Indebted to Life: Stepping Out of Debt

Looking Ahead

They should really teach taxes and finance way earlier in our school, isn't it? It happened. The statement with a value that just won't go down and you don't know how to circumvent it. Well, it happened with me, as I am sure some of you may well be in the same boat right now. So, here's how I got out of it. 

It happened without much notice for a few years, actually - the credit card that came  complimentary with a lot of points promised with those purchases; the sudden trips that now almost always had the funds and the sheer amount of things that I could do without having to deal with real money, real cash in my hand. Before I knew it, I was spiralling down and every single measure undertaken to get myself out of the situation met with a sudden challenge and I was back to a square one, figuring out my next month's salary even before the first week of the previous month.

As I sat today with the final credit card bill in my hand, I looked back at all the tiny little things that happened, sometimes without even my knowledge that led me to situation of having a massive debt. Friends who borrowed without paying back. Shifting houses when the landlord suddenly sold her flat. I looked back at the things that I had to do to turn things around and the sheer amount of control I needed to have while I saw my social life slowly (and gladly) going away.

Phase 1: Where Are We?
At the beginning of the year and the month, I sat down and did an honest review of where I was, financially. The sheet simply had three columns:
1. Income (month)
2. Projected Expenses (month)
3. Outstanding Debt (cc 1, cc 2, cc 3...)

Obviously, the projected expenses were the "needed" ones. You know, the rent, the savings, the investments, the bills, the transportation, grocery etc. With the salary in my hand, I paid off every one of those first and was left with ~50% of the salary. Now, I had 31 days and around 4 weeks to plan it out. 

I looked at the debt, the minimum amount due which would be auto debited. Even though I could dip into my savings and divert my funds to close the card, I decided to let the following format follow:
1. I will pay for my essentials the day my salary comes.
2. I will save 20% of my salary into savings
3. I will pay 2x of my minimum amount due
4. Give myself a weekly pocket money 
5. Plan meals and night outs and expenses around the same.

I'd be left with a hilariously low sum of money in salary account after I was done sending away all that money - money that I could splurge if I wanted to - but I let it be as I knew some random night out funds should be allocated. 

The only heavy purchase that I did since then was my phone.

Over to next phase: Plan my life for the next year.

Phase 2: So, Where To?I realized that I just had one source of income and traditional investments in my belt (primarily for tax saving purpose). I had an existing personal loan at 13%. Everything was planned in a way that I would not be fired, I would not face an accident, and expenses won't spiral out.

As Tony Stark said to Loki as Chitauris rained down on New York - Not a great plan.

Over the next few weeks, I explored opportunities to increase my sources of income. I am a writer and could opt for freelance content writing, something that I did until I left Calcutta. It was boring and I was sure to not love it at all. Consulting would be the better option, I thought. However, the opportunities that came up where coaching and consulting. That would essentially help me negate the CC bills and would help me clear out the debt faster while maintaining this self imposed austerity driven lifestyle. That's it. The journey began and soon the loans hit the minimum amount of time they need for me to apply for foreclosure.

This was what was bulk of last year for me - working week-on-week without break. I was able to rein in expenditure by the rule set at the beginning of the year. Bought a few shirts and a couple of sweaters for the oncoming winters. That's it. 

So, now I had my income sorted and my expenses sorted, month-on-month. Now what? The debt. The frigging debt had to be attacked. I got another bank to club my existing CC debt and outstanding Loan and offer me a combined loan with lower interest rate. They offered 11.5% and I bargained for 11% and they obliged, with room for foreclosing the loan after 6 months. With my income and savings going up further, in a short few months, I was going to be in a position to close it. 

Now, since the bank was still charging the interest, I had the opportunity to make it ZERO even during the 6 months they were going to charge. How? Mutual funds. Basis my extensive reading across Quora, ET News and looking at trends, I did aggressive investments, balancing out between mid and small cap funds with a mix of equity and debt instruments. I was investing in large cap for tax saving purposes previously, by the way. 

In the meanwhile, I shifted out from my previous house. Dipped into savings to buy/rent furniture and that ensured that I put no pressure on my card. Then, there was a trip to Calcutta as well.

That bloody worked. Now, looking back, I am out of debt and last month, my credit card company doubled my limit as my credit scores had shot up. 

The tough journey is ahead though. That's where Phase 3 kicks in.

Phase 3: Staying Put
I have read up on various methods (Kakeibo, Minimalism) to manage expenses and gave it a simple "capitalist" spin, so to speak. Here's how I plan to stay out of debt for the rest of my life.

  • Need v/s want - If I don't use it everyday for a year, I am not buying it.
  • Clothes - I will not expand my wardrobe. As soon as any piece of clothing is permanently damaged (sun burnt, tears beyond repair or has been used for 5 years), I will buy a replacement and discard this one.
  • Night outs - The pocket money trick worked. Shall keep the same going for this year as well. Good music and artists deserve an audience. Sucker for LIVE shows.
  • Splurge inside, Austerity outside - No compromise on anything that goes inside the body. Eat well, drink well and sleep well. Everything else can be de-prioritized. Coming back to a well stocked fridge with veggies and meat is a good sight. Helps me stay away from junk and unnecessary ordering in.
  • Anti-Sale - Sales are a way to trick your mind into thinking you are making a profit. You aren't. Invest in good quality clothes, made of material that lasts. I time my planned purchases with Sale and that has been a blessing.
  • 40:30:20:10 rule - Now that I am out of debt in the truest sense of form I am going to allocate 40% of my primary income to everyday "need" expenses, while 30% would go into investments (Equity:Debt:Gold::15:10:5). 20% would go into my cash savings and 10% would be for my occasional splurges. Any additional income goes straight to MFs for a 3 year lock-in.

To Summarize
If you want to get out of the condition, diverisify everything - your income and your investments. India as a gigonomy is growing. No job is below you and you can always do away with party friends if you have to course correct your life, for a few months. Unless you want to Thanos snap your financial health and consequently, your own. 

If you have more questions, let's catch up on my twitter or drop me a private message by filling out the form on this website (tap on the top left corner). 

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