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the financial independence plan for people in debt
well, financial independence is not just for people without debt . it can also work for people in debt .. how ?
first , list out all your debts – college loans / student loans , credit card debt , housing , car loans and the percentage that you are paying for them – in an excel file
Next step , sort them in the descending order of the interest rate ( in an excel file , it should be easy )
Next , build an emergency reserve cash of 6 months of your fixed monthly expenses ( slowly increase it to three years ) . if you have an emergency reserve , you don’t need to use the credit card for taking care of things
keep paying some amounts towards all your debts
Attack the debt with the highest interest rate first
Cut down on your expenses – take out food , dining out , movies , daily starbucks coffee etc. Use the savings from this towards the payments of the highest interest rate item.
Keep paying it down till it is zero . Then switch to the next item . You will have more money since you have one less debt . With the same reduced expenses , keep paying this debt until it is zero.
Next attack the next item . Keep doing this until all your debts are zero.
Then , start saving 50 % or more of your income and invest it in the stock market ( index funds if you don’t know which stock to pick )
cut down your lifestyle – eating out , expensive financed cars , mall trips for clothes , don’t compare yourself with others – you don’t know their finance situation
cut down from a two car family to one car family if you have to – use the public transport , carpool , bike , etc . get rid of the new cars and financing – buy a reliable certified used car without financing.
if you want to be financially free, you can increase your income as well as decrease your expenses. pick up some side gigs – which don’t conflict with your day job. Invest this money in the stock market as well.
if you need a computer , you don’t have to go for the latest – you can find a cheaper model on olx , craigslist or one of the other used exchange sites.
read our article , millionaires are made by saving 100 bucks at a time here
the difference between investing and spending ?
once you spend the money , it is gone forever
invest it and it will give you a better return than it’s value today . it will take care of you later in life and enough investments for the long term may even earn you an early retirement – making work optional ( you can still work – but on the things that you like )