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5 Tips for Outsmarting Debt

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If you often find yourself living from paycheck to paycheck with little left over for any unexpected expenses, then you’re among the norm. That’s why even the smallest setback can send so many of us into a panic.

The key to financial maintenance is to be able to outsmart all those who want to take the money you worked so hard to earn. To stay on sound financial footing requires that you follow these basic principles.

1.    Keep your expenses at a lower level than your income.
Spending less than you earn will be your key to financial freedom. This will bring financial independence and provide you with control of your life. It is not only key to independence and freedom from debt but essential to future planning.

2.    Avoid impulse spending.
Work as hard at spending your money as you do earning it. Some people look at shopping as a form of recreation, but recreational shopping can be almost as dangerous as gambling.

Learn to know what you are going to buy before you leave the house. Estimate the cost of the items you are going to buy. Researching the quality and price helps you to avoid impulse buys. When it comes time to make your purchase, stay within your limits.

3.    Pay as you go.
Being debt-free is a mentality that must be instilled within your mind. You must pay for every expense as it comes, and you must pay it in full. What if you don’t have the money and you haven’t planned for something that your family really wants? Remember that there is a certain amount of joy that comes when your family plans for and anticipates a purchase. Set a goal and create a game plan that will help you save enough money to purchase the item in the future after having worked and saved.

4.    Keep money “evaporation” to a minimum.
One problem with money management is the inability to account for money spent. This is especially true of cash. When you carry a large amount of cash, it becomes extremely difficult, if not impossible, to recollect where it was spent and for what it was spent. The money just evaporates. If you use a card, you can use your statements at the end of each month from your bank to look at where your money's going.

In addition, carrying cash offers an almost constant temptation to spend for unplanned items. Use a debit card or credit card (if you pay it off each month) to track your spending. Or, if you use a checkbook, keep your receipts and immediately record any expenditure. It doesn’t matter how you record your spending—just keep a record!

5.    Make “power payments.”
Every household, no matter the circumstances, wastes a certain amount of money each month, and that is the money you will use to get out of debt. There are many extra sources of money you might not even realize are available to you. In fact, between ten and fifteen percent of your income is a potential resource that can be used to break the back of your debt. We’ll call this money your “power payment.”

At the beginning of next month, sit down and make a check for whatever amount of money you feel you can save after examining your monthly expenditures. Set aside this money at the beginning of the month so you won’t be tempted to spend it. Ideally, this amount should be equal to the ten or fifteen percent that most experts agree the average household wastes each month, but any amount will get the ball rolling.

Now look at your current monthly statements. Make the minimum monthly payments on all your debts except for one debt. Add your “power payment” to the debt on which you’re currently concentrating (the smallest debt is often a great place to start). With the elimination of each debt, the “power payment” increases, and the momentum gathers.     

Lyle and Tracy Shamo are the authors of Debt-Free on Any Income: A Practical Guide to Financial Security for Latter-day Saints.    

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