Today’s post is a guest blog by Gillian at Drop that Debt! I also wrote a post for her blog today, which you can read here.
Hey all! I’m Gillian and I blog about personal finance over at Drop that Debt. It seems that Caitlin and I both started blogging and reading each others blogs around the same time, and I’ve been hooked ever since! Her Not-so-Minimalist Bathroom post was so eerily similar to my own experiences I just had to read more. I graduated school with a college diploma and a university degree like most young people do these days– in loads of debt. After a bit over 6 years in school, I was over $60,000 in debt with no real job prospects immediately leaving school. I was lucky enough to get a job serving a month after leaving school, which is not in my field but it is enough to pay the bills and it will do for now.
I got smacked by the reality train pretty hard after graduation. I realized that no, it is not as easy to pay off student loans as I thought it would be and yes, it will take me years to pay off my loans, even if I put over $1,000 per month towards them. I had been overspending during school, coupled with not earning enough to pay my tuition and living expenses and I decided I needed to finally get real about my finances so that I could throw any and all extra money at my student loans. Over the past 6 months, I have learned a lot about personal finance, what works, and what doesn’t work so well. Here are some things you can do if you find yourself not knowing where to start with getting your finances in order:
Create a budget. This is hands down the most important thing that got me on track when I started. You need to figure out approximately how much income you earn each month. Once you figure out how much you are bringing in, you can figure out how much you can afford to spend in each area. I had a set amount for rent, car insurance, car payments, and student loan payments (minimum monthly payments the institutions require) and everything else was under my control. I started by deciding how much money I wanted to dedicate for repayment of my loans. I decided on about $1,000 / month as an ultimate goal; and it’s slowly been climbing to reach that number.
Pay off your highest interest loans first. Both of my loans have fairly small interest rates. One is about 4% and the other is 4.5%. However, if you have a big credit card debt (18% +) or something else with higher interest rates, pay that off first. Make the minimum payments (or a bit above) and throw the rest of your extra money at the highest interest loan first. Once you pay the first loan off, you can add that payment onto any other loans you have.
Don’t discount anything. Even “fixed” costs can be cut back. It can be tough but often people end up living far outside of their means. If your rent is taking too large of a chunk of your budget, you should find a new place as soon as you can that is cheaper. If your mortgage payment is too big, it’s time to seriously consider selling your house and buying one that is worth less. The same thing goes for cars. It kills me that some people are making car payments that are $600 or more per month! I didn’t have too many high fixed costs but I still cut back where I could. I got my cell phone bill down from $73/month to about $33/month. Every $40 counts and can be used towards loan repayment, savings, or somewhere else.
Think before you buy. There can be many temptations when you are cutting back on spending, especially if you aren’t used to being careful with your money. Cute clothes, new gadgets and the like can be hard to ignore. I don’t deprive myself of anything (within reason), I just make sure it’s really worth the chunk of my budget before I buy it. Many times I’ve tried on clothes, left, then decided I didn’t need them after thinking on it for a day. Occasionally, the item really was worth it and I would go back the next day and make a purchase. Taking that extra time away from the store and the immediate gratification of the purchase often gives you the clarity to see that you don’t really need the item.
Since making these changes, I have consistently brought in far more money than I have paid out. My student loan payments are always high, generally in the $700 range each month and with some work I plan on increasing that number in 2013. These methods are surefire ways to get your finances in order.
If you would like to write a guest post for Born Again Minimalist, or if you would like me to write a guest post on your blog, please contact me via the suggestion box link above, or email firstname.lastname@example.org. Thank you for reading!
9 thoughts on “Minimize your budget with Gillian”
Thanks for your thoughts Gillian. I definitely used these ideas on my way to becoming debt free, except for budgets (I am not a fan). I found the most important part of the process was changing my relationship with money. It was my emotional connection with spending that was the real issue, and once I addressed that, everything else fell into place.
And thanks Caitlin for having a guest. I might hit you up on a guest post exchange at some point in the future.
That sounds great! I’d love to have more guest exchanges like this 🙂
You’re welcome ! Even if you don’t budget per se, it’s still a great idea to do a budget to at least know how much extra money you can safely spend each month. And the emotional connection is I think what is the hardest. People generally can avoid debt but they learn to love to spend and use it to destress, make themselves happy, comfort themselves, etc. I overspent in school for these reasons even though I knew I could afford it. Glad things have turned out so well for you. Keep up the great work!
I like the tip “Don’t discount anything”. I feel like so many folks just assume that 90% of their budget is untouchable. To see real change, you’ve got to look at every piece of your spending.
I agree – I refinanced my car, consolidated my student loans, and found a really affordable apartment when I was getting started in my fiscally-responsible adulthood.
If really, truly necessary, I could give up the internet and cell phone too. Thankfully, I don’t need to do that. I ❤ the internet.
This is the part that hit me the most too- people often sigh about being in debt, but seem to want to get out of it without making any hard decisions, such as cutting activities, luxuries, clothes, frivolous shopping or, as you say, considering moving house. Not wanting to downsize seems to be related to wanting to hold on to too much stuff…
At the moment, about 20% of my income goes on horse related activities. I’d hate to give this up, but I know I could if I had to for any reason. Nothing is sacred…
I have student debt, but in the UK this gets taken out of my wages automatically. There is no real benefit to paying it off, credit rating wise, apparently. So I am not making additional payments…it sounds a bit odd as I type it, but a friend started making additional payments on her loan (with a view to getting a mortgage in a few years) and was advised not to bother..
Crazy! I’m currently paying double my minimum on one of my loans in an effort to pay it off early. I don’t want it looming over me for the next 20+ years.
Wow. No idea about how the UK debts worked. That’s really interesting! And what a strange thing for someone to advise? Your friend sounds pretty smart to me.
It’s so true. People often NEED to sell their houses if they are in complete dire straits at that point and can’t get out otherwise. Unfortunate, but so important to keep your mind totally open when it comes to digging out.