per month left over from your cash flow to go towards debt repayment, goals or investing.
In this example, there is $9000 in total debt with $250 a month to allocate to debt reduction (minimum repayments plus left over cash flow). The $9000 total is divided by $250, which equals 36 months. This doesn't take into account the accruing interest, but it gives you a guide. Your goal is to pay the debt off in half that time — 18 months. The question is, for the next 18 months, can you get intentional and determined about trying to smash that debt out of your life? You will need to consider whether you can cut expenses, get more work and/or sell something (everything, lol) because your financial reason for living is to get out of debt.
Reward yourself
As we want to throw everything at your debt-clearing campaign, you should think of some things you'd like to do — either financial or non-financial — after you pay off each debt and you should also celebrate once you're completely out of debt.
Use the space below to write down a few reward goals. Anecdotally, in my career as a financial adviser the people I have worked with who had goals have generally been more motivated to complete various financial steps — such as paying off debt or saving a lump sum faster — than those who didn't have a goal.
Pull a budget lever, temporarily
There are four levers you can pull on a budget or spending plan to make changes so that you have more money to throw at your debt.
Increase income. How can you increase your income either temporarily or permanently? Maybe it's time for a pay rise, or you could ask for some overtime or get a second job while your financial reason for living is to smash your debt.
Decrease savings. You really should not be saving while you're trying to get out of debt. Anything above your $2000 emergency fund would be like borrowing on a personal loan just to have money in your account. Make sure you're focusing all your money and energy on paying off your debt. Remember, this is not forever — it's just for a season.
Reduce costs. We all have categories in our budget that we need to review regularly. But when you have a hard-core goal (like getting out of debt) you need to be ruthless because you have to make some sacrifices with your time (like taking on extra work) or with some budget items. For example, if you pay for a gym membership and also a personal trainer you may need to make the call on dropping one or the other — or swap them both out for a less expensive group training session in a local park. I still want you to have line items in your budget that are of benefit, but you may need to review what can be reduced in your life.
Cut something out completely. Using the examples of health and fitness, you may choose to cut this category out completely while you attack your debt. This could be ditching the gym and PT and deciding to just go for a jog to keep fit or buy some weights for the back deck. Remember, this is not forever. The deeper you sacrifice now, the sooner you will be debt free and able to get on with life!
There is no magical way to make money appear in our life — that's why I believe there are really only four budget levers you can pull to ‘redirect’ extra money from your cash flow and pay down your debt faster.
Gumtree and Marketplace
What crap (I mean, ‘valuable items to others’) have you got lying around that you could move out of your life? I have a rule of thumb regarding stuff lying around the house:
if it hasn't been used in 18 months, sell it and put the money towards paying down debt
if it isn't a family heirloom, sell it and put the money towards paying down debt.
You can always buy more crap later when you're out of debt. And think about how great you'll feel after de-cluttering and getting your house and garage in order to reflect the fact you're getting your financial life in order.
Existing savings
If you're in consumer debt on one hand and on the other hand have cash savings, it's probably because you don't have a solid money system in place and/or you're conflicted and have a mash-up of logic and emotions in your mind. That's okay: you're in the right place.
To be absolutely clear, once you have resolved that you are ready in step 1, you need to put all cash savings above $2000 to your smallest debt in the debt snowball to smash it out ASAP. If this is scary for you, don't do it all at once.
Some steps to assist in emotionally moving money from savings to debt could be:
deciding that you are no longer saving any more money and each pay allocate your savings money towards your debt
breaking your savings up: if you have $4000 in savings on top of your $2000 emergency fund, you could move, say, $500 per week onto the debt (if it hurts too much moving it all in one go): now you're wading into the water
jumping into the water once you're in waist deep! Check your emotions after the first couple of payments towards your debt, and if you're feeling good, bite the bullet and transfer the rest of your additional savings (but not the emergency fund). I am being cheeky here, but remember: you wouldn't borrow money on your credit card or a personal loan to have that money sitting in a savings account earning virtually zero interest, would you? (Don't answer that!) If you are not feeling satisfied with paying down your debt, you could always get back into debt — but how's that been working for you?
Side hustles
This is a bit of a buzz phrase which has increased in popularity in recent years. Side hustling is when you work on the side to your regular or main job and ‘hustle’ to make additional money or to advance your career. I am not a fan of pursuing a side hustle for the sake of it. I value your time and you should too. I believe there are only four reasons you should do a side hustle and they are:
to earn extra money to get out of debt (that's you!)
to earn extra money to save for a short-term goal (e.g. you wish to save up $2000 for a new mountain bike, stand-up paddleboard or something that you really want but don't have money for in your day-to-day life)
to organically start to build a business on the side: you can do this after hours or on weekends and as time passes, the goal would be to grow the business so much that you need to quit your main job to pursue your own business 100 per cent of the time
to allocate the income to investments only. This might be the only reason to side hustle long term (so it's not in vain). You will then ensure that your human capital (I'll talk about this in the next chapter) will be committed to growth assets so your sacrifice of time and effort spent working now will be worth much more in the future as your investments grow and compound over the longer term.
It is important to understand that if you're doing a side hustle to pay for food, rent and other day-to-day expenses, it's really just a second job. This could be a sign that your expenses are higher than your income, which means you may need to consider reducing your expenses or that you're being underpaid.
Don't waste your time working extra hours to then just consume that money. Put it to use! And if you aren't planning to do something longer term with your hustle money, only
