When I wake up tomorrow, I will look at my bank account and see our car loan, home renovation expenses, and mortgage already paid. If only it were that easy, right?
Balancing our debt payment and daily spending can be a challenging task to do. On the one hand, you want to pay off your debt as quickly as possible. On the other hand, you need to live your life and cover your basic expenses.
You’re not alone if you’re struggling to find a balance between the two. I want to share tips to help you balance debt repayment and daily spending.
Debts versus Daily Spending
When it comes to money, most of us have a love-hate relationship. We love having it but often times we hate how we spend it. This is especially true when it comes to consumer debt. It’s easy to get into debt, but not so easy to get out.
If you’re struggling with credit card or loan payments, you’re not alone. In fact, according to a recent press release by Equifax, the average consumer debt on an individual basis in Canada is $21,128. This does not include mortgages. That’s a lot of money! And it can be tough to repay that debt while still trying to cover your other expenses.
So how do you strike a balance between repayment and daily spending?
Finding the intersection between debt freedom and daily spending
There is no easy way to set financial goals, as we all have different incomes and situations. But we can all achieve this if we put our minds – and muscles into it.
When you have a lot of areas to work on when it comes to money obligations, you must keep judgment out of the way. Do not put yourself down.
Here are a few tips to help you get started.
Start by evaluating your current situation. Calculate your debt-income ratio to know if you are still in a good place.
The only way you can pursue your debt-free journey is if you have a strong reason “why” you want to be debt-free. Having debts is normal if you are comfortable with it. It is okay when you don’t have any issues paying out high-interest amounts for the long term.
Maybe you would rather use that money towards retirement instead of putting your salary in interest payments. You may want to save up for that Euro trip you’ve been dreaming of, or you’d rather retire early than live paycheck to paycheck.
You might also be dreaming of having an online business and passive income. So instead of exchanging your time for a paycheck, you would spend your time doing what you are passionate about or being with your family more, especially if you have kids.
Your “why” has to be non-negotiable to you so you can start taking action on working on your financial objectives.
Think about what you want to achieve in the short and long term. Do you want to be debt-free within five years? Or are you more concerned with building up your savings? Whatever your goals may be, make sure they are realistic and achievable.
What debts do you have?
List out everything you owe – auto loan payments, consumer loans or lines of credit, outstanding credit card balances, student loans, medical loans, outstanding taxes, and mortgages, if you have any. The goal is not to burden you with the amounts but to help you figure out which ones you need to tackle first.
If your obligations are too much to handle, causing you anxiety, please seek out a consolidation approach or seek our financial advisors.
How much can you afford to put toward debt repayment each month? Once you have a clear picture of your finances, you can start setting some goals.
Write down your monthly payments to see how much you can afford for debt payoff. It can be pretty stressful when you see everything you need to pay versus what you can allot for payment. However, there is no judgment here as no one else needs to know except when you are doing this with your spouse. But hey, sometimes letting a trusted friend know about your plan makes you more accountable toward this goal.
Create a budget that includes your debt repayment goals. This will help you track your progress and ensure that you are staying on track.
You may be tempted to allocate a significant amount towards payments; please don’t do so at the risk of sacrificing your quality of life with your family. Instead, take baby steps, just like Dave Ramsey recommends.
Pay one debt at a time to celebrate small wins.
As much as I want to tell you to “cut your credit card,” I wouldn’t recommend doing so. Instead, aim to use it only for the necessary expenses. One tip I got online is to write a short reminder of your goal and stick it on your credit card, so you have that visual reminder every time you are tempted to purchase impulsively.
But what if it’s online shopping? I know it’s hard, so please do not save your credit card information online. Sometimes, the minutes we spend looking for our wallets diminish that excitement we felt when we were mindlessly adding to carts.
I recommend watching Get Smart with Money on Netflix! This is a documentary from financial advisers offering practical tips on managing money.
Here are some questions to ask yourself before spending that I have learned from Tiffany, the Budgetnista, from the show:
- Do I need it? (Is the health and safety of my family affected if I don’t purchase the item)
- Do I love it? (Is this something you’d absolutely love to spend on if you had a lot of money?
- Do I like it? (Is this something that only brings me joy temporarily, for about six months or less?)
- Do I want it? (Is this worth spending on that only gives temporary satisfaction but no absolute joy?)
Are these great guiding principles to ask yourself to strike that balance between achieving your financial freedom and spending on what really matters to you daily?
These are great questions to guide us in our decision-making when it comes to finances. The little things we spend on or decide on each day will bring us more stress or bring us closer to our objectives. Changing our mindset to spending intentionally will help us achieve the debt freedom we desire to pursue our “why”.