Avoid Getting Back in Debt

No matter how you did it, getting out of debt usually takes years. There was a lot of work involved in getting to this point. Don’t blow it now. Remembering that money is 100 percent emotional ^[2], there are several steps you can take to avoid getting back in debt:

• Examine your relationship with debt
• Diagnose your spending
• Create and follow a budget ^[3]
• Live your new lifestyle

Examine Your Relationship with Debt

Many people consider debt to be liberating, and because it allows them to spend more than they have — it feels like free money. But this type of thinking can plunge you into deeper debt. Remember:

• People get into debt by spending more than they actually have.
• People avoid debt by spending only money they have.
• Debt is not free money — buying things with credit makes everything cost more in the long run.

Track Your Spending

People who end up in debt often don’t have a clear idea of where their money goes each month. The process of tracking your spending involves keeping a record of every cent you spend in order to learn exactly how you spend your money. Once you’ve tracked your spending, you can see which types of expenses you should cut back on, and in turn you’ll most likely end up saving money. Tracking your spending involves four steps:

1. Carry a pocket-sized note pad with you everywhere you go for one month.
2. Every time you spend money whether by cash, check, or credit card ^[4], write down the category and precise amount of the expense. Your categories should include entertainment, food, gas, clothing ^[5], personal care, medical care, utilities, and housing.
3. Every week, total your expenses in each category. At the end of the month, add the weekly totals in each category to see how your spending breaks down.
4. Once you’ve tracked a month’s worth of expenses, compare the results in each category to assess how to cut back on spending. If you discover you spend as much on “optional” expenses, like entertainment, as on essentials, like food and gasoline, you might consider cutting back on entertainment to give yourself a bit more savings each month. You may even be able to curb your spending on essentials by doing things like taking public transportation instead of driving to work, or eating out less often.

Create and Follow a Budget

Budgeting ^[3] is the process of controlling the money you spend based on your monthly income. Keeping a budget ^[3], a detailed plan of how to spend your money each month, will help ensure that you:

• Don’t spend more than you have
• Get your emergency fund ^[6] established
• Have money left over each month for investments or a savings account ^[7]

You can create a budget ^[3] using software, such as Quicken or Mvelopes ^[8], or you can follow these guidelines:

1. Add up monthly expenses: Once you’ve tracked your spending for a month, you should have a clear idea of how much you need to spend on each major category of expense. For example, you might budget ^[3] $400 per month for food, $150 for gas, and so on.
2. Add up monthly income: Find the sum of all of your monthly income, including paychecks, investments, or any alimony or child support you may receive. Did you read about how to make extra money ^[9]?
3. Compare expenses and income: Subtract your monthly expenses from your monthly income. Your income should be at least $200 greater than your expenses. If it isn’t, refer to your tracked expenses to see where you can cut back.

Staying out of debt is a lifestyle

Now that you’ve clawed your way out of the grave of debt, make sure you alter your lifestyle to reflect your newfound freedom. You don’t have to spend every dime you make, you’re free to save, you’re free to give to charitable causes, you’re free to be the real you and not have to worry with the slavery ^[10] of debt.

Enjoy it. You’re OUT OF DEBT!

Welcome to the club! ^[11]

About the author

Ron has written 1082 articles on The Wisdom Journal.

The founder and editor of The Wisdom Journal ^[15] in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a partner in a national building materials company.

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