Lots of details to go through to help you pick off all of your debts so that you can then be liberated, and go and make the money that you want.There are 2 areas of focus when you want to get out of debt. It sounds simple. That is:
To spend less, and
To earn more.
I’m going to cover both, how to do those. Sometimes, you’re cutting little expenses, and it’s taking ages, when in fact, if you just went and did a bit of overtime, or sold a couple of products and services, you get out debt way quicker. So, you don’t want to get into diminishing law of returns.
I recently was flown out to Scotland, to do a Channel 4 TV Show, helping people who are really struggling to get out of debt. I was one of the experts in sort of managing money. I was the millionaire guy. There was a guy from Citizen Advice Bureau. There was like a money coach. We would sit there in a room, and then various couples would come in, who’ve got themselves into a lot of debt. Their job was to initially gave all of us their paperwork, their bills, their debts. We’d go through it with a fine-tooth comb, do a bit of research online. Then they would come and tell us their situation, hopefully, tell us the truth and reveal everything. Then we would rebuild them a plan so that they could get out of debt fast. Then they would sign that almost like, a contract. This was like, a full pilot TV Show. It may come out soon. Who knows?
I was gobsmacked, that everybody had no idea how much they were spending. They had no control over it. In fact, one couple were spending about a third, sorry, they thought they were spending about a third of what they were. Of course, the husband was lying to the wife, or the wife had a gambling problem, or the husband had some kind of addiction. They weren’t open and honest with each other. They were completely naive, hid in the sand about their financial situation. They were missing it by half or two-thirds.
1. Spend Less
Obviously, the first thing you’ve got to do, get a handle on exactly where you’re at, and that is not upping it. Like, when I do net worth statements, I was trained this by my business partner. I always sort of go on the low side, or if I had to sell it all today, and minus 10 percent cost, and 10 percent drop in the market so I’ll factor in at least 20 percent reduction in the top line figures. So, if you’re going to be anything about your personal financial situation, you know, make out that you’re spending less rather than more than you are.
2. Identify Fixed Costs and Variable Costs
You’ve got the fixed costs and the variable costs. The fixed costs are mortgage, food, general necessities, direct debits. But direct debits are things that you need.
It’s very important to make a note of this, if you can, and that is, not to confuse emotionally want and need. You need to pay your mortgage. You need to eat. You don’t need to go on a holiday. A lot of people are like ” well, holidays I really need them” to sort of stay sane. No. No, you don’t! You can take a week off, if you need to, and stay to home, or get creative.
A lot of people spend a load of money on holidays that they don’t have. They come back 30 days later, they get the credit card bill, where they’ve put their holiday on debt. They had that temporary relief, and then the pain is even more when the debt comes in.
So, make sure you’re clear on the needs spending and on the wants spending. Basically, for a very short amount of time, it might be 6 months, a year, it might be longer, but it still shortened your life. You’ve got to get rid of all the wants spending.
3. Get rid of a lot of your variable costs
So, a good way to do that, is, to get rid of a lot of your variable costs. So, the social cost, the going out, the travel, et cetera. They’re pretty easy to reduce down. For a period of time, a target time 1, 3 or 6 months, get rid of all non-necessity spending. That will build quite a lot of momentum. The first month, you might think I’ve only saved 120 quid. But then the second month, you’ve saved 160 quid on top of your 120 quid, that’s 280 quid. And it builds a lot of compounding and momentum. More important than the money you save is learning the behaviour to save the money.
I’m just not talking to people who don’t own a lot of money. I’m talking to people who earn a quarter of a million quid a year, but spend 300 grand a year. It’s even more common when you get a bigger house, a bigger car. Your overheads go way up, because you think you’ve got a lot of money than you realise. You’re spending it all. So, this is for wealthier as well as for people who don’t earn a lot.
I know people who earn 2,200, 2,500 a month, and they’ve got net disposable income of more than a grand a month. You know, they’ve paid off their mortgage. They haven’t got many overheads. So, this is not just talking to people who don’t earn a lot of money. Let’s be clear about that.
