Its February and the all-to-common reality of the Christmas period credit card bills are now well and truly upon us. Its time to change, right?. But how do you change? How do you start a process of debt reduction that will work on autopilot and ultimately allow you to cut up your credit cards completely?
The journey can seem long and daunting but it all starts with a simple first step – Open a savings account and put enough money in it to cover 1 month of living expenses as quickly as you can. Why do I want you to put this money away in a savings account instead of putting the money onto one of your credit cards that are likely accumulating interest at 15%-20%? Because we need to break your dependence on debt. In today’s society, even relatively good money managers use credit cards and personal loans to help them out in emergency situations.
Surprises and emergencies are an unavoidable part of life. Heck, some weeks my house feels like poorly controlled chaos! The best way to break the cycle of funding emergency related costs through debt is to establish an emergency bank account for just that purpose.
Kickstarting Your Emergency Fund
Here are some ‘quick wins’ when it comes to finding the money to build your emergency fund as soon as possible:
Make better use of what you have
The best place to start looking for money to store away for a rainy day is cutting back your expenses and implementing a good old fashioned budget. You’ll be amazed at how quickly money can accumulate when you start tracking what you spend and making deep cuts to your overindulgent lifestyle. My top suggestion is to review your entertainment costs first as these are usually the easiest to reduce. You can’t reduce your rent bill tomorrow but you can cook dinner at home instead of going out. Simple choices like this can save you $1,000 over the course of a year (or in one month for some people!).
Make some extra money
I’m not suggesting you all run out and look for a second job. However, if that is an option, at least in the short term, every little bit helps. You might even consider asking for some overtime at your current job just to boost your income a little.
Also, consider what you could achieve through a more minimal approach to life. How much cash could you unlock by clearing all the unused or unneeded clutter out of the house and selling on ebay or having a garage sale?
Another possible income source often overlooked is tax. Have you lodged your tax return for the year? There could be a refund waiting for you that will help your emergency fund take a leap forward.
Save Money through research
Don’t pay the lazy tax. Most of your utilities and insurance providers rely on customers failing to research alternatives before renewing their services each year. Don’t play the game their way! Call around and look for a better deal. If your current provider wont price match then make the change. Remember, your goal right now is to top that emergency account up as quickly as you can. These calls and research may seem inconvenient but they’re free and could save you $1,000’s. The less you spend the faster your debt reduction cycle will work, even once this first stage is complete.
Other benefits of having an Emergency Fund
Aside from the emergency fund itself this first stage of debt reduction has some other added benefits:
• Watching your emergency fund accumulate is clear proof that you can save money – which is essential for long-term debt reduction;
• If you have any Credit Cards you just hold for emergencies that don’t currently have any debt amount owing on them you will be able to cancel these and save paying the annual fees;
• All the cost cutting measures you make through budgeting and renegotiating your utilities and insurance bills will help when we move onto the later stages of the process.
Regardless of where you dig the emergency funds up from this first stage is absolutely essential to building a foundation for long term debt reduction and on-going financial prosperity.
You Can Do This!