Many people are struggling with debt but it is unfortunate that their best efforts to get out of debt tend to sink them deeper into financial woes. For instance, it makes little sense to get into a new debt to pay off an older debt. More so, ignoring the debt problem will only worsen your financial situation by destroying your credit and locking you out of opportunities.
The two main reasons people find themselves in a financial quicksand are:
- Too little income
- Too much expense
It is basic economics that you’ll be financially secure if your income is more than your expenses, because you’ll pay all financial obligations and have a little left over for savings or investments. You’ll always find yourself struggling with finances if the total of your expenses is more than your income — irrespective of the number of books your read, the number of seminars you attend, or the number of prayers you say.
How to fix the Insufficient Income Problem
If your income is not enough to cover your expenses, the smartest solution is to find ways to increase your income instead of looking for ways to take on more debt.
You can increase your income by getting your employer to give you a raise. If you’ve been doing a great job and taking notes of your accomplishment, making a case for a raise will be much easier that you might have expected. If you are not a diligent employee, you may want to avoid asking for a raise so that you don’t put yourself of the spot.
If you work the traditional 9-5 job on a 40-hour workweek schedule, you can find increase your income but putting some extra hours on income-generating ventures. For instance, you can start working overtime at your job (if there’s extra pay for overtime). You can take on part-time gigs in a non-compete environment with your current job. You can also sell your skills and expertise as a freelancer to raise money.
You may also want to consider starting a small business on the side especially if you are unemployed or underemployed. Being in business could give you more control over your earnings potential and there’s no telling how fast the business can scale if there’s a strong demand for your product/service. However, if you are already in debt with bad/poor credit, you might want to consider searching for business funding outside the box.
There are also many businesses – or side hustles – that you can start with little or no cash out of your pocket. Getting freelance jobs with your current skills is one idea.
Recommended reading for increasing your income: Hustle Away Debt: Eliminate Your Debt by Making More Money
How to fix the Outrageous Expenses Problem
You can also solve a large chunk of your financial problems by finding creative ways to reduce your expenses. The fastest route to reducing financial expenses is to understand that the expenses are killing you and building up the required discipline to take control of how you spend money.
You may want to start by solving the underlying lack of discipline by creating a budget at the start of each month. You should list out the most important expenses, taxes, mortgage/rent, insurance, grocery, and utilities. You can automate the payments to some of the expenses so that they are paid without your input. You can use the envelop budgeting method for other expenses so that you don’t misappropriate funds on impulse purchases.
Cutting expenses where possible will help too. Can you find a lower insurance rate? A cheaper cell phone plan? Can you cut down on grocery expenses or entertainment expenses?
You’ll also need to take the time to realign your perspective on your needs and wants. If you can get by with a house with two bathrooms, living in a house with five bathrooms might be a needless waste of money. Perhaps you’ll find it easier to manage the payments on a Honda than on a Mercedes Benz. More importantly, you need to deal with the root of any covetousness or discontent that you might have about your material possessions.
Solving these two problems will have an immediate effect on your financial situation, and help you work toward getting out of debt and building wealth.