4. Cancel all the direct debits you don’t need
You don’t need the gym. You can do a workout at home. You can do those insanity workouts on YouTube. You might spend £8-£9 a day on coffee and lunch. So, what’s that? 60 odd quid a week. I mean that’s 3 grand a year. Imagine, if you could get that back, and get it off your credit cards, and then reduce the interest.
Like I said, it’s short term. You’re teaching yourself how to behave, because you won’t get more money, or retain more money until you’ve learned to manage better what you already have. Stop going out. There’s Netflix now, 7.99 a month. Stop going out. Watch Netflix every evening. You don’t need to do all this social stuff that costs a lot of money.
5. Set a specific monthly budget
Stop buying coffee. Stop buying lunches. Stop buying rounds. Set a monthly budget. So, you might have 1,500, 2,500, 5 grand, 10 grand a month. Set a specific monthly budget. Then what you do, obviously your fixed costs are going to go out of your bank. You make sure that the pay comes in. You direct debit immediately on that day out to separate bank account that takes all the direct debits. You direct debit your savings. It might be just 50 quid to start with, or 2,000 or 5,000. Then what’s left, you draw each week, if you really need discipline, and you spend that every week in cash. Then once it runs out, if it runs out on a Thursday, and you’ve got it till the Sunday, you’ve got no money for 3 days. You’ve got to be creative. But it’s a good way to sort of start giving yourself a bit of budget and spending money.
April has made a good point here. Tax versus non-tax income is huge. So, saving £3,000 in tax, if that was non-tax, that would be £5,000 or more.
Set your monthly budgets, your monthly saving, your monthly spending. Break it down into the week. Get the money out. Don’t spend it. Cut up all your credit cards, et cetera. Then build up your habits and your discipline. I promise you, as you build up the habits and the discipline, and you manage money better, the world sees that you manage money better, and it will give you a bit more, and a bit more, and a bit more.
6. Target the day where you get to zero
The next thing then is to target the day where you get to zero, where you go from the red to the black where you go from your debt to zero. Now, you want to set that in a realistic, but challenging timeframe. It might be 3 months to 2 years, depending on your debt. But set the deadline. Put it in your mind. Focus on it. Put the day in your calendar. Pin it up around the place. That is the day that you’re working towards where your life will change. You’ll be celebrating there. But you won’t be spending 50 grand to get back into debt.
I have a lot of people that want to quit their jobs. There are a lot of people that want to get into property that, you know, maybe doing a career that they’ve lost passion in. But they’re just sort of moseying along. You set the date. You make it somewhere between realistic and optimistic. Too realistic and you don’t need to set it. Too optimistic, and you just set yourself up for failure. You set that date, and then you work everything towards that date. It gives you this magnetism, and momentum, and hunger, and drive. You know, you’re more often than not get there. Even if you don’t get there, and you miss it by a couple of months, it’s still good.
All right. So, if you have debts that are high interest. I’m talking 5, 6, 9, 15 or more percent, anything under sort of 6, you’re probably all right. All that depends on the interest rates. But, if you’ve got a high debt consolidated so you could take really expensive debt, and put it on interest-free for a few months. Watch the fees. So, they’ll catch you with the fees that have an admin fee. They’ll have one-off charge, which will add quite a lot to the monthly interest. So, watch those hidden fees.
If you’ve got expensive debt consolidated into one, maybe, it’s a bit more long-term. But maybe, the payments are lower, and the interest rate is a bit lower, because debt does compound. Just as quickly as real money in the black compounds, debt compounds. Also, when you’re hitting off your debts, target the highest interest first. What a lot of people do, is, ah, I’ll pay £50 to this one. £50 to this one. £50 to this one. But if one is 5 percent, and one is 10 percent, and one is 50 percent. Hope that it’s not 50 percent. But if it is, then 50 percent is costing you more, and more, and more, and more, and more every month. It’s growing like a mushroom cloud. So, you actually put the best off, putting £10 on the low one, £15 on the medium one, and £145 on the high one. Because the more the debt is compounding, the more you need to pay off to get it down. So, do not evenly distribute your paying-off debt. Pay of the highest interest debt first. It will cost you the least amount of money in the long run.
