Reduce/Eliminate Debt: The Plan
By Leo Babauta
Ok, you’ve read the Reduce/Eliminate Debt Module Overview, and you’re ready to get started!
Totally understandable. Let’s dive in.
First, what habits are necessary to reduce and eliminate debt? Here are the habits I found crucial:
- Face the debts. I would avoid looking at my debts as much as possible, but it wasn’t until I was able to pull them out of a drawer and actually put them on a spreadsheet that I could do anything about them. So learning to face the debts is the first habit, and it’s something you have to do regularly.
- Be Conscious of Spending. Don’t spend on impulse. Take a moment to consider purchases, and ask whether you can live without them (at least for awhile). Look at your automatic payments and other regular spending, and see if they can be reduced. Make sure your spending is in line with your values.
- Make Debt Reduction Automatic. Have a plan to reduce debt and save money, and put those things on autopilot. They need to be adjusted periodically, but if they don’t go on autopilot, they probably won’t happen.
- Review Regularly. All of the above works well, but you need to make it a habit of taking a look at everything, once a week or at least once a month. This promotes consciousness, and helps make sure the autopilot is on the right course. Adjust as needed.
The difficulty of these habits, of course, is that they don’t fit our once-a-day ideal. Having a habit that you do exactly once a day is the perfect kind of habit to form. When a habit is weekly, or multiple times during the day (but at unpredictable times), or some days but not every day … it’s harder.
What should we do?
First, we should acknowledge that tackling this problem is going to require doing things that won’t exactly become a habit, at least not in one month. The four habits above can become lifelong habits only if we do them regularly over the course of a year or two.
That’s not as solid a habit as daily meditation, I’ll admit, but there’s no way around that.
Second, we can create a daily habit that fosters the other habits. That is the habit of starting your day declaring your Financial Intentions.
Stating Your Financial Intentions
Buddhists have a very useful concept called “Intention”. Basically, it’s being conscious of what you want to do, before you do it.
Revered Buddhist monk Maha Ghosananda of Cambodia put it this way:
The thought manifests as the word;
The word manifests as the deed;
The deed develops into the habit;
Habit hardens into the character;
Character gives birth to the destiny
So the thought and word in this case are stated as an “Intention”. You can have an intention to be kind, mindful, open-hearted, loving.
We’re going to use this concept to form a daily habit that helps us with debt and finances. We’ll call it the “Financial Intention”.
We’ll use this intention to be more conscious of how we live our financial lives — which after all, is just a way of seeing our lives in general. So Financial Intention is a tool for conscious living of our lives.
What might our Financial Intention be? You can customize it to your needs and style, but here’s an example:
Today I intend to be conscious about my spending
To face my debts with openness and courage
To save and pay debts first, automatically
To review as needed for a conscious financial life
Now, that’s just an example. Put it however you like!
So we’ll start with the daily habit of Financial Intention, and then spend a little time each day doing some actual work.
Here’s what we should do each day:
- Start with Financial Intention. Start your day (or sometime early in the day) with a Financial Intention. This takes barely 20 seconds. Just sit still, take in a breath, and say your Financial Intention (write it out on the first day, with a version of something like what I wrote above). Say it like you mean it.
- Take 5 minutes to do some debt/financial work. This doesn’t have to be too hard. Figure out what you can do to further yourself along today (see examples below).
Examples of debt/financial actions you can do in 5 minutes:
- Gather your bills and debt-related paperwork in one place.
- Use an online financial tool to get a handle on your finances (Mint.com for example).
- Create a spreadsheet and start listing your debts. Finish this on the next day.
- Start creating a debt snowball plan — list your debts in order of smallest to largest, with the minimum monthly payment of each. (More on this later.)
- Create automatic payments for some of your debts.
- Create a savings account for an emergency fund, if you don’t have one yet.
- Create automatic withdrawals for your savings acccount.
- Review some of your automatic payments or bills, and see if you need them.
- Create a 30-day list, to write down things you want to buy (to curb impulse buying).
- Call creditors and ask for a different payment plan to buy yourself time for your snowball plan.
- Do a weekly review of your debt plan, spending, automatic payments.
So that’s your daily habit, in two parts: 1) State your Financial Intention, and 2) Take a 5-minute action.
Good luck my friends!