Part 2 – Get Out of Debt and Safely Spend
I’ve previously posted my reasons for choosing financial freedom.
Well, in honor of April – National Financial Literacy Month – I thought I would elaborate on one of my most popular posts.
Disclaimer: I do not work in finance. I do not have a degree in finance. I never even took a class in finance. My advice should not be considered a financial service or a substitute for that of a financial advisor. This is simply the method that has worked for me based on my own personal experience.
The original plan was for this series to be posted once a week throughout April. Unfortunately, life has gotten in the way. In case you aren’t aware, I recently took on a full-time copywriting job (goodbye, freelance life).
I love my job but between the commute and writing for 8 hours every day, this blog has kind of fallen by the wayside.
And for that, I apologize. My loyal readers deserve better and, now that I’m settled into full-time life, I should be better able to provide.
Now that the backstory is taken care of, on to what you’re really here for – financial freedom.
In 8 Reasons to Choose Financial Independence, I discussed the reasons I fight for financial freedom. Why I work every day to get out of debt, why I built an 8-month emergency fund and why I contribute monthly to my retirement account.
Today is part 2 of this 4 part series, and, much like part 1, today’s topics are especially relevant considering I spent 4 months earning very little income.
By grace, I was able to walk away from my corporate job with an 8-month emergency fund. This cushion saved me from having to run out and immediately find a new job.
It gave me the freedom to learn about an industry conducive to my passion and to really find a focus for my career. Incidentally, it also gave me the time to create and develop this blog.
So, on to the main attraction.
How to avoid financial crisis and find stability:
Part 2 – Get out of debt and safely spend.
1. Change your mindset about debt
As I wrote in my original blog post, debt is bondage we were never meant to be weighed down by .
Unfortunately, we live in a culture where debt is seen as the norm.
It’s rare for someone to graduate college without any student loans. It’s hard to find someone in your circle of friends without credit card debt. Most drivers go into a car purchase expecting to finance.
It’s interesting that America is considered a “consumerist” culture, considering how consumed we all are by debt.
Personally, I can’t stand it.
Every time I think about my remaining loans, I feel a crushing weight in my chest. Having to run every purchase through the filter of “would I rather buy this than put the money towards my loans?” is incredibly limiting.
When paying off a mortgage, you’re paying money towards a home and building equity. When putting money into the stock market or a retirement account, you’re investing in your future wealth and stability.
But paying off a credit card? You’re paying for something that’s already in your possession – and possibly already used up.
I’ll give an example.
My best friend opened a store credit card at a high-end retailer. She kept up with the minimum every month, but didn’t pay attention to how much balance was being carried over. After about 6 months, she realized how high her interest rate was.
In interest alone, she was paying more every month than the total cost of her original purchases.
The best part? One of the outfits on the card had already been given away because she never wore it.
She was literally paying almost double the original price for an item that she no longer owned.
And that’s the trap of debt.
2. Splurge without guilt.
I’ll be honest: there are some days I go over budget. There are days I make an impulse purchase without stopping to see how much is remaining in my checking account. There are days when I really just have an urge to spend some money.
And do you want to know a secret? I never feel guilty about it.
I know that my finances are secure.
I know that little splurges here and there won’t drain my savings account. I know dropping an extra $20 for a pedicure won’t overdraft my checking account. I know going out for an impromptu dinner with friends doesn’t mean I have to give up lunch the next day.
Because I am financially independent, these occasional splurges never lead to guilt, shame or regret.
No, I don’t recommend going out and spending 50% of your savings on one spur-of-the-moment experience. However, getting into the habit of responsible spending makes even the splurge days forgivable.
This session’s homework: Knock $200 off your debt, then splurge $20.
It’s actually pretty exhausting. By setting the goal to pay off an extra $200 of your debt this month, you’ve given yourself a realistic goal that’ll feel great once accomplished.
By setting yourself up for a reward after, you’re creating a connection in your mind between paying off debt and feeling awesome.
Yes, yes, of course paying off debt is its own reward.
But sometimes, you just need to give yourself a treat for working so hard. Knowing you’ve paid off an extra couple hundred dollars deserves to be rewarded.
Treat yourself (responsibly)!
And for a little extra help, read The Millionaire Next Door. It’s the book I’m currently reading. I’m only about 4 chapters in, but it’s already been a huge encouragement!
Photo Credit: 401(k) 2012
Did you do your homework this week? What about last week? Leave a comment letting me know how it went! Did you follow my splurge advice? Let me know what your work/reward system is!
And don’t forget to subscribe!
Other posts in the series:
8 Reasons to Choose Financial Independence
8 Ways to Avoid Financial Crisis and Find Stability
Part 1 – Save Your Money and Spend Less
Part 2 – Get Out of Debt and Safely Spend
Part 3 – Independence regardless of the circumstances
Part 4 – Focus on Giving, Not Earning