Categories: personal finance, debt, saving, spending plan 

“Home life ceases to be free and beautiful as soon as it is founded on borrowing and debt.”
Henrik Ibsen 

Ibsen beautifully communicated that Life Sucks when you have too much debt! Here’s how to get beyond your debt, so you can save for things and experiences that really make your life beautiful. First, I want you to try a little exercise: 

            1. Think about what you got for Christmas last year. ……. Don’t remember? That’s not a surprise. 

            2. Now think about an activity you did recently with friends and/or family that was really fun and didn’t cost much. 

Most of us don’t realize that low cost EXPERIENCES, frequently give us more enduring satisfaction than expensive purchases that are soon taken for granted! Ibsen stated the truth! 

Main Topic 

Now I’m not saying that all the good things in life are free. That would be absurd. There are many things in life that are expensive as well as important; retirement, vacations, homes etc. And the only way to get them is to SAVE. But if you have too much debt, it is impossible to save. Let me explain exactly why this is so. 

Take Michelle, She has a gross income of $3,500/month. When she got her job, she believed she was “in the money.” This was more money than she had ever made before, so she set out to create the lifestyle she always wanted, immediately. Here comes a brand new car, next a condo of her own. She figured, if she could borrow the money, then she must be able to afford it. Take a look at how Michelle got in big trouble fast; these are her monthly bills BEFORE food, household items, entertainment, savings, taxes, etc. 

Now take out $724.00 for taxes. 

So, Michele starts with: 

$3500.00 gross income per month 

less $724.00 for taxes 

less $2,205 fixed monthly expenses. 

Michelle has $571.00 per month remaining for food, entertainment, household and personal care items and savings. 

And, you guessed it, Michelle can’t live on her income; she bought too much stuff which she could not afford. So what did she do? You guessed it; she supplemented her income with her credit cards. Michelle paid for lots of her day to day expenses with plastic. Then, each month, her credit card debt grows larger. 

Michelle got everything she thought she wanted; good job, new car, and new condo. And, she was stressed and miserable!  

Lifestyle choices, overspending, and debt made her life unbearable.        

Practical Application 

 HERE ARE MICHELLE’S MISTAKES: 

1. She looked at her gross income not her net (after taxes) and thought she had a lot more money than she did. 

2. She was “living to impress others,” instead of taking responsibility for living within her means. 

3. She broke the cardinal rule of financial responsibility: IF YOU DON’T HAVE THE MONEY FOR SOMETHING, DON’T BUY IT. 

MY ADVICE TO MICHELLE:  

1. Realize that your disposable monthly income is your net pay after taxes: 

$3,500.00 – $724.00= $2,776.00 

Forget about the $3,500.00 per month gross pay. 

2. Sell the car and buy a used car with a payment no greater than 10% of your net pay: $278.00 (*When your car value is less, insurance is less.) 

3. Get a roommate and charge her $500.00 rent + 50% of the utilities. 

4. Cut cell bill to $50.00/month. 

Michelle’s revised monthly spending:

Now Michelle has $1,528.00 per month remaining for DEBT REPAYMENT, food, entertainment, household, and personal care items. 

Action Steps:  

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

1. Look at your bills, bank statements, pay stubs, credit card statements for the last month and make an Income and Expense/Spending Chart like Michelle’s (don’t forget to add in food, entertainment, household, personal care, and any other expenses/spending).  

2. List any expenses you want to reduce and by how much. 

Write and share how you have been able to reign in your spending. What is the hardest part of reducing debt?