Money Tips

You CAN Do Both! Tips to Save Money and Pay Off Debt

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So you’re thinking about going on a debt-free journey but you’re wondering:

Is it possible to save money and pay off debt at the same time?

 

We often assume that we have to do one or the other but, as I thought about it, I had always done both! Even with a low income.

 

Here’s how:

 

Get organized.

No matter what you choose to do financially, organization is key. This is because shifting your finances can easily become overwhelming and when we’re overwhelmed we’re more likely to quit!

 

Create the dang budget

A budget is the ultimate form of organization. And although it gets a bad rap, it’s simply just a spending plan!

 

In order to save money and pay off debt, you need to know what’s coming in and going out.

 

For a specific timeframe (most commonly a month), list:

  • Your essential expenses (utilities, rent/mortgage, debt payments, etc)
  • Your non-essential expenses (eating out, beauty, etc.)
  • Your income

And when you have a comprehensive “spending plan” you know what your golden gap is. This is the amount of money you have remaining after all expenses have been subtracted from your income.

 

It's the amount you have to use to fund your goals so it’s important to keep your eye on it.

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    Determine which debt balance you want to start with first

    Listen, paying off debt may be one of the hardest things you do. This is because it takes persistence, patience, and consistency. All things we tend to struggle with.

     

    It’s a lot easier to stay motivated when you know which debt you’re focusing on.

     

    Create a document in which you list every individual debt, making sure to include:

    • The lender or debt’s name
    • The minimum payment
    • The interest rate or APR

    This list will help you determine which debt you want to work on first.

     

    When trying to save money and pay off debt it’s important to be strategic. Because obviously your money is divided. 

     

    Debt payoff strategies

    When it comes to debt payoff strategies, it will truly just depend on your behavior.

     

    Do you need to start with a lower balance debt to feel accomplished or are you a numbers person? This will determine which method you choose.

     

    Debt snowball. This method involves starting with the debt with the smallest balance.

    Debt avalanche. This method involves starting with the debt that has the highest interest rate.

    Debt with the largest payment. This method involves starting with the debt that takes up the most money in your budget. 

    Newest debt. This method involves starting with the debt that was most current.

     

    Set up an automatic savings contribution 

    This is what many call “saving the lazy way.” I like automatic contributions because it forces you to commit to saving. No excuses!

     

    Most employers now offer direct deposit which allows you to set up a specific amount to be deposited into the accounts of your choice.

     

    When determining how much to contribute, you will need to decide which is more important: saving or paying off debt?

     

    If you choose debt, then obviously you will send more of your “golden gap” to debt than savings.

     

    For saving beginners, I always recommend starting small in order to pace yourself and then gradually raise your contributions.

     

    Posts to check out next!

    How to Stick to a Budget – I Mean REALLY Make it Stick!

    Lifestyle Creep: What Is It and How to Easily Avoid It!

    How to Get Out of Living Paycheck to Paycheck – As a Single Mom!

    I’m Debt Free! How to Get Out of Debt as a Single Mom

    Steps to Set Up a Separate Account for Paying Bills – That’s Automated!

    Use the 70/20/10 allocation for windfalls

    Windfalls can play a huge role in helping you save money and pay off debt, especially if you’re low income.

    This includes:

    • Tax refunds
    • Settlement checks
    • Stimulus checks
    • Bonuses
    • Even child support!

     

    When you receive money that you’re not used to having, it’s easy to freak out and wonder how you should use the money.

     

    This is why taking the previous steps to get organized is key!

     

    On my debt-free journey, I created a 70/20/10 allocation method to ensure that my goals were tended to while also being able to enjoy myself.

     

    Let’s say you’ve decided that paying off debt is slightly more important than saving money.

     

    This means that:

    • 70% goes to debt
    • 20% goes to savings
    • 10% goes to you for personal use!

     

    You can spend that 10% guilt-free because you used 90% of the windfall in a financially responsible way.

     

    Roll freed up money back in!

    As your debt balances decrease, increase both your debt payments and savings contributions.

     

    This will take discipline to NOT work that extra money into your budget and apply it to things that aren’t moving the needle.

     

    Your mind will try to convince you why you deserve to apply this money to beauty etc. But you must think greater than your emotions to gain control of your emotions.

     

    Even if your income isn’t growing, doing this will allow your payments and contributions to grow!

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