Getting Off the Debt Merry-Go-Round
Day 12 of 31 Days to a Better Bank Balance is all about getting off the debt merry-go-round for good.
The single most important thing you can do to get out of debt is this: Stop adding to your existing debt.
While that sounds simple at first glance, if it were as simple as it seems, everyone would do it.
What “stop adding to your existing debt” really means is that you’ve got to change how you think about your wants and needs.
Most people have a heck of a lot of their wants confused with needs. So for today, get out a piece of paper or open a document and categorize your spending into three categories: needs, wants, and high-priority wants.
There should be very, very few things in your “needs” category.
For example, cable TV is not a need. Nor is a car (even if you live out in the country, have kids to haul around, or live in an area without public transit.) Eating out is not a need either.
How do I know those aren’t needs, without knowing your individual circumstances?
Simple: you won’t literally die without those things.
The only things that belong in the “needs” category are things you’ll die without. Everything else is either a “high priority want” or just plain a “want”.
Maybe surprisingly, high priority wants aren’t things that you want a lot or that you put a high priority on. Instead, they are things that it would take a significant amount of time, effort, or money to do without.
For example, if you live 40 miles from work, it might be hard to do without a very basic car if you can’t move, work from home, change jobs, or carpool. You’ve got to be ruthless with the high priority wants category though, and thoroughly explore alternatives without dismissing them out-of-hand. Servicing (and ideally paying off) debt IS a high priority want, even though few of us look forward to sending out money.
Everything else should fall into wants, and should then be prioritized in order of importance to you and your family members.
If you’re up for sharing your categorized in the comments, I’d love to hear them.