Debt Free College Graduate Shares Thoughts & Tips

I have written a short series of lessons I learned while on my way to becoming debt free but I haven’t had time to reflect and write about my reflection ever since becoming debt free in middle of March. So basically this is a great opportunity for me to rant a bit and provide some insight on how I became debt free.

Initially, I tracked my expenses for the month of March and that was a total smack in head for me because I realized I was barely over the top. So in April I developed a budget to follow and adjusted the numbers for the categories according to the expenses from March. Of course, I cut back on a few unnecessary things and this month, I have started to look for ways to minimize some of my costs.

From April, I committed myself to save at least half my income and in April I did save 40% but in the second half of April I did save 50% and continue that streak into May now too.

When I initially started with the budget it brought on a few challenges. One of the challenges right off the bat was allowing myself to make small purchases here and there and eventually that 5 bucks turned close to $100 in unnecessary expenses, therefore driving down my savings.

The other issue I came across was every time I was paid and I distributed the funds to savings and the rest to bills and expenses, my chequing account was left with 40 dollars or less. This created a bit of a panic for me because what if I needed to make a sudden purchase, I would be risking going into overdraft protection which is 5 bucks charge plus interest.

So I realized I need to set a buffet fund of like $100-300 in my chequing account to cover any unexpected expenses in the future, and I am actually in the process of putting in $100 this weekend.

Another thing I realized by having a budget is that it forces you to be creative and frugal. I don’t have the urge to go out to eat or go out to party because I know I don’t have the money saved up for it and because I have another priority for the week or month.

With that in mind, when I do save up for going out, I will appreciate it a lot more because I worked hard for it and deserve it.

My steps to being debt free:

• Track expenses
• Calculate total debt, find out interest, etc.
• Pay one debt off at a time (VISA and then LOC) and stop spending
• Have a balance sheet of your progress each month or every 2 weeks
• Reward yourself with your achievements along the way

Once debt free:

• Build a budget based on your expenses you tracked
• Determine a minimum level of savings you want to contribute each month
• For the first month have fun with the budget and see if you are left with anything
• Set goals for the next month for your budget such as a buffer fund or save up for a purchase
• Try to cut down as much as you can each month

The most important thing I realized is working with a budget and being debt free brings forth new challenges to deal with.

Challenges such as spending within the budgeted amounts for each category, not making purchases based on impulse or “want”. I probably learned a great deal of appreciating what I have and being forced to find alternatives when it came to looking into purchasing something.

This was a guest post from Tomasz Gorecki.