Journey to Financial Independence
Financial independence doesn't have to mean you'll quit your job and never work again. It could mean that you have the means to changes jobs or relationships. It might also mean that you have enough of a financial cushion to get your own business off the ground, or take time off from paid work altogether. My husband and I saved enough money to not have to work for several years back in 2008.
Average Amount Spent On Clothing Per Month
According to the Bureau of Labor and Statistics (BLS), the average amount spent on clothing in 2018 was $1866 per person (male or female), or $155.50 per month. While this information was not broken down by gender, other less formal surveys indicate that women on average are spending more; up to $400 per month on clothing, with men spending proportionately less.
My husband and I track all of our expenses, and from January to June of 2020, we spent $111.76 on clothing. Not per month - that was the total spent on clothing for six months - an average of $18.62 per month (my husband buys his clothing used as well). Since I quit work, I've needed to change up my wardrobe a bit, and my expenses were much higher in the past couple of months. For me only, in July and August I spent another $85.23 ($42.62 per month). Even at this higher monthly amount, this is a savings of more than $100 per month over the average monthly spending on clothes.
The "Set Aside" Account and the "Debt Snowball"
If you don't already have an
emergency fund, get to $1000 as soon as you can and press the pause button. You can potentially skip a formal monthly budgeting process altogether with the next two practices, while still paying off debt and building your wealth.
For the Set Aside account - List your likely "lumpy" expenses for the next 12 months and fund them monthly.
Examples of what I call "lumpy" expenses includes holiday gift-giving expenses, car repairs, home repairs/maintenance and planned furniture expenses. None of these should be a surprise (do you really think you'll spend less in car repairs this year than you did last year when your car is now a year older?), and they needn't impact your cash flow. I've found that most people are pretty good at thinking through these types of expenses and attaching a reasonable number. If you want to be a Ninja, include your annual car insurance (it costs less if you can pay your insurance as a lump sum) and your next car's down payment in your lumpy expense list, even though that next car purchase may be years away. Add up your anticipated expenses, divide by 12 and--voila--you have the monthly figure that you now need to "set aside" into a separate savings or checking account to draw upon when the lumpy expense is actually due.
I remember the first time my husband and I did this exercise. I cried when I saw that the total set aside figure would be over $700 per month - an entire paycheck for one of us at the time! But I was smiling when that first car repair came along and we already had the money we needed to pay for it set aside in our special account. My stress level around our cash flow dropped to zero and stayed there.
For the Debt Snowball - List your non-mortgage debts smallest to largest, pay the minimum on all but the smallest debt, then use the extra money spent on the previous debt plus the next debt's minimum to pay each of them off in turn.
The
Debt Snowball, popularized by the personal finance radio personality, Dave Ramsey, is all about behavioral economics. Sure, the math says you should pay down your highest interest debt first. But we humans are strongly motivated by small wins, and you'll likely stick with a program if you see early success.
You'll need extra money to throw at that first debt. Once you have $1000 in your emergency fund and money going monthly into a set-aside account, you can now allocate the money you're no longer spending on new clothes to paying down your debt. Don't forget to close out those department store credit cards, since you'll no longer be using them!
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