Sharing my experience here on what has made all the difference with my clients’ ability to sustainably get out of debt. They all invariably take this step before paying off debt. This step is key before you begin paying off debt or seriously saving.
Why is it so hard to get out of debt?
When you are in debt, it is so hard to get out of the spin, isn’t it? You promise yourself every month that this is going to be the month you start making progress on your debt.
Maybe you pay off a large chunk of money towards your debt to only find yourself struggling to make to payday.
Does that feel familiar at all?
Before you consider tackling your debt, let’s think about this idea: your debt is in your past.
Let me say it again – your debt is in the past.
All you can do is dig out a little by little.
In virtually every case, has been true for my financial coaching clients that have really seen their debt payoff journeys really take off.
In my case, as well as for my coaching clients, there was always a missing piece that never quite allowed you to make true, sustainable progress on your debt.
Take this step before paying off debt
One of the most important steps you have to take is to create a budget.
And, I am not talking about just *any* budget. I mean a budget that actually really works. Something that actually works for you.
I know it sounds so boring. I promise you, there are neat ways to set up a budget that are way cooler than ever before.
Budgeting allows you to live your life – as long as you keep it realistic – so you can spend guilt-free and no more guessing whether you have enough.
The key is that you have to make sure you have a realistic budget before you tackle debt payoff so that you can keep paying off debt over the long haul.
What do I mean by “realistic budget”?
It fully accounts for what you typically spend on different categories and accounts for all areas. For example, it has to include things like taking your pet to the vet, what you typically spend on dining out, or what you “really” spend on groceries. I know those numbers might not be pretty, but fully facing them makes all the difference.
So, a good budget includes your realistic monthly expenses + sinking funds + just the debt minimums on all of your bills. If there is any leftover, determine if savings or working on your smallest debt is the priority.
It may take a few months too. Usually, with my clients, there are other priorities we need to tackle first before we can even begin to pay off debt – a trip coming up to cash flow, a home repair, or some car repairs. So, be patient as you attempt to get traction in your finances.
My budgeting + debt payoff mistake
I know this advice of “create a budget” sounds so obvious, but when you are first getting started on your debt payoff journey, it’s not.
For example, when I was “trying” to get out of debt, I created pie-in-the-sky budgets that pretended like I never got my hair cut, never dined out, only spent like $25 a week in groceries (even though I had never done that before!), and basically did nothing for fun in my life.
I also never set aside money for car repairs. Here’s what funny about that: my car was always in the shop. It had a lot of chronic issues and was the reason for a lot of my debt alongside some clothes and vacations.
If I would have taken the time – and applied some grace and patience – to creating a better budget, then I would have had the *true* progress I was after with my debt payoff journey. So please take this step before paying off debt.
This also goes for my financial coaching clients. We know our basic expenses but forget that there are many other expenses we ought to be saving for to smooth out our finances.
My favorite budget software
However, YNAB is phenomenal. Through automatic importing your bank transactions, you can match up your behavior (AKA your expenses) with what you planned (AKA the budget). It keeps you accountable to what you do.
While many of my clients have converted to YNAB, a few of them really like paper budgets, using EveryDollar, or spreadsheets. The common denominator is that they have a realistic budget.
For a lot of people, creating a budget that really accounts for your life feels like a setback. I know – I totally get it. It looks like we have a lot less money when we begin to account for all of our real expenses.
After all, who knew that life was really *that* expensive?🤷♀️
You can make budget cuts, if you like, after you create a realistic budget. Remember, acknowledge first, then fix.
It will also take time to get out of debt. But, the more that you learn to pay cash for things and no longer use any kind of credit, your debt will eventually melt away. It requires patience. A lot of patience.
But, have faith that you are doing the right thing for your finances today. Yeah, today.
You are changing your financial habits. It’s just that you can’t immediately see the benefits of it today. It will take shape, I promise you!
I hope you found this article helpful. Feel free to leave questions below if I can help answer any questions for you about creating a realistic budget.
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