We all know the basics of managing our finances, yet many of us struggle to put this knowledge into practice. Becoming debt-free is a goal that requires more than just understanding what to do; it requires the discipline and commitment to follow through. Here’s how to bridge the gap between knowing and doing, and the 10 essential financial habits you need to adopt to become debt-free for good.
1. Know Your Current Financial Situation
We know we should have a clear picture of our debts, but avoidance often takes over. The fear of confronting our financial reality can be paralysing. To change this, set aside a dedicated time to gather all your financial information. Break the task into smaller steps if it feels overwhelming. Understanding where you are is the first crucial step to taking control, and getting to where you want to be. You really need to know these two things. It's like the GPS system in your car: how will you get to where you want to go if you don't know where you're starting from, and if you don't know where you're going, well - what are you doing?!
2. Create a Spending Plan
Creating a spending plan is well-known financial advice, but many of us don’t ever start one or never stick to it. This often happens because creating a plan for our spending can feel restrictive. But take the opposite view: instead of viewing this as a limitation, see it as a tool for achieving your financial goals. Use templates that simplify the process, and allow yourself some flexibility for unexpected expenses to make it more realistic - I personally have a row in my spreadsheet called "stupid mistakes". You can pick up my own templates inside my free FB community, opening 1st June.
3. Build an Emergency Fund
We all understand the importance of an emergency fund. Don't get caught up in the name - call the fund whatever you want to - and save up £1000 first and then 1 month's expenses, 2 month's expenses (the minimum you need to pay out for your mortgage or rent, your utilities, food and transport) and so on until you have a really big buffer between you and zero financial security (between 6 and 12 months' worth of expenses). Saving for an emergency fund often gets sidelined because of living paycheque to paycheque or prioritising other expenses, but listen: if you can't save when you have a little, you won't save when you have a lot. Start small - very small if need be - by setting aside a manageable amount each month, and automate your savings so that the money is transferred to your emergency fund without needing to make a conscious effort each time. Start creating this financial habit that is essential to you building any kind of wealth at all.
4. Adopt the Debt Snowball or Avalanche Method
Most people are aware of the debt snowball and avalanche methods, but choosing and sticking to one can be tough. The debt snowball is paying off your smallest debt first for a quick win, and motivation to continue. The avalanche method is paying off your highest interest debt first, which will save you more money in the long run - if you stick to it, but with a longer wait for that first payoff win. Choose the method that resonates most with you, and track your progress visually with charts or apps. Celebrate each debt payoff milestone to keep your motivation high.
5. Optimise your Spending
We often recognise our unnecessary expenses but fail to cut them due to habits or convenience. To change this, review your spending regularly and identify at least one non-essential expense you can eliminate or reduce each month. Look inside your personal finances and also your business finances. For example, are you paying more for your electricity and gas bill than your neighbours? Why? Get on the phone and reduce that bill. Replace costly habits with more affordable or free alternatives, and remind yourself of the long-term benefits of these small sacrifices. And by the way, a sacrifice means to stop something of a lower nature in order to start something of a higher nature.
6. Increase Your Income
Increasing your income is one thing that can make a HUGE difference, but taking action can be daunting due to time constraints or fear of failure. Start by exploring options that align with your skills and interests. What are you passionate about? What are you really good at? Dedicate a few hours each week to side projects, freelancing, or learning new skills that can boost your earnings, and make sure that as your income increases, your expenses don't. Be disciplined: the extra effort can significantly shorten your path to becoming debt-free.
7. Avoid New Debt
We all know we should avoid new debt, yet the convenience of credit can be tempting. To combat this, remove saved credit card information from online stores, and carry only cash or a debit card for daily expenses. Develop a habit of waiting 24 hours before making any non-essential purchases to curb impulse buying, and don't order a credit card or take out a loan so you can go on holiday - just don't. This strategy really works!!
8. Negotiate with Creditors
Negotiating with creditors is a strategy many are aware of but seldom utilise due to fear or embarrassment. Remember, creditors prefer to work with you rather than see you default. You can call up your credit card company, tell them you're working really hard to reduce your debt to zero over the next several months. You've compared other credit cards to your current one, and they are offering a lower APR (X%). Can your current company offer the same APR? Initially the person you are speaking to might say no, but push them. Ask them if they can offer you something else - maybe an interest-free month or two. Don't get off the phone without a concession in your favour. Practice what you’ll say, and approach negotiations with confidence. You might be surprised at how accommodating your creditors can be when you approach them.
9. Stay Consistent and Motivated
Consistency is key, but staying motivated over the long haul can be challenging. It’s easy to lose sight of the goal when progress seems slow. To stay on track, set yourself short-term goals and rewards for achieving them. Join support groups or follow personal finance communities, like my free Money, Mindset and Success Accelerator community, opening on 1st June, and share experiences and gain encouragement from others on similar journeys.
10. Educate Yourself About Personal Finance
We know that continuous learning is important, yet finding the time or energy can be difficult. Make education a part of your routine by incorporating it into your daily life. Listen to financial podcasts during your commute, read articles during breaks, or set aside a few minutes each day to read a finance book. My recommendation is to start with Rich Dad, Poor Dad or Cashflow Quadrant, both by Robert Kiyosaki.The more you learn, the more empowered you’ll be to make wise financial decisions.
Knowing what to do and actually doing it are two different things. I call that the knowing-doing gap. By understanding the barriers that prevent you from taking action and adopting strategies to overcome them, you can turn financial knowledge into effective habits. Becoming debt-free is a journey that requires persistence, dedication, and discipline and with the right approach, it’s a goal within your reach. Start today, and take control of your financial future, by joining my new Facebook community created to help women who earn well become debt free, freeing up their minds and money to focus on building financial security, independence and financial peace of mind.
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Cathlene 26 w
Great blog