How to Solve your Money Problems

Solving money problems begins with changing our incorrect concepts about money. Money problems are born out of ignorance and a misunderstanding of economic principles.

Let me explain. One of the major flaws in our thinking about money is the belief that making more money is the best solution for getting out of debt. WRONG! The best way to get out of debt is to reduce our spending. Ooh, you don’t like where this is going, huh?

The FIRST step in solving your money problems, and I speak from personal experience, is to sit down and create a budget and develop a plan to retire your debt.

The SECOND step is to go through your completed budget and REMOVE any unnecessary spending. Remember, you’re paying off debt so you will have to make sacrifices.

THIRD, go through your bank statements (only do this with a tissue handy)and look at how much you spend on fast food, fine dining, movie rentals, fun shopping, gifts, and other “non-essential” items. If after this excruciating exercise, for example, you notice that you spend about an average of $400/month going out to eat, don’t despair; just reduce your eating out expenditures to maybe half that amount.

Now, put $200/month towards debt repayment!

FOURTH, and this is really, really important. Tackle the debt with the highest interest rate first. Meaning, after you have scoured your budget/bank statements and removed/reduced your “non-essential” spending, reallocate your funds towards your highest interest debt and work your way down. For example, we’ll call this Debt #1. If you are making monthly minimum payments of $150 towards a $7,000 debt with 20% interest – kill yourself…no, just kidding.

FIFTH, take the reallocated funds, in this case, the $200 that we now have because, remember, we cut our going out to eat budget in half. Now apply ALL of the $200 to Debt #1. Look, now you’ve increased your monthly payments to $350 towards Debt #1. Let’s say you reduced your gift buying by $100 monthly. Now you can put another $100/month towards Debt #1 so the total amount you’re paying towards Debt #1 is $450/month. See how that works?

This is an important step in solving your money problems because the tendency is to spread out the $200/$100 over other debt obligations. Resist the temptation. We’re learning correct concepts here. The sooner you pay off Debt #1, the sooner you can begin applying larger monthly payments to Debt #2.

Let’s take it further.

Ok, you’ve been paying $250/monthly on Debt #3 for two looong years. You make your final payment and you breathe a sigh of relief…warning! I would caution you to avoid doing the first thing that comes to your mind…”we now have an extra $250/month to do as we wish.” WRONG! The wisest thing to do would be to take the $250 (in case you forgot, you’ve been getting along fine without it for 2 years)and apply that amount to Debt #1. Now you’re paying $800/month towards Debt #1.

You ask, “Why do that? I’m already paying $450 a month?” “I can apply that $250 to Debt #2.” You are so right; but that is not the optimal decision right now. It will become clearer in a moment.

So, did you notice what happened to Debt #1? Without an increase in your paycheck, you just went from making $150/monthly payments towards Debt #1 which would have taken you, I don’t know…forever…to pay off that debt. Now, with a budget and discipline you can retire this debt within a year! AND in just one short year, you can take that $800/monthly payment and apply it to Debt #2.

How do you solve your money problems? Change your way of thinking by changing your behavior and change your behavior by changing your way of thinking.