Budgeting for a Debt-Free Retirement

Ever wondered how to achieve financial freedom before retirement? This episode promises to arm you with the know-how to eliminate debt and secure your golden years. Join me, Kevin Bass, on Low Income Rich Life as we explore essential strategies like the avalanche method and the importance of assessing your entire debt portfolio. I'll share personal anecdotes and practical tips that will help you cut unnecessary expenses and redirect savings toward debt repayment.

We'll discuss the significance of creating a realistic budget that prioritizes debt repayment without compromising personal enjoyment. Learn how to identify areas where you can cut back, like dining out or unnecessary subscriptions, and how reallocating resources can make a huge difference. Whether you're on the brink of retirement or still have some time to plan, this episode is packed with actionable insights to help you manage and reduce debt effectively, ensuring a more secure and fulfilling retirement.

Transcript

Speaker 1: 0:00

Today we're diving into a crucial topic reducing debt before retirement. Whether you're just a few years away from retiring or still have a decade or more to go, managing and reducing your debt can make a significant difference in your financial stability and peace of mind during your retirement years. We're going to go over some actionable steps you can take to get rid of debt so that you can be financially healthier. Let's get started. Welcome to Low Income Rich Life, the podcast that helps you prepare for a secure and fulfilling retirement, even on a limited income. I'm your host, kevin Bass. Each week, we'll explore practical tips and strategies for getting out of debt, lowering expenses, living a simpler life and finding true contentment. Whether you're nearing retirement or just starting to plan, join me as we navigate the journey to a brighter future. Let's discover together how to make the most of our golden years without breaking the bank. First, let's talk about why it's so important to focus on reducing debt before retirement. When you're no longer receiving a regular paycheck, managing monthly debt payments can become increasingly challenging. High-interest debt, like credit cards or personal loans, can eat away at your fixed income, leaving you with less money to cover essential expenses and enjoy your retirement. It can also give you more flexibility to handle unexpected expenses, such as medical bills or home repairs, as an added benefit. The sooner you can eliminate debt before retirement, the more money you will have to put towards your retirement savings. So how do we go about reducing debt effectively? Here are some practical steps that you can take.

Speaker 1: 1:39

Step one is assess your debt situation. The first step in tackling debt is to get a clear picture of your current situation. Make a list of all your debts, including credit cards, personal loans, car loans and mortgages. Note the outstanding balances, interest rates and monthly payments for each. It's important not to skip over anything. Sometimes we tend to forget about smaller debts or bills that we put on the back burner, for example, that store credit card you only used once in a while, or the small personal loan you took out for some home repairs a few years ago. Even though they might seem insignificant, they add up and can still impact your financial situation. Once you have a complete overview, you'll be better equipped to prioritize and strategize your debt reduction plan. This is the foundation of your journey to financial freedom, so take your time and be thorough.

Speaker 1: 2:28

Step number two is create a budget. Creating a realistic budget is essential for managing your finances and finding extra money to put toward debt repayment. Start by listing your monthly income and expenses. Be honest and thorough, including everything from groceries and utilities to entertainment and dining out. Identifying areas where you can cut back or eliminate expenses is key. For instance, how much do you spend on dining out each month? Can you cut back on that, even if it's just a little? Are there subscription services you no longer use? Every dollar saved can be redirected toward paying down debt.

Speaker 1: 3:05

Let me give you an example from my own life. I just recently went on a diet and swore off fast food. I decided to look at the previous month's debit card spending and realized that I often spend over $500 per month on fast food alone. I was shocked. It made me think. Can y'all imagine how far an extra $500 a month could go towards paying off debt or building your retirement savings? This leads me to another important point. Budgeting is not just about cutting costs. It's also about reallocating resources to things that matter most, like paying down debt, and don't forget to set aside a little something for yourself. Budgeting doesn't have to mean deprivation. It's about smart choices.

