Getting out of debt can be the best New Year’s resolution you can set for yourself. It’s the first step to financial freedom and building wealth. Why not start (and go through) 2024 with nothing in the red?
It’s easier said than done, though. More so if you have multiple debts. You may have even borrowed from more than one money lender in Singapore. But becoming debt-free is not impossible. Here are four tips to help you get out of that debt trap.
Spend less than what you earn
The first rule of financial freedom is to live below your means. In other words, your expenses must always be lower than your total income. So if you earn S$6,000 a month, your expenses must not be higher than this number.
When your spending is below your income, you will always have money to spare at the end of the month. Put this extra money in your savings account, or use it to build your emergency fund if you don’t have one yet.
Save for rainy days
Sometimes, life can hand you lemons that will cost you something. These costs are often unexpected, and they can put a huge dent in your budget. For this reason, having an emergency fund is essential.
An emergency fund can cover hospitalisations, sudden repairs needed at home, family emergencies, and other unexpected things that may happen to you. With an adequate emergency fund, you won’t need to take out loans or borrow from friends and family to cover those sudden expenses.
Stick to a budget
Living on a budget is one of the best things you can do for your financial health this 2024. A budget lets you take control of all aspects of your spending. It lets you know exactly where each dollar is going.
Budgeting strategies vary, but most of the time, you’d want to spend only 50% of your income. Put 20% as savings, 10% as investments, and the remaining 20% as discretionary spending. In other words, you can use that money to buy whatever you want.
The numbers above are only a guide, though. You can make use of other percentages to divide your money each month.
Your budget can also be as detailed as you want it to be. Put different expenses into separate categories, such as food, utility bills, rent, transportation, savings, investments, and leisure.
You may even include long-term goals, such as a downpayment for your future home, in your budget. This way, these goals will always be on your mind, and you can regularly set money aside until you reach them.
Pay down debt gradually
The only guaranteed way to escape debt traps in 2024 is to pay them all off. If your debts are large, you may not be able to pay them off all at once. In this case, create a payment plan for each debt you owe and pay them down in amounts you can afford. Do this consistently and your debts will slowly disappear.
Once you have paid off all your debts, focus on building an emergency fund and savings. This way, you will be less likely to have to take on new debts.
Getting out of debt may be challenging, but it’s possible in 2024. Follow the four tips above and you will be on your way to financial freedom. You will worry less about money and whether you will have enough for your needs.