I’m currently on a journey to become completely debt free. Even though I still carry some debt, I want to share how I’ve had some wins along the way. Investing in the stock market, and eliminating $5,500 in credit card debt wouldn’t have happened without my mindset change.
So what exactly is a mindset change?
Simply put it’s the process of changing your mental attitude about something. For example, if you feel that you will never get out of debt, that’s your mental attitude about debt. Some of the things I needed to change my mental attitude about money were how I managed it, and the different ways to earn income.
Sadly, most of us weren’t taught how to effectively manage our money. If you think about it, schools only teach us how to make money. We are led to believe that we need to make a lot of money to live a good life. However, it’s not uncommon that people with nice cars and houses live paycheck to paycheck. Becoming financially free means something unique to everyone. You don’t have to know what financial freedom means to you right now, but having the right mindset is crucial.
Pay yourself first
In the book “rich dad, poor dad”, by Robert Kiyosaki the author explains the importance of paying ourselves first.
A mistake most people make, and that I’ve made in the past is paying everyone else first. The moment we receive our paycheck we start paying our bills. I’m not saying that you should avoid paying your bills, but you should pay them last. So before you start paying any bills allocate how much money will go to your savings, and the amount of money needed for necessities. After allocating money to your savings account, and your personal spending account you’re ready to start paying bills.
A good rule of thumb is to use the 50,20,30 budget technique. This simple formula states that 50% of your income will go towards NEEDS, 20% or more towards SAVINGS, and 30%towards your WANTS.
The “50,20,30” method may not work out for you initially, so it may vary how much you’ll pay yourself. For example, if you deposit 20% of your income towards your savings, but don’t have enough money to pay your bills, you’ll need to adjust. Your goal is to pay your debt the quickest way possible, while also building some financial security.
Changing this habit at first may seem trivial since you may end up paying the same amount for your bills, but you’re accomplishing something more meaningful. You’re training yourself to take ownership of your finances, and prioritizing yourself. If this is the case for you remember that you’re replacing a bad habit with a more effective one.
Asking “how” instead of “if”
The quality of answers we receive are determined by the questions that we ask. In “rich dad, poor dad” Robert Kiyosaki also explains how his rich dad taught him to ask the right questions. For example, he was taught to ask “how can I afford this item” vs “If only I had more money” or “I will never afford this”. By asking these question we allow our minds to use creativity to formulate an answer.
The result of this question may open the doors to new opportunities you may have not explored otherwise. Maybe you’ll start a side hustle to pay off your credit card faster, or find new ways to cut your expenses. Regardless of which route you take, the most important thing is that you’ll be making progress. I challenge you the next time you find yourself in a situation that seems hopeless to not talk yourself down, and to start asking “how” you can find a solution.
A ritual for your finances
Reviewing your finances shouldn’t feel like a mystery. Many times people like to believe that they can keep their financial budget in their minds. A better habit you should acquire is to write out your expense each paycheck, and review once every quarter (3 months). Grab a blank sheet of paper, and jot down all of your bills. Don’t pay them just yet.
Next you’ll want to decide what’s the maximum amount you can contribute to your savings. If it’s not 20% of your paycheck it’s ok, just keep working towards contributing this amount in the future. You’ll also want to note how much you’ll need for food, and other needs. Finally, you’ll transfer your money towards your savings, personal necessities, and then bills.
Many people joke around that they don’t look forward to payday because most of their money is gone before they get to spend any of it. However, this doesn’t have to be the case for you because you now have an intention for evert dollar you spend.
As a reminder create an event each paycheck to review your finances. A great tool that I use is Google Calendar. It’s free, and all you’ll need is a Google account. Plus you can also integrate Google Calendar with other smart phone applications.
Wrapping things up
I hope that this article has given you a different perspective for how to manage your personal finances. It can be overwhelming to take control of your finances especially if you carry long-term debt. However, you don’t need to lose hope.
I personally was overwhelmed having $5,500 in credit card debt alone. This wasn’t including student loans, and other long-debt. Asking “How” instead of saying “I can’t” has been a huge reason why I was able to pay off all my credit card debt. I’ve made it a ritual to set 5-10 minutes aside every 2 weeks to go over my finances. This has led me to pay more attention to what I’m spending.
If you want change in your life, then you need to start from within. Start with these habits, and eventually work your way up to more challenging ones. Begin investing in yourself. Don’t just invest your money on clothes, cars, and other shiny objects. Start listening to podcasts, audio books, or take courses. The point is that you should strive to become better each day.
Good luck on journey to becoming debt free.