How to Eliminate Credit Card Debt
and Increase Savings
by Stephanie Relfe B.Sc. (Sydney)
This simple method for eliminating credit card and other debt worked for me and it worked for the friends I told about it.
Some people already know that some of the reasons why we get into debt are because:
1) We don't budget.
2) We spend more than we make (Most people spend 10% more than they earn, no matter how much they earn).
This simple method just might be what you are looking for to overcome these two problems.
I tried making a budget once. It didn't work at all. The problem with a budget is that it works for a little while and then there is always that BIG payment for the car or insurance or an unforeseen need. And then the whole budget is blown out of the water.
So I decided to treat myself as a business. Which is something that everyone should do. In a business, money comes in and money goes out. Same with you.
All businesses should have a cash flow chart. This can be done on an excel spread sheet. I have made up a basic one for your to copy and modify for your own circumstances.
Here is an excel spreadsheet for you to use. This is a Microsoft Excel Spreadsheet. You will need a spreadsheet program that will read the Microsoft Excel Spreadsheet format to use it. We advise to use the FREE alternative to Microsoft Office (the same as the French government is using) called Open Office available from www.OpenOffice.org.
Download it to your computer. Then do the following:
1) Change the dates which currently read "week 1", "week 2" etc. to the dates that you get paid on. If you get paid monthly, then these will be one date for each month.
2) Where it says "Income 1" replace that with the name of where you get your first source of income from. If you have more than one source of income, write those names where it says "Income 2", "Income 3".
3) Write the amount that you receive as income in the appropriate cells for the appropriate dates. eg in C2 write 400.00 if you get paid $400.00 on that date.
4) Where it says "credit card 1", "credit card 2" etc., replace those words with the names of the different credit cards and other debts you have.
5) Have a look at the list of expenses. Customize it to your own needs. Delete what words you don't need. Add what I have left out. (eg delete "cable tv").
6) Write the amount that you will spend as expenses in the appropriate cells for the appropriate dates. (eg write the amount of your rent/mortgage in C13).
7) Add up the total amount that you were charged for interest last month. Estimate what you will have to pay for next month. Write those figures in the appropriate cells for "Total monthly interest on credit cards." (eg write 50.00 in C42 if you were charged a total of $50.00 interest).
8) Work out how much you have now. Your total is cash you have minus what you owe. The total may be a "minus" number. Write that number in the green box B43.
9) By now all figures should be in and you will be able to see how much money or debt you will have by Week 15 by looking at the Running Balance row.
10) Now if your total balance by Week 15 is not as good as you would like it to be, see what changes you can make. Delete some purchases. Move the date for some purchases to a later date.
11) Note that there are automatic formulas that work out the totals and balances for you. Keep an eye on those formulas to make sure they are always correct!!! If you change something, make sure the formulas are still correct! I have written the current formulas and what they are at the bottom of the spreadsheet in case you need to put them in again.
Now, PRINT IT OUT.
Put it in your wallet. Before you spend a cent, you must be able to see where you can write that amount on your spreadsheet, if it is not already accounted for.
The advantages to a cashflow spreadsheet are many:
1) The first rule for getting out of any mess, or for improving your present lot is to face the truth of where you are at at the moment. For many people, it is quite terrifying to add up what they owe and what interest they pay each month. And then work out how much interest they will pay in a year. But that is the first step towards getting you free.
2) It enables you to plan many months ahead for those big payments so that when they arrive, you are ready for them (eg Christmas).
3) It helps you do the most important thing of all for getting out of debt and staying out of debt. It's called "delayed satisfaction".
With this system, you have to find the money on your spreadsheet BEFORE you spend the money. Most people just spend the credit and then worry later about how they are going to pay for it.
With this system, you have to put it into the spreadsheet FIRST.
You will find that what then happens is that you have to delay it a bit, and then maybe delay it a bit more, and then maybe a bit more. Often, by then, you will have decided that you don't really need it after all.
Do you know one of the main reasons why people spend? To remove pain. Not just physical pain, but also emotional pain. When someone is feeling down, they may feel better spending money on new clothes, toys, household stuff, travel, etc. So if you have a rule that you HAVE to see where that purchase fits in on the spreadsheet before you spend, then often the 'need' for the purchase will have gone by the time that time arrives.
4) Because all of the things that are important to you are written down, the thing that you think you want to buy becomes less important, because you are reminded of the things that really count like rent, mortgage, education, savings for your financial freedom etc.
5) You learn to appreciate the value of money more and more. Eventually starting to put money in your "savings/investment" area becomes more important.
6) You really begin to appreciate what a waste it is to pay interest to someone else and really knuckle down to do what you have to do to stop paying it.
Most people spend more than 10% of what they make, no matter how much they make. In the book "The millionaire next door" he tells of a couple who are broke and desperately need money who earn $700,000 a year!!!!
While you are working on ways to reduce your spending, remember, one of the easiest ways to get out of money is to make more money. You may be surprised to find that there is someone out there willing to pay you more money than you are making right now for an even better job than you have right now. (That happened to me and has happened to others).
The important thing is what you get to KEEP. You need that to invest for your future. Because most people save zero, that means most people are earning $0.00, no matter what their salary.
Most people think that having a second job is not worth it because they will make only a few extra dollars. However, if you get a second job and actually get to KEEP $20 a week, then you are earning a lot more than someone who has a larger salary but actually gets to keep $0.00 at the end of the month.
If you have a job that requires you to keep up an expensive appearance with fancy clothes, car etc., you may find that you really make more living in a cheaper area doing something that lets you wear jeans and t-shirt. I was told that in Sydney, Australia, more of the many fancy boats which you can see around Sydney are owned by plumbers and electricians than by professional people like lawyers.
And always remember the true cost of any item you buy. Taxes! If you buy something for $50, you might have to actually earn $80 and pay the taxes on $80, to have enough left over to spend $50!. Things are MORE expensive than they seem. YOU are a business. So cut costs! And increase your cashflow. Work more hours, get a higher paying job, Sell things on eBay, Open a flea market business, etc! Read about the "Law of Yucky".
Any questions or problems with this spreadsheet, please email me so that I can make this as useful for others as possible.
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DISCLAIMER: No guarantee is made as to the accuracy of this spreadsheet or that there are no errors in it. The author of this article is not responsible for any errors in this spreadsheet or article or for any results that arise from using them. Use at your own risk.
©: Stephanie Relfe - 2006
Permission is granted to reproduce this article and spreadsheet
as long as you acknowledge the author and quote and link to www.relfe.com