By now you’ve looked at your mounting debt and are perhaps beginning to fret, and you’ve earned the right – but don’t let it get to you. Take a breath and start with what you know. You know what you have been buying, you know what your total debt is and you know when your various bills are due.
Presumably, however, you cannot pay them all, and certainly you cannot pay them all in full. Your next step to financial health lies in determining which bills to pay first. These will be items that are at the top of what financial planners refer to as the ‘hierarchy of needs’. Simply put, this means that for as long as you are in financial survival mode, you always pay bills that are at the top of the hierarchy first. If you have to take on a part-time job just to get this far, do so. If you have to move or downsize to cut down expenses, go for it.
The top of this hierarchy consists of shelter, food, transportation (to work) and clothing (again, solely for the purpose of having proper attire for your work environment). Your utility bills are included, but not cable TV. Internet may be included if it is a necessary part of your job requirements. Make a list of your ‘hierarchy’ bills, and add them up. If you have followed along so far, you may even have a little something left over.
Before you even think about what do with this ‘little something,’ you must make sure you have put a stop to all the habits that got you into this mess in the first place. If you are eating out a lot, making impulse purchases, partying at bars – stop! This may seem drastic, and yes you might think that all your friends will now hate you because you are no longer the go-to guy for a good time (that they get to participate in on ‘your dime’). Well, so what? The important thing to realize here is that once you are on the road to financial health, you will be physically healthier, emotionally happier and will therefore attract better friends (and maybe even a better job).
Now, with all the extra spending at a standstill and the hierarchy bills paid, you can now concentrate on that previously referenced ‘little something left over’. There are many approaches to this. One that may be very helpful as a first step is to get online and use your favorite search engine to find out what percentage of your income you ought to be spending each part of the total hierarchy.
Most importantly, use that information to put yourself on a budget. There are many resources online where you can find out more on budgeting and get tools to help you put one together.