M is for Money

This is Part 3 of Deliverance from Debt: Part 1, Part 2

I have no idea what I bought with $20,000 worth of debt. I could list some of the bigger purchases, but much of it was spent at the grocery store, the gas station, maybe for a night out. The cause was simple, I lived beyond my means. Money slipped through my hands like water from a leaking faucet, a slow trickle I barely noticed. Understanding your money - where it is coming from, where it is going to - is a big part of getting a handle on your debt.

Track Your Spending

Like tallying up your debt total, this step is about gaining knowledge. You need to get smart to get out of debt. Don’t change your shopping habits for this exercise, be honest about your current spending.

EXCEPT: The Debt Stops Here – please don’t dig a deeper hole

If you always buy a latte three days a week, keep doing it - but record the expense. Carry a small notebook or journal and a pen (PDA for techies) to note any time you spend money. Parking, shopping, gas for the car or bills at home, every time you spend money it needs to be noted. This includes payments you are making to your debt and money you put into savings. If you have combined finances with a significant other, they need to participate in this step. Getting out of debt is a joint venture.

I confess I don’t track my spending, but I started my own list to share this step with you. For the last week I have noted day, amount and where/what for in a small planner I carry. Today I put this into a spreadsheet to post – I have the handwriting of a third grader...

Payday!

Just as you are keeping track of your expenses, keep track of incoming money either from a paycheck, spousal support, tips, unemployment or even the $5 bill you found on the sidewalk. This is a lot easier than tracking your spending, most of us spend more often than we deposit (and we wonder why we’re in debt). I included my paycheck and Mr. M’s contribution to the bills in my list.

Show your Commitment

No one likes this step, not even engineers like me. It can be tedious, boring, and easy to forget. More importantly - it’s enlightening. Most of us don’t know exactly where our money goes. This will give you important insight into your debt. At this point you must realize there is only so much money to go around. Now that you are committed to digging out of debt, you have some hard choices to make. First, where does your money go?

Track your money for the next month. We will use that information to prioritize your spending and to determine how much you can commit to debt. If you would like some company, Finance for a Freelance Life is challenging her readers to a Where is My Money Going month. She has tips and advice on ways to track spending all month long. As tedious as this step may seem, it’s a vital piece of the debt freedom puzzle and an easy way to show you are committed to getting out of debt.

The Debt Stops Here


Part 4: Budget Basics