Speaker 1: 3:46

Step three is prioritize high interest debt or tackle low balances when it comes to paying off debt. There are two camps of thought on what order to work on paying off your debt. Some folks think it's best to focus on high interest debt first. These debts cost you the most in interest charges and can quickly spiral out of control. Credit cards and personal loans often fall into this category. This strategy is known as the avalanche method, where you pay off debts with the highest interest rates first, while making minimum payments on other debts. Once the high interest debt is paid off, move on to the next highest, and so on. The idea is that by reducing the amount of interest you're paying over time, you'll be able to pay off your debts more quickly and save money. On the other side of the discussion are those who decide to use the snowball method, where you pay off the smallest debts first to gain momentum and a sense of accomplishment Anytime you're paying off debt. You can't go wrong, so choose the method that works best for you and keeps you motivated.

Speaker 1: 4:41

Now let me break this down with a simple example. Suppose you have three debts a credit card with a $5,000 balance at 18% interest, a personal loan with a $2,000 balance at 12% interest and another credit card with a $500 balance at 25% interest. If you're using the avalanche method, you'd start by attacking that $500 balance first, because it has the highest interest rate, even though it's the smallest balance. If you're using the snowball method, you'd start with that $500 balance because it's the smallest and you can knock it out quickly, then move on to the next smallest balance. Both methods have their pros and cons and it's really about what works best for you psychologically. Do you need the quick wins to stay motivated, or are you more driven by saving the most money in the long run? Take some time to think about it and choose the path that aligns with your personality and goals.

Speaker 1: 5:33

Step four explore additional income sources. Increasing your income can accelerate your debt repayment plan. Consider taking on a part-time job or freelancing or starting a side hustle to bring in extra money. Even a few hundred dollars a month can make a significant difference in your ability to pay down debt. Or you can do like me and cut out double cheeseburgers and fries. Now I know what you're thinking. Adding more work to your plate might sound exhausting, especially if you're already working full-time. But think of it this way this is a temporary measure with long-term benefits by putting in just a little extra effort now, you'll be able to pay off your debts faster and enter retirement in a much stronger financial position.

Speaker 1: 6:13

While we're at it, let's talk about some practical ideas for additional income. For instance, you might consider I don't know tutoring or pet sitting, or, if you're crafty, you could sell some crafts online or on Facebook Marketplace and, if you're handy, you could even offer home repair services in your community or, you know, be a handyman. The key is to find something you enjoy or are good at, so it doesn't feel like a chore, and remember, every little bit helps. You could also explore passive income opportunities, such as renting out a room in your home or investing in dividend paying stocks. While these might require some upfront effort or investment, they can provide ongoing income that can help you pay down debt faster.

Speaker 1: 6:54

Step five is avoid taking on new debt. While you're focused on paying down existing debt, it's crucial to avoid taking on new debt. Resist the temptation to use credit cards for financing large expenses. This step might seem obvious, but it can be one of the most challenging. Credit cards can be a slippery slope, especially when you're trying to live within your means on a limited income. It's so easy to justify a purchase by thinking I'll pay it off next month, but that mindset can quickly lead to more debt.

Speaker 1: 7:23

Instead, try to adopt a cash-only policy for non-essential items. If you can't afford to pay for something in cash, consider whether you really need it. If you do need to make a significant purchase, try to save up and pay cash whenever possible. This will help you stay on track with your debt reduction goals. Here's a tip that might help Try the 30-day rule. If you want to buy something, wait 30 days before making the purchase. If, after 30 days, you still feel that you need it, then go ahead and buy it if you can afford it. More often than not, you'll find that the impulse to buy fades over time and you may realize that you really didn't need the item after all.

Speaker 1: 8:00

Step six is seek professional advice. If you're struggling to manage your debt on your own, consider seeking advice from a financial advisor or credit counselor. They can help you create a personalized debt repayment plan, negotiate with creditors and provide guidance on managing your finances. Many nonprofit organizations offer free or low-cost credit counseling services, so don't hesitate to reach out for help if you need it. I would not look to debt consolidation companies. The personal experience of my friends and family has not been positive with using those. It's important to note that professional advice isn't just for those who are in dire straits. Even if you feel like you have a good handle on your finances, getting a second opinion from a professional can provide valuable insights and strategies that you might not have considered.

