If you’re looking to improve your personal finances, there are many ways you can achieve your goals. The key is to create a realistic plan that sets you up for success and fuels your motivation to keep moving forward.
A debt snowball and avalanche are two popular strategies that can help you pay off your debts quickly. Both methods have their pros and cons, but they both work if you have the discipline to stick with them.
1. Make a Budget
Budgeting is an effective way to help you pay off debt and improve your personal finances. It can be a great tool for everyone, no matter their age or income level.
To make a budget, start by making a list of all your expenses. This can be done by looking at your bank or credit card statements or logging all of your purchases using a spreadsheet.
Once you have a list of your expenses, divide them up by what’s needed for essential living costs like rent, utilities, groceries, minimum loan payments and more.
Now look at your spending money and decide how much to keep for a discretionary budget, which is for ’wants’ such as eating out, entertainment and hobbies. Set targets and goals for your spending, so you can see where it goes each month and stay within your budget.
2. Reduce Your Spending
Making and sticking to a budget is one of the most important steps you can take to pay off debt. A budget will give you a clear picture of how much money you are bringing in and where it is going each month.
When you create a budget, categorize your expenses into three buckets: necessities, nonessentials and savings/debt payments. The goal is to limit your spending on necessities to 50% of your income and nonessentials to 30%, while allocating 20% (or more if possible) to savings/debt payments.
Identifying areas where you can cut back on your spending is always worthwhile, and can make a big difference in how fast you can pay off your debt. Start with small changes – such as brewing your own coffee instead of buying it at the coffee shop – and you will be amazed how quickly you can save.
3. Set Goals
If you want to improve your personal finances, it’s important to set goals that are specific, measurable and action-oriented. They should also have a realistic timeline and be relevant to your life.
Having a goal that’s meaningful can help you keep going when the going gets tough. It could be something small or big — but it needs to be what you care about most, not just what you think is important.
If you’re just starting out, it’s a good idea to start with short-term financial goals. These can take under a year to achieve and will build your confidence in money management and saving skills.
4. Prioritize Your Debts
If you have multiple debts, it’s important to prioritize your payments. This can help you get out of debt more quickly and leave you with more cash each month for the things that are most important to you.
Prioritizing your debts can also be a confidence booster, as it feels like you’re making progress toward your financial goals. It can also reduce the risk of missing a payment.
The National Credit Counseling Association (NCLC) recommends paying off your high-priority debt first. This can include bills that have serious consequences if you don’t pay them on time.
This includes bills that could lead to jail time, eviction or other severe consequences. Medium-priority debt includes bills that have less serious consequences if you don’t pay on time.
5. Make Extra Payments
One of the most effective ways to pay off debt and improve your personal finance blog is to make extra payments. By making these extra payments, you can significantly shorten the amount of time it takes to pay off your debt.
Another way to make extra payments is to take advantage of any income increases that you may receive during the year. This can include a raise, a new job or freelance work.
Before you start making these extra payments, take a look at your budget and see where you can trim expenses so that even more money can go toward paying off debt. This will free up money for other financial goals, such as building an emergency fund or saving for retirement. It will also help you stay on track with your debt repayment goals and get out of debt quicker.