7. Only buy stuff you need
Okay, if you’re ever going to buy stuff, which of course you have to buy stuff. Remember want and need, only buy stuff you need. Buy it in sales. Buy it in a little bit of bulk. Go and store it somewhere in the basement, or something like that. Buy 3 for 2s, 2 for 1s. Use good deals. Be careful though, because these sort of loyalty cards, and bonuses, and rewards points, they’re really good at luring you in, and getting you to spend 100 quid, when you would have spent 60 quid thinking, that you’re saving 30 quid. It’s often, a bit of a Swiss in that regard.
But anything that you buy in bulk, you can wait until there’s good sales. There are always good sales sort of 2-3 times a year, and get all of your necessity items at a reduced price. Then you have to be careful not to overconsume them. Because if you consume more, all you’re doing is saving money, but consuming more. But that’s certainly something that’s good to do. My business partner buys a lot in January sales. He goes to Cash & Carry once or twice a year. So, that can be a good thing to do.
The things that you spend money on, are likely to be link to your values. So, the things that are most important to your life, you will spend money on. That might be social. That might be health and fitness. You might spend a lot of money on food. You might spend a lot of money on travel, a lot of money on social.
If you can replace that spending with something. If you’re social, maybe, have nights in, do Netflix evenings. Just order a Deliveroo once a month instead of going out and spending a lot of money on expensive dinners, and going out socially, or whatever. But anything that you really spend your money on, that’s important to you.
Someone has just said that this should be taught in schools. I, 100 percent agreed, that this should be taught in schools. I didn’t learn this until I was 26 years old! That is quite frankly baffling and insane. I went to a good school. I went to a half-decent University. It wasn’t like, I wasn’t exposed to this. But they didn’t teach me any of this at school. I learned it when i was 26 years old! I should be learning this when I’m 6 and 16. Anyway, rant over.
Maybe, you can invest your time in building your social media profile and network online so you don’t have to spend a load of money face-to-face socially. Maybe, you can do a podcast, and turn your passion into your profession. Maybe, you can watch Netflix documentaries so that you’re learning and earning. If you can merge your passion and profession, and turn your social into your vocational, where you’re earning money. And anything that costs you a lot socially, you can reduce the costs. You’re going to get out of debt, you know, pretty quickly.
Now, we’re into the second phase, which is the earning phase. Remember, I’ve said there are 2 phases of getting out of debt fast: reducing your costs, and overheads, and spending, and then increasing the income.
8. Sell stuff you don’t use
The first thing you do, is, go and sell a lot of stuff you don’t use. In periods in my life, when I was poorest, I sold drum kits, I sold instruments. I sold Hi-Fi equipment. I sold various clothes, that I’ve bought that I’ve not wore very much. I didn’t make millions, of course, but it just helped. It utilises The Vacuum Law of Prosperity, which means that you can only bring in once you have a void, and nature abhors a vacuum. If you clog up full of second-hand stuff, you can’t bring in new stuff. So, it’s periodically, sell stuff. You’ve got a little bit of money there. You pay off some debt, which stops the interest, which then compounds the amount that you’re not paying out. It actually has more than the monetary value. Let’s say, a £1 was going to cost you £1.50, and you sold something for a £1, and then you save £1.50, because that pound was going to cost you £1.50 interest.
But you’ve matted it out of nowhere, because it was already stuff in your house. So, you can sell a lot of the stuff that you don’t need anymore.
Of course, you’ve got eBay, Gumtree, Etsy, Shopify, Amazon, Facebook Selling Groups. There are so many places now, where you can sell stuff you don’t use anymore. Just whisk around the house every 3 months. Get it all cleared. Go to the loft. Get rid of your Vinyl. Get rid of your nice clothes, or the clothes that you don’t wear that still have the labels on. That’s Step 1.
By the way, you can even teach your children. This may not be for you. Maybe, it’s better for your children. You could do a JV with your kids. You go to your friends, your family, your neighbours, and you say, hey, look, I’m selling all my stuff on eBay. I run an ecommerce business. Have you got stuff you don’t want that I could sell for you? I’ll give you 70 percent, I’ll take 30 percent. You could go and sell a load of their stuff. Now, if you needed 25 grand, then you’ve got 3 grand out of your stuff, and you’d need 22 grand. Well, if everyone there had 5 grand and your share was 2 or 3 grand, you only need about what? 12-13 people. And you’ve got rid of all your debt out of nowhere with no extra money.
