Debt Free

It’ a great question, and one you should be asking yourself. It’s essential to find out the answer to this in order to analyze your expenses. The financial analysis, in turn will let you determine where you can make spending cuts in the most effective and painless fashion. Remember, spending less money is one of the three legs of your personal finance triangle.

The answer to the question “Where does your money go?” may surprise you. One essential way to answer the question is to start a spending journal. Note every expense, no matter how small. Indeed, it’s often the cumulative effect of those small, seemingly benign expenses that offer the most potential for painless savings. The only way to accurately determine what those are is with the aforementioned journal. Sure, it may be a pain in the rear, but so is being in debt. If you want to get debt free, your spending journal is a great tool.

After you’ve started recording all your expenses, you’ll want to analyze your bank and credit card statements. You should really be doing this already, if for no other reason than to catch possible fraud attempts on your accounts. Look on the statements for any expense you may have missed, such as automatic payments that come directly out of your checking account or are charged to one of your credit cards. If you have any expenses that are automatically charged to one of your credit cards, see if you can get it changed to a debit one of your bank accounts instead. That will help reduce your credit card balances. Just remember to keep money in the bank.

One side note regarding using your debit card for fuel or fast food purchases; be careful, some establishments will charge you a service fee for your trouble. If they do that, keep right on driving, on to the next place down the road that doesn’t. It may not seem like much, but a seemingly small, .50 fee is actually pretty large as a percentage of a $4 or $5 meal. If they came to you and said “We’re going to raise our prices by 15%”, you’d probably not respond too favorably. That’s what is effectively happening with the service fee.

After you have enough data to make an effective analysis, probably 4 – 6 weeks, go through it with a fine-toothed comb to see where you can cut back. The extent of your cuts will be partially determined by your debt level, and how soon you’d like to be debt free. You’re looking for 2 things:

1 - Expenses you can eliminate completely or those that you can substantially reduce. Things such as morning Lattes or expensive lunches are notorious for falling into this category. Here’s another: If you’re using premium gas for your car thinking you’re getting more power and better gas mileage, stop it at once, unless your vehicle specifically requires it, or you’re experiencing severe knocking or pinging. That premium gas isn’t cheap, you know.

2 – Expenses you weren’t aware of. These can be things such as subscriptions you joined long ago that you don’t use, automatic payments for something your significant other signed up for or fraudulent activity on your account.

Post analysis, you’ll be able to make a decision on how to most effectively save money and strengthen that leg of your financial triangle. Even a few percentage points could pay big savings dividends at the end of the year.