One of the first rules to getting out of debt is to stop digging yourself into further debt. I feel that I have achieved that goal today. Although ‘Murphy’ is unpredictable, I don’t foresee any need to use my credit cards for the next month or two. Here is how I did it:
Emergency Fund
I finally established an emergency fund. I followed Dave Ramsey’s approach and saved $1000 for an emergency fund. That money is for true emergencies like vehicle maintenance, emergency house repair, etc. In the past couple of months, I’ve had to repair my refrigerator, my bathroom tub, my AC unit, and my lawn. Each time I had to rely on my credit card to pay for the bill. That’s a huge part of the reason why my credit card balance is now around $2500.
Even though the overall housing expenses exceeded the $1000 money that I now have saved in an emergency fund, my total debt would have been less if I had that starter emergency fund.
Buffer Fund
To help me stop digging into debt, I have also established what I call a buffer fund. In addition to my emergency fund, I have about $100 buffer in each checking account I use. So, for example, I have a debit card. If I have a need to spend more than what’s budgeted for, I have a $100 buffer and don’t have to rely on the credit cards. Sometimes, the need to spend more than what is budgeted for doesn’t qualify as an emergency. But, having that buffer eliminates the need to dip into my credit cards.
Having the buffer has the HUGE benefit of avoiding overdraft fees, which dealt with a lot in June. Those fees add up quickly, and are a HUGE waste of money. So, even if you operate on a zero based budget, I suggest you allocate a portion to your buffer fund to avoid unnecessary fees.
Get Back On Track
You have got to gain control of your spending. It’s easy to say you should make a budget and stick to it. It’s much harder to do. I get that. But, if you’re going to win, you have to do something that works, and sticking to a budget works. Doing so helps you gain control of your spending habits. That’s what I did to help me get back on track.
My difficulty is in figuring out the right balance between savings, investments, and paying off debts. I’m taking it one day at a time. I’m trying to remain focused on the goal and trying to keep on the path towards financial freedom. It’s difficult, but the journey of a thousand miles begins with a single step. When getting out of debt, that step is to stop digging.
I’ll let you know what helped me when I first started on my financial journey of actually caring (8 or so years ago when I started my first blog – myjourneytomillions.com – which I sold)…WRITING IT DOWN. Set up a google spreadsheet that every month you write down your assets and your debts. Seeing those numbers move will be a HUGE motivation. Even if you are spreading around $50 or $100 – to see the debt go up or (hopefully) down made a big change in my life
Appreciate the advice. I actually do write things down and, when I’m very disciplined about it, I can tell to the penny how much money I have in my bank account and how much money I have available to spend. But I only write down income and expenses on my spreadsheet. When I had a higher debt amount and was paying that down, I used to love watching the number decrease. Having that end date and knowing I was on track to meet that debt-payoff date was a huge motivator. Anyway, I agree with what you’re saying. I just need to get back to that discipline.
A buffer fund is a great idea and of course an emergency fund. I keep a very large emergency fund because Mr. Murphy has messed with me a few times. I do use credit cards all the time. n fact I pay everything I can on CCs, so I can get points for gift cards, travel etc. It’s a great way to gt free stuff. I pay them off every month, so I don’t get into credit debt problems.
I definitely like the idea of a buffer. But, I’m really trying not to use credit cards if I don’t have to – not even for the points. But that’s because I’m afraid that I might overspend. I’m really afraid that I might use the credit card one thing thinking that it’s no problem and I’ll just pay off the bill next month. Then, after I use the credit cards casually, something major happens which requires the use of the credit card again and all of a sudden, my balance is more than expected, leaving me in debt. Don’t get me wrong. Credit card is a great tool for the disciplined person. Unfortunately, I’m not that disciplined.