First of all I have to say I am not some financial guru. Just a few years ago my finances were a mess. I didn’t know it at the time, but once I started improving them I realized the obvious. My finances were a mess. I knew something was wrong, but I couldn’t pinpoint it. I couldn’t help the people I love, I couldn’t make a difference for the causes I cared, my business was struggling and I had to borrow cash each time there was a big spending on the horizon. Like a minor fix on the car. Sound familiar?

Getting a loan was so easy!

Credit card number one, credit card number two, overdraft, loan number one, loan number two…

Before I knew it, I had too much month at the end of the money, and my only source of income at the time was a new fledgling startup that just received an angel investment. I was lucky because I was able to sell my first company which helped take care some of my debt, but that didn’t change my habits. We were barely making any income because the product from the new company was yet supposed to be fully developed, and it was a race against time. Later when it was becoming obvious that we aren’t capable of making the revenue to support the team, and no investor was coming to the rescue, the team started to fall apart. I resolved to what was my final loan to save the company. I was on my own, and I started with myself. I decided to first take care of my own finances before figuring out my business. So I read a few books, watched a few seminars, and more importantly I took action.

I started tracking my personal finances. I created a budget for me and my fiance. Together we made a firm decision to stick by it. We weren’t going to starve ourselves, we were still traveling, visiting family in different cities, there was time and money for our favorite cafe, but when the month was over, our personal finances had to be in the green.

Income > expenses. That was our number one rule. Then we started eliminating our debt, and after we were done with that, we started saving some money. We realized that “income > expenses” is easier if you work both on improving your income AND reducing your expenses. We learned that you also need to financially reward yourself and the ones closest to you, so that the struggle makes sense. When you do it like that, your rewards are thought out, and you make the decision based on your real wants and needs.

I think one of the books that really captures those steps is The Total Money Makeover by Dave Ramsey. It doesn’t cover everything, and you still have to act (not just read the book), but it is a great start for someone who is clueless and needs help! Nothing wrong in needing financial help, you are definitely in the majority on this fine planet. I think it’s one of the ultimate mysteries. How do you explain two different families living in the same city, one barely getting by with $1000, and the other also barely getting by with $1500. Shouldn’t the one with $1500 be well off since they are making as much as 50% more than the other family? Somehow we find a way to mess it all up. I remember one of my investors telling me a story about his friend. His friend got a raise, and then he sold his old car, and bought a brand new car with a loan. Why in the world would you do that? Couple years later my friend did the same thing.

You can get out of debt, only when you decide that you really want to get out of debt. If you put other things before getting out of debt, you will never get out of debt.

Another important thing I found out during my financial crusade was that the little habits I originally thought weren’t that dangerous were in fact really dangerous. Think of it like this, if you pay something EVERY month, you really have to be 100% certain that you absolutely need that. Otherwise, it’s not “just $5”, it is at least “$60” (x12 / per year) and once you calculate in opportunity cost (if you invested those $60 dollars elsewhere) it snowballs into a much larger problem or should we say opportunity. This is especially important if you are an entrepreneur. $60 spent elsewhere are the $60 that weren’t invested in your business. Some may say, $60, that’s nothing. Few years ago, I would agree with you 100%. But now I know my customer acquisition cost (CAC), and I can tell you exactly how many clients I could get with $60. I could also tell you our customer lifetime value (CLV), and how much exactly we didn’t make because the measly $60 were spent elsewhere…

I don’t want to say quit smoking, and invest the money in a tobacco company but if you do the math yourself you could get a compelling reason to do so. Obviously you’ve decided that smoking means more to you than financial freedom, which is totally OK if you’ve accepted this as your destiny. I am using this example only to explain the root of the problem. You can get out of debt, only when you decide that you really want to get out of debt. If you put other things before getting out of debt, you will never get out of debt. Some of you may be asking, can I get out of debt and still indulge in that one thing I love to enjoy the pleasure of? Sure you can, but you will probably have to cut of something else, so that you at least start to spend less than you earn.