Speaker 1: 8:44

Let me share a quick story about a friend of mine. She was overwhelmed by her credit card debt and wasn't sure where to start. She reached out to a credit counseling service and they helped her develop a repayment plan that she could manage. Not only did they help her lower her interest rates, but they also provided budgeting tips that she still uses to this day. Within a few years, she was debt-free and felt a huge weight lifted off her shoulders. Sometimes, just having someone guide you through the process can make all the difference.

Speaker 1: 9:09

Before we wrap up, let's go over some common questions that people have when it comes to debt reduction before retirement. What if my income is too low to make a dent in my debt? This is a common concern, especially for those living on a fixed income or low wages. The key is to start small, even if you can only afford to pay an extra $10 or $20 a month towards your debt, it still makes a difference. Over time, those small payments add up and help you reduce your balance faster. Also, consider cutting expenses whenever possible or increasing your income, even if it's just a little bit. Every little bit helps.

Speaker 1: 9:43

How do I stay motivated when paying off debt feels like a never-ending process? Well, staying motivated can be challenging, especially when your progress feels slow. One way to stay on track is to set small, achievable goals and to celebrate each milestone you pass. For example, you could reward yourself when you pay off a certain amount of debt or when you finally pay off a specific credit card. Another strategy is to focus on the long-term benefits, such as the peace of mind you'll have in retirement. Visualizing your debt-free future can be a powerful motivator as we wind down.

Speaker 1: 10:15

I want to share some resources that can help you on your debt reduction journey. There are several great books out there that offer practical advice on managing debt and preparing for retirement. One of my favorites is the Total Money Makeover by Dave Ramsey. It provides a step-by-step plan for getting out of debt and building wealth, and it's a very simple plan to follow. I'm sorry, it is a simple plan. It's challenging to follow. Another great resource is your Money or your Life by Vicki Robin and Joe Dominguez, which teaches you how to transform your relationship with money and live a more fulfilling life. I'll have a link in the show notes for each one of those books. For you, there are also plenty of tools and apps available to help you stay on top of your finances. Budgeting apps like Mint and YNAB or you Need a Budget can help you track your spending, set financial goals and stay accountable. I'll also provide a couple of links for those, too. And if you're looking for more guidance, consider working with a financial advisor, who can help you create a customized debt repayment plan and offer advice on managing your money.

Speaker 1: 11:16

As we come to the end of this episode, I want to challenge you to take action today. Start by assessing your debt situation, create a budget and prioritize your debts. Whether you choose the avalanche method or the snowball method, the key is just to start now. Remember, the sooner you tackle your debt, the sooner you'll be able to enjoy a stress-free retirement. And don't forget to share your progress with us. I'd love to hear how you're doing and any tips or strategies that are working for you that maybe I didn't include today. You can reach out to me on social media or leave a comment on our website. Let's support each other on this journey to financial freedom. Reducing debt before retirement is one of the best things you can do for your financial health and peace of mind. It's not always easy, but with the right strategies and a little determination you can make significant progress. Strategies and a little determination, you can make significant progress. Remember every step you take today brings you closer to a more secure and enjoyable retirement tomorrow.

Speaker 1: 12:17

Thank you for tuning in to Low Income Rich Life. I'm your host, kevin Bass. If you found this episode helpful, please subscribe, rate and review the podcast. Your support helps us reach more people who can benefit from these tips and strategies. Join us next week as we discuss more ways to prepare for and live a rich life in retirement on a limited income. Don't forget to visit our website at lowincomerichlifecom for additional resources, show notes and links to everything we discussed today. You can also join the conversation in our Facebook group at facebookcom slash group slash low income rich life for more updates and retirement tips. And always remember a truly rich life is not about how you spend your money, but how you spend your time. I'm Kevin Bass, wishing you a prosperous and joyful retirement journey. Stay well and stay inspired.