How to get out of debt, step 9:
Plan how to cut expense and save money.
Previous: 8. Decide which alternate income source to add for extra income.
9. Plan how to cut expense and save money.
Ingredients: Your categorized three-tier list of expenses.
Now that you know how much more income you can reasonably expect, and you know how much money will be needed for debt relief, you know how much monthly expenditure must be cut. In this step, we will do just that. There are painless ways to save money. First off, it is almost always a good idea to declare a moratorium on tier 3 spending. Tier 3, you will recall, are those expenses that are neither necessary nor important. They are the luxuries, the Broadway shows, the big vacations. It's an easy tip for how to save money, because these are big and truly not essential. Eliminating them for the short term may be all you need to cut expenses to required levels. If not, let's move on to tier 2.
Tier 2, as we have stated, are those expenses that are important but not essential. Each of these expenses can be reduced by doing one of two things. Either they can be eliminated completely, or they can be substituted with something more economically sound. For example, buying new clothes can be postponed altogether, or can be done in a less expensive store or by buying less. Go through each tier 2 expense and see if it must remain as it is, can be eliminated, or can be done in a less expensive way. Then calculate how much you will save by doing all of these things. If you are still falling short, review your tier 2 expenses yet again. If you have ever been away from home without any cash available, and you are tempted to buy something, you know how easy that temptation is to withstand. After all, you are not going to steal it, and you have no way to pay for it. It does not bother you that you did not buy that item, because you really couldn't. Try to adapt that attitude here. Don't feel bad about the expenses you have to cut, because in truth you cannot afford them.
Tier 1 expenses are essentials such as groceries, school tuition and so forth. How to cut expense in tier 1 is trickier. Even so, you may be able to use substitution. For example, eating at home instead of in restaurants will save a significant amount of money. Walking more and using the car less will not only save on gas bills, but will improve your health! See where you can substitute in your tier 1 expenses, and how much that will save.
By now, you should have cut expenses enough to confidently begin to get out of debt completely. If not, go through everything yet again. If that fails, you may truly need to turn for assistance to those organizations that provide it. Charity is no shame, as long as you truly need it and plan to give charity in the future.
Next: 10. Set your Get Out Of Debt enforcement policy.