Recently I listened to an audiobook on personal finances, The Total Money Makeover, by Dave Ramsey. Watch the video below to see what 5 takeaways I got from it.

If you are watching this video, and reading this blog post I think we can both agree life isn’t so bad. You can afford a device with Internet access. Billions of people don’t have this privilege and opportunity. Earlier I mentioned $60. What if life was such a struggle that $60 sounds like a lot of money! I hear you, I’ve been there! You have to start somewhere, and the next best thing after money is time. You have to be careful how you spend time. Think of it like budgeting your time in a day, or in a month. If you keep spending time with the same people that aren’t going anywhere, guess what are the chances you won’t go anywhere either? Exactly.

You have to spend quality time on improving your skills (books, courses, seminars) and looking for opportunities (networking, cold calls, brainstorm business ideas, send CVs). If you are not spending at least 8-12 hours per day on these activities (when you are tight on cash), you won’t get far. Again, same problem with finances, if there’s something more important than getting ahead in life (like playing video games) you aren’t going anywhere. I don’t have anything against you if you are playing video games (I was once like that myself) but five, ten or twenty years down the road I can almost guarantee; you aren’t going to be happy.

In closing, I can say that getting out of debt is easy, once you find a good reason for it. As I mentioned before, once you put getting out of debt on the top of your list, you will find a way. Why? Because recipe is so simple it sounds stupid. Spend less than you earn. Don’t buy stuff you don’t need, sell stuff you don’t need, increase your income, save and invest the difference. That’s step one. Within one year, you can be clear of debt, and ahead of majority of people living around you. Maybe you are going to drive an old car, or have to rent an apartment (car and a home are biggest purchases most people will ever make), but this is secondary! Getting out of debt in my opinion, needs to be your number one priority!

Fourteen ways to get out of debt

1. Sell stuff that are lying around house and / or in your garage and attic
2. If you are an entrepreneur, increase your revenue by: raising prices/providing more value, increase the frequency of purchase from current clients, get more clients
3. If you are not an entrepreneur (become one, at least part time – check job opportunities on Upwork, Fiverr ) or ask your employer how you could provide more value so that you get a raise
4. Track how you spend time and money, this will give you a great clue where you are making mistakes
5. If you don’t have time for the first 4 advices, stop doing one of the most unproductive activities in your day, and do any of the first advices listed here
6. Set a written budget, do whatever it takes to know how much exactly you can spend on each category, and whatever you do, don’t cross that budget
7. When you set your budget, include: emergency saving, debt payoff, donations (if you are not way-way-way in the red). Giving any amount of money that helps someone or something you care about, will fill your heart and give you energy to proceed on your crusade.
8. If the debt is huge, you have no choice but becoming an entrepreneur. As long as you are changing time for money (working for a paycheck) it will take you a very long time to payoff your debt
9. Don’t take new debt to refinance the old debt unless you absolutely know what you are doing. Since you are here, I’ll assume you don’t so I’ll advise you to not to get a new loan. I also made the same fatal mistake few years ago! I got a loan, to clear my overdraft debt. A year later I had a loan to repay, and I was again deep in the overdraft.
10. If the temptation is to great, eliminate it completely! If you can’t control your credit card spending, cut the credit card. If you can’t control your overdraft, call your bank to cancel your overdraft.
11. This one is tricky. If you already sold everything your “don’t need” it’s time to rethink what you don’t need. Do you really need a tablet if you have a smart phone? Do you need a DSLR if you have an expensive smart phone? Do you really need to watch Netflix, or should you work on improving your skills?
12. Once you gain momentum or you get out of debt, resolve to never make the same mistake! Take note of the changes that set you free, keep repeating those actions, and never repeat the mistakes that got you here in the first place!
13. Stop paying stuff with credit cards, or with 6-12 months “easy pays”. It’s very hard to control your expenses like that, and especially if you are in debt. If you really, really, REALLY need to buy something, sell something else, increase your income and talk with a third party to help decide if you really need this thing you can’t afford.
14. Get everybody under your roof to be on the same page! If your spouse spends whatever you saved, you will soon be in debt, or single.