Is it possible to be free from debt in a year and, hopefully, become financially free in the process at the same time?
December it’s when the spending happens more than any month of the year.
We talk less about saving money, but more on where to buy presents for all the loved ones and attending parties here and there.
Then come January, everybody will be at awe after checking their bank balances and end up wondering, “Did my thirteenth-month went to drain?”
Am I too early to talk about the catastrophe that may or may not happen for a typical spender?
I hope not.
JuanNomad’s goal is to impart ways for you to become financially free and debt-free in a year.
Now let’s stop being hypocrites for a while. We love talking about money. Sometimes, we even fancy the thought of making it without breaking too much sweat and spending to our heart’s content when we have lots of it.
With that in mind, most internet marketers focus most of their topics on becoming financially free. Creating opportunities after another, enticing people to do what they claim they do to achieve the same financial freedom they enjoy.
The intention of spreading awareness that there is such a thing isn’t that bad. But besides that, people should also have sound advice in maintaining whatever money they have or at least keep them safe.
Sure, you know how to make money. But if you are not mindful of your spending habits, what do you think would happen?
Do you know how it feels like to be in debt with money without the capacity to pay them back in time? What’s worse, the interest gets compounded every month, yet you’re still obliged to settle it.
Worse comes to worst
Some people would end up trying their best not to walk on the same street where they have high chances of meeting up their creditors. And probably deliberately ignoring their phone calls. Familiar, right?
I know it’s humiliating. We need enough braveness to admit it. As painful as it may seem, that’s the reality. It happens to all, except for the oligarchs, I guess.
Question: Are there any solutions to this common problem for everyday folks like us?
Answer: Do your best to free yourself from debt and become financially free!
Now, what does it mean to be financially free? Is it to be filthy rich so as you become debt-free in the process?
Recently, my wife attended an event. She shared some insights she gained from a speaker they had that is a financial advisor. I learned that “to be debt-free is the new rich.”
That means in the Philippines nowadays, being free of debt is synonymous with being financially free.
Easier said than done? You can think of it that way. But you’re well aware that thoughts are things. What you always think of will manifest itself.
So again, is it possible? Yes, it’s possible! — If you take control of your money and lifestyle while sticking your full attention to the goals you have set. Make it your top priority.
Even if you have those dreaded debts lying around, you can and will extinguish them in one year.
Do some financial planning NOW. Make goals to help you achieve your objectives and end the year with savings in the bank.
Let me share these four tips to get you started. I hope that they’ll help you as they have helped us. So roll up your sleeves, let’s dive into it.
1. Inventory of assets and liabilities
It is essential but straightforward on your way to becoming debt-free in a year.
Get yourself a pen and tickler and begin by taking a personal stock. Assess the actual state of your financial affairs as they look today.
On paper, create two columns.
In the first column, make a detailed list of all your total assets. Write the amount of money you saved (if any), available cash at hand you have kept around, and your regular salary. And please include other sources of income.
In the second column, list all the debts you need to obliterate, from owed money from a bank or a loan shark to the car or housing loans. Then, enumerate all your monthly utility bills. They will vary depending on your consumption—water, electricity, telephone. Internet, etc. See to it you include the other necessary expenses such as for food and clothing.
The goal here is to know how much is your total assets in hand (the first column) versus the total liabilities (the right column.)
With this list, you’ll understand whether you have enough to cover for the payables you wrote on the second column by what is available from the first column.
Let’s hope that we positive results that will equate to saving money.
2. Budgeting your way to be debt-free in a year
There are cases when salaries are being paid monthly, like for the OFWs. While employees in countries like The Philippines, paydays are every fifteenth and thirtieth day of each month.
Here, we’ll not create a monthly budget because there will be tendencies that you might not follow through our goals at hand.
Instead, we’ll divide it into smaller chunks by creating a weekly budget so the task will be more comfortable. How? We’ll get into that later.
• Begin by estimating the total amount of money you’ll receive (your regular salary plus overtime pays), so you’ll know how to allocate payments for the bills, debts, etc.
