Extreme Financial Makeovers: How You Can Pay off $20,000 in 10 months or Less

Spending in your 20s and even your 30s on spontaneous things can be very enjoyable in the moment, but not perhaps the wisest financial decisions you can make. When you spend without having enough savings in place and without budgeting appropriately, things can easily get out of hand even if you are earning a lot.

How do you rack up expenses? It’s easy! You could just be taking someone out to dinner and easily spend over $100 when you get a nice bottle of wine and dessert, or buying friends and family expensive gifts, or furniture, technology or equipment at home that you technically do not need.

You might have a solid income from your job but with the cost of living, student loans, car loans and additional expenses you might have, you can find yourself living paycheck to paycheck every month.

Changing financial habits can be hard when you have been doing things a particular way and if you have gotten used to a lifestyle that exceeds your budget. However, when you look at it, wouldn’t you rather have the peace of mind and cash in hand to buy something you wanted or needed, instead of stressing about making ends meet every month because you have overspent?

Often people gain control of their financial situation through the help of a friend, partner, parent or colleague who guides them or is supportive when they set out to take control of their finances. The biggest motivator is as simple as this: taking control of your finances is taking control of your life!

Even if you are not ready to save a lot of money per month yet, you can meet with a certified financial planner to understand where you are currently and what you need to do to achieve your financial goals, whatever they may be. 

When you sit down with a financial planner, he or she will carefully go through your current monthly and annual expenditure. You will have a financial breakdown that will show you where you are spending your money. Often this can be a shock to people when you discover you are spending a large percentage of your monthly income on basic expenses such as rent and your cell phone while not making a dent in larger important payments like your college loans, credit cards or other such debt payments. 

However, knowledge empowers. Once you know where you are spending money and what your financial habits are, you can change them. Start first with your daily expenditures.

This is where setting budgets can be helpful. You can set aside a budget of $200 a week in cash for groceries, gas and discretionary expenses such as entertainment and haircuts. Then you have to work within that budget. Since you limit yourself to spending only the cash you have, you prevent unnecessary expenditures whether it is daily trips to the coffee shop, late night food deliveries, random purchases that you don’t really need and other miscellaneous expenses that can quickly add up. When you have cash left over, you can carry it over to the following week and reward yourself with a small purchase, whether it is going out for coffee or dinner or anything else within your budget.

Where you live also matters. If you are living in New York City or San Francisco, your daily cost of living is much higher than say in a suburban area or smaller city like Houston. Look for other ways to save such as packing lunches, cooking diner at home and even saving your change via Coinstar and depositing it in the bank!

A way to significantly increase your savings is to move to less expensive housing if you are renting or can do so. Rent or a mortgage can easily eat up as much as half of your income. Moving in with a friend or getting a roommate can cut your monthly costs even further by as much as $1000!

With these excellent habits in hand - lower monthly expenses and an allocated weekly budget for food, gas and related expenses - you begin to have strong self-discipline. You will find even small indulgences seem luxurious and you are satisfied with less as you keep your eye on your prize - paying off your debt and building up your savings!

If you get a new job or come into more money, keeping your same good habits will enable you to pay off debt faster and save money faster. Some of the priorities to think about include setting aside an emergency fund and paying down your student loans and credit cards. Your emergency fund should first be a $1,000. Then you can add funds to include at least one month’s rent and utilities. After that, aim for 3-6 months of monthly expenditure.

In terms of student loans, always pay more than the minimum. If your minimum payment is $300, pay $400 at least. Make a dent. With a higher salary or additional income, start eliminating your debt. Do it in stages like paying off the credit cards in full while paying a higher amount of your student loans. Once your credit cards are paid off in full and you should see a nice uptick in your credit score too, start paying off your student loans with the same gusto and in as large payments as you can. 

Make achieving financial freedom - paying off all your debt and protecting yourself with strong savings - your primary goal. Celebrate your successes along the way.  Figure out what other expenses you can eliminate. For example if you do not need to commute to work or you live in an area with great public transportation, ditch your car. Free yourself of your monthly car payment and insurance. Put that money again towards your loans and credit card payments.

Track your progress too. It is incredibly satisfying to see the numbers and progress! Within less than 10 months, with a focused plan like this, you can eliminate a large amount of debt and also put aside 3-6 months savings.

Finally, if you decide to move, aim for an area that costs less than where you currently live. Save money by your lowered expenses. You may also want to consider taking out a personal loan to pay off your credit card or student loans at a lower percentage rate and save significant dollars on interest rates.

It is hugely motivating to see your credit card balances drop to zero and your credit score go from 500s and 600s to the high 700s and 800s. Favorable credit opens up better purchasing options for you whether you are looking to rent or buy a home or vehicle or expand a business or anything that requires a credit check.

Having emergency funds gives you a peace of mind unlike any other. Being self-disciplined and keenly aware of your own spending habits teaches you how to manage yourself and keep your expenses within your budget. By doing these steps, you will end up with a positive net worth that may be the first time in your life as an adult! Enjoy!