As an adult, it is your ambition to become financially independent. You want to secure your future and have the financial freedom and have enough to spend without the fear of having drained pockets. However, being financially independent is a challenging task. For one, there are debts to pay, and some people won't be debt-free for years to come. Are you one of those trapped in debts? We have some tips on how to free yourself and become financially independent.
[su_quote class="cust-pagination"] “You don't need to be rich to be financially successful, provided you don't worry when paying the bills and you have enough left in the bank” ― Ekari Mtewa [/su_quote]
Prioritize Your Debts
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First, clear those debts with the highest interest rates. Although doing so will drain your pockets initially, it will help you save more in the future. For one, you won’t have to pay high-interest rates every month if you clear them in one go, and the sooner you pay your debt, the sooner you will become free. For example, if you have a $30 debt on your credit card and another $30 with no interest (e.g. debt from your family member), you should clear your credit card debt first. After that, it will be easier for you to pay other debts.
Track Your Income and Expenses
You might think that you’ve already budgeted your expenses, but the truth is, you’re not. For example, have you tracked down the $5 you spend on coffee at Starbucks? The amount might seem insignificant to you but when you accumulate all those little expenses, you’d be surprised at how much money you spend on trivial things! Therefore, you should track every single penny you spend to minimize some of these expenses and divert them to paying your debts.
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Create a Budget and Payback Strategy
Once you can track your income and expenses, the next step is to allocate a portion of your expenses to pay off your debts. If you earn $2000 per month and your expenses amount to $1500, you need to allocate $500 to clear debts. You should stick to this plan unless there is an emergency. Another way of doing that is this: instead of thinking that you earn $2000, assume that you earn $1500 per month. This way, you won’t lose anything.
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Spend Less Than You Earn
Many people spend more than they earn, and that’s a surefire way to become in debt. Recent studies reveal that in 2010, 73% of Americans spent less than they earned, but by 2012, that number had fallen to 66%. If budgeting isn’t working for you, why don’t you find a way of increasing your income? You can opt for part-time jobs or sidelines to earn something extra. Once you have your extra income, ensure you allocate more to your debts.
Improve Your Credit Score
Improving your credit score is one way of reducing debt. As your credit score improves, the interest rates charged to you reduce. For instance, your monthly interest payments could sink by $20, saving you $240 a year. You can improve your credit score by paying your bills on time and by not opening other credit accounts. Also, try to avoid penalties to the best of your ability.
Save More Money
Allocate a small portion of your income for savings. However small the amount may be, it can have a great impact once it accumulates. In fact, you can even use your saved money to pay your other debts, so you don’t have to use your salary on debts.