anyway. I put them on the card because the points I earn pay for my travel to visit my kids or take a vacation. I’m not doing anything extra to earn these points. I’d be buying groceries anyway, so I just put them on my card. I have it set up on autopay to pay in full each month. You can set up alerts to help you know how much is being spent throughout the month so you can budget accordingly. This only works however if you
Pay off your credit cards in full each month!
4. Decrease Your Monthly Discretionary Spending
Depending on where you are on your journey, you can start small or go big with this tip. Some people think they don’t really have anywhere to cut on their discretionary spending and then you look at their bank account and find there are plenty of opportunities. Here are just a few ways to begin:
- Cut back on daily habits: If you have a daily habit that costs money such as coffee, soda, snacks, or meals, cut just one or two days out of the equation. Instead of a daily coffee, get one three times a week. You don’t have to go cold turkey and completely give up your daily latte – just give it up 1 day a week and put an extra $5 toward your future.
- Use less energy: Turn your thermostat up or down by just one degree and save approximately one percent on your energy bill per month. It’s actually better for you to maintain a temperature closer to the outdoors anyway. You can either crank up the heat so you can wear shorts around the house in the winter, or you can put some clothes on and get debt-free sooner.
- Become a better shopper by using online savings apps: There are many coupon-like apps out there to help you save money. For example, I used to use Cardpool (I think they are out of business now). They sold electronic gift cards at a discount of up to 15%. If I had a home improvement project I was working on, I’d purchase gift cards to Home Depot or Lowes at a discount and then use those gift cards to purchase my items. I can’t personally recommend a specific app, but there are plenty of apps that provide discounts and compare prices for you – Google it.
- Wait 24 hours (or longer) to make a purchase: This seems silly but man, does it work! When you want to make a purchase, whether online or in person, tell yourself to wait 24 hours. Impulse buys can really add up so this little trick helps you to get into a frame of mind more conducive to your long-term future. Just put the item in your electronic shopping cart and walk away. If you still think it is something you absolutely need and is worth the investment after 24 hours, go ahead and get it. I found probably ¾ of the time, I don’t make the purchase. I use Amazon a lot and I’ll put items in my cart and then close the window. It will generally take me a couple of days before I am back on Amazon for some reason and more often than not, I move at least one item from my cart to my wish list and if it stays on my wish list for more than a few months, I generally end up deleting it.
Just think how much you would have saved if you just didn’t purchase 50% of the things you previously purchased on impulse.
5. Ask for a Raise
So many people overlook the option of asking their current employer for more money. Asking for a raise is a scary thing. It feels like begging right? Let me provide another perspective. Most employers are going to hire and keep employees for the lowest possible wage. The whole point of being a “for-profit” organization is to make money. So, they naturally hire people at the lowest possible wage. But depending on your role, it costs them more money to lose an experienced person and train someone else. So, generally, it’s to their benefit to retain current employees. And all they can say is no, so what does it hurt to ask? There is a right way and a wrong way to do this.
Wrong Way: You can’t act like a primadonna and just waltz in saying you deserve more money. You also don’t want to use an excuse like you need more money to pay for your kids’ braces. Your personal expenses are not the problem of your employer. They are paying to get a task accomplished and how you choose to spend the money they pay you is not their concern.
Right Way: Take the time to make a business case for the raise. Schedule time with your boss (don’t try to just pop in and ask for more money) to have a conversation. Think through the value you bring to the position and what you have accomplished. Then confidently ask for the raise while focusing on accomplishments and value (as opposed to emotions and guilt). Yes, it’s possible they will say no. It’s also possible they will say yes. It’s also possible they’ll say no and then in two weeks change their mind.
I know there is a lot of information out there about getting a side gig. Before looking for a side hustle, ask for a raise. I wrote an entire article on how to ask for a raise here.
Remember, all they can say is no. And they can’t say yes if you don’t ask the question.
Summary
Debt keeps us stuck. It’s disempowering and keeps you in a state of fear. By implementing these five tips, you’ll be well on your way to financial freedom. And when you have financial freedom, you also gain professional and personal freedom. You can start picking jobs that interest you instead of having to take jobs you’d rather not be doing. You can schedule more free time in your life. And most importantly, you will be empowered to live life on your terms.
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