Now, again, you’ve got to think what’s worth your time. That maybe, you want to JV with someone else on, or get your kids involved in. I think look, any kid who’s in their teens should know how to sell on eBay, on Etsy, on Gumtree, on Shopify, on Amazon. They probably know how to sell better than us on it.
9. Do overtime
Next thing, is, you should do overtime. Now, it’s only short term. I know you want to sort of have a good social life, and see your family, and your kids, and everything else. But you know, 10 hours overtime for the next year is not going to kill you. In the long run, it’s going to make you a much more happy balanced person when you can get out of your debt. So, can you do overtime?
10. Learn to sell
The third thing, is, you’ve got to learn to sell. Actually, might be No. 4. So, go out there and sell some products and services. But then I don’t have any, Rob. No problem. Go and sell an affiliate or another business’ products or services. Go and find a great product that you believe in, and ask if you can sell it for 20 percent plus commission. You could sell my products and services. I have companies that sell training and information. We’ve got lots of different educational platforms that you could sell, and get 10 or 20 percent of the money on. And that’s money out of thin air.
But nothing moves until someone sells something. Every entrepreneur that’s made really good money, every millionaire that’s made money, has either learned to sell, or they’ve aligned themselves to people who can sell really well. A lot of people aren’t skint for any other reason than they just can’t sell, or they can’t push that barrier. They can’t sell themselves to get a pay rise. They can’t sell their products or services. So, they just create more. They look more like a mad professor, an inventor than they’re actually a salesperson getting out there and generating new business.
The next thing, you can do, is, focus on building a personal brand, and getting good at marketing. This is why I said, if you can replace some of your physical social time that costs you money, with online social time, and you’re building your followers, your fan base, your podcast listeners, your YouTube watchers, your Facebook likes, and community members, you’re maybe getting that social need met online. You can say that, it can still be fun. I know its not the same with face-to-face, but it can still be good. You can meet some cool people. But also, you’re building this personal brand so that when you do sell products and services, you’ve got more followers, more fans, more subscribers, and more people to sell to.
You could join communities online like, these sales groups, or just general communities. Like, I’m in the high-end Hi-Fi group. There are Hi-Fi dealers there. They sell their Hi-Fi gear in that group. So, you can join the groups of which you have a product, or a service, or you work interview that industry. You can start selling your products and services within those groups as long as you follow the group withing the guidelines of the group.
So, instead of trying to cut down £200-£300 a month to get to your, I don’t know, 20 or 30 grand out of debt, you could target £300 to £500 a month extra earnings, and you might get there a lot quicker. Now, if you do both, save £200, £300, £400 a month, earn £200, £300, £400 a month, you’re going more than double the speed, because of the compounded momentum of money. Also, you’ll reduce the compounding of debt.
Then once you’ve learned to get out of debt, the best benefit is not just the money that you’ve saved, it’s what you learn. You learn to hustle a bit. You learn to go and blag a pay rise. Go and ask for a pay rise. When was the last time you ask for a pay rise? Go and ask for a pay rise. If you think I’m not going to get a pay rise. It’s not the time for a pay rise, blah, blah, blah. Go with a plan to your boss, and say, hey look, I’ve found a way our company can earn an extra £120,000 a year. This is the plan, I would like to be paid £20,000 of this extra £120,000 a year. I would like to be paid at 30 days in arrears every quarter. Is that okay? I’ll go and work really hard for you for the next quarter. I’ll bring in the money, and then you pay me.
Hey look, that’s a pretty compelling picture, if someone came to me, and gave me that pitch. I think I’ll be an idiot to say no. I would probably, give it a go. So, really, a lack of money is a lack of creativity, resourcefulness, desire to find new ways and solutions. Maybe, you’ve got a bit lazy. Maybe, you’ve got a bit down on yourself. Now, I don’t know, if you’re 2 grand in debt, or 200 grand in debt, then of course, that makes a difference.