• Now that you know your total income for this month set aside first a minimum of 10% of that total income into a savings account before you do anything else. Increase it to 1% every six months if possible.
• Then work out how much you expect to pay in bills this month. Include all debts, utility, and other measures you already have and still waiting to receive. Ensure your budget can cover more for the minimum amount on your debts. If you plan to pay for your debts, start with the smallest on your list. Note: Don’t make a habit of paying only for the principal’s interest every month. If not delaying, you’re canceling your chance of achieving your goal of being debt-free.
• Having the sum of your payables, subtract that from your total monthly income. With what remains, divide that amount by four to give your budget for a week. Live with it. This way, you’ll keep yourself from overspending. My suggestion, have someone as your accountability partner to help you keep yourself in check. If you can’t have one, then it’s time to double your willpower. It is essential to succeed here. By religiously sticking with the plan, you’ll soon develop a productive habit that will help on your way to being debt-free. Discipline is the key.
• Allocate any remaining money to increase bill repayments, or to increase savings or for personal use.
3. Side Hustles to financial freedom
What if your expenditures are higher than your income (you’ve done the second step, yet still left with negatives or with nothing to budget for a week)? Then, the solution could mean leaving your current employment and look for a somewhat higher paying job. Although, that’s too risky, and that’s one option I do not recommend.
Let’s talk about improving your cashflow. Look for alternative income sources.
A side hustle could help, which means any employment undertaken besides one’s full-time job to provide a supplemental income. We might hear this in another stereotypical term of “extra income.”
If you’re passionate about something, anything, make that as your side hustle. Let’s say you like dressmaking, do it in your spare time, then sell those dresses. Or you might have lots of things or insights to share with the world, then do blogging.
To give you some ideas of side hustles to start, please read articles Why Starting a Home Business is Cuter than Kittens, and Why Starting a Blog is a Good Idea Before & After Pandemic.
There are plenty of opportunities out there that you can undertake.
You can also look into internet marketing. But it’s a vast topic, though, from social media marketing to dropshipping, to affiliate marketing, etc. One can choose from lots of avenues. But beware of scammers lurking around the dark corners.
When you find the right side hustle for you, work on it diligently.
The road to success is not always smooth; it will be hard; that’s for sure. But always remember, short-term pains will equal to long-term gains.
Consistency is the key.
4. Don’t abuse your credit cards
Back in ’98, I once had the privilege of working in a credit card company as a telemarketer. I’m fascinated with how some of our clients craved and even begged to have their applications approved.
Aside from discovering the stress of being a telemarketer, I also learned some of my coworkers’ dumb practices. They applied for a credit card from one of our rival companies. With the help of their friends from that company, they approved each other’s applications without the slightest problem.
I’m not sure around that time, but I think their credit lines were just around twenty to thirty thousand pesos.
Guess what; they consumed all their limits in a matter of one week!
Because of their delinquent spending habits, the problem arising with it wasn’t a surprise. The debts incurred from credit cards became higher than their monthly salary. Some brushed off the issue as if nothing happened.
The result? — Each one of them received a subpoena threatening to drag them to court.
Stop using credit cards this way. It will ruin not only your finances but also your reputation and life.
They are useful only when you genuinely need them. When a real emergency comes, and you need money urgently, but you don’t have any cash on hand, that’s the only time it becomes more useful.
Being cocky, people have tendencies to flash their credit cards in public view to show off. Not a good practice, though.
One more thing, never use them to pay for food or clothes or utility bills. But if you itched and used it, repay those obligations you incurred as soon as possible to reduce interests.
Do you want to be financially free within a year? Frugality is one key.
Positive or negative, we develop habits through repetition; eventually, it will become permanent to you.
And just like any other tendencies you have developed over time, lousy spending habits will be hard to cut off from your system.
But believe me, by focusing on these steps, you being debt-free and becoming financially free in a year is very achievable.
Work hard but smart. Good luck with your freedom!