“You must do the thing you think you cannot do.” – Eleanor Roosevelt
For many people, the arrival of a new year is a great incentive to set new goals relating to finances and often those goals centre around eliminating debt and building wealth. Consumer debt is probably the biggest obstacle standing between Canadians and a solid financial future and eliminating it takes us one significant leap closer towards retiring happy. It can be a difficult road to travel, but anyone who is living debt-free and experiencing financial freedom will tell you that it is more than worth the challenges of the journey. In last week’s post I shared a couple of strategies for conquering the debt mountain and this week I wanted to share three more ideas to reduce debt.
Reduce Your Risks
Life throws curves and the only predictable thing about creating a budget is that something will inevitably crop up that upsets it. An expected expense can be a major setback when it comes to reducing debt because all too often, when funds are tight, we rely on credit cards or lines of credit to take care of unexpected expenses. This just makes a difficult situation much worse. We can protect ourselves from the impact of unexpected expenses by building an emergency fund to cover the major events such as a large car repair bill or a job loss and creating a “slush fund” that we can dip into to offset the minor upsets such as an unexpectedly high hydro bill. It’s far cheaper to borrow from ourselves than from credit sources and this makes repaying the “loan” much quicker. When it comes to larger risks, such as illness or death, then insurance products such as life, disability or critical illness insurance can provide affordable protection for yourself and for those who depend on you.
Choose Your Treats
We work hard for our money and, for most people, there is much more pleasure to be gained by spending than by saving. The challenge with this is that it’s much harder to channel money into eliminating debt when we’re continually tempted to spend but if we restrict ourselves too much we risk “rebounding” in a giant spending spree. An effective way to strike a strong balance is to indulge (wisely) in the treats that mean the most to us and give up everything else. People often find that they can do without many of the little luxuries that they indulge in on a daily basis and hardly miss them at all but it’s important not to give up everything. Whether it’s movies, dinner or a (small) shopping trip, indulging in something that makes us happy is both a great reward for sticking to our goals and also a great incentive to keep going until we hit them.
Increase Your Income
This is a simple and hugely effective strategy for stamping down debt at a rapid rate but it is also the one that is least attractive. We work hard for our money but, when it comes to taking on a second job, the thought of how that might impact our family life and our free time can be a powerful disincentive. When it comes to tackling something that we really don’t want to do, humans do a fantastic job of creating obstacles and finding reasons not to take the steps we know deep down are necessary to get us to our goals. However, we’re lucky to live in a country where there are multiple opportunities to generate part-time income either as an employee or as an independent consultant. If trading 5-15 hours a week of your free time for the satisfaction of conquering the debt mountain months sooner sounds worthwhile to you then it may be an option that’s worth exploring in more detail.
A new year is a great opportunity to redefine and refocus our goals and to channel some positive energy into creating a stronger financial future. Eliminating debt and reducing expenses are two key strategies in building financial freedom and that makes conquering the debt mountain a priority when it comes to setting ourselves up for financial success.