Writing Your Debt-Free Plan

We all know that if something is worth remembering, it is certainly worth writing down. Your plan for living debt-free is one of the most important life plans you'll ever make.

As the old saying goes, there is no time like the present to begin putting your plan together. If you are still living at home, and haven't given much thought to moving out of the family nest, you owe it to yourself to start doing some crucial research now.

There are a few questions you need to address before you can even think of moving out. First of all, do you have a full- or part-time job? Without a job, you cannot walk out the front door of your parents' house, let alone rent your own apartment and pay your bills. So that is your first step. If you have graduated high school, and are planning to attend trade school or college, you still have the summer to begin earning some money. There's no reason you can't begin contributing to the household expenses, and you also get some practical experience in money management and bill paying in the process. By helping Mom and Dad out with the basic expenses of housing, utilities, food and clothing now, you are helping yourself to become accustomed to the monthly routine of paying your own bills later.

Assuming you have a full-time job now, what is your monthly net income? If you don't know the difference between net and gross income, net income is what is left over after all the taxes have been taken out of your paycheck. This is what you have available to pay your monthly expenses. You know, those annoying little things called bills.

It is amazing that many young people who graduate high school, sometimes even college, are poorly prepared to begin life on their own. Some have no idea what apartments in their local area are renting for, and have never seen a billing statement. Why should they? Their parents have been paying all the expenses up to now. Are you one of the ill-prepared ones? If so, don't despair, because it's never too late to begin learning. And it's not really as hard as you think.

Doing the math isn't exactly fun, but it is much better than living with a huge debt load down the road because you didn't bother to do your homework first. But cheer up, it's also easier than your geometry or biology courses. All it involves is simple addition and subtraction, and you can even use a calculator if you want. For this exercise, we will suppose that you have just accepted a job which will pay you a net income of $750 twice a month. This brings your monthly net income to a total of $1,500. Looks like a lot of money, right? Well, don't start celebrating yet. You have to pay off your monthly expenses first. Don't worry; remember this is just a hypothetical exercise for now.

Your regular monthly expenses are the six basics of life; housing, utilities, telephone, food, clothing and transportation. Let us assume that your monthly rent is $700, your average electricity bill is $60, and your average phone bill is $40. Got your calculator handy? Add up these three costs for a total of $800. Now you have to subtract the $800 from your monthly income of $1,500, which will leave you with $700 for the rest of the month. No problem, right? Maybe, and maybe not. You haven't figured in the costs for food, clothing and transportation yet. Since transportation is crucial to getting you to and from work every day, let's tackle that one next.



If you don't have your own car, you will have to rely on public transportation every day you are working, both to and from your job. We'll assign a cost of $2 each way for your regular bus or train, and that will come to $4 per day. If you work a typical nine-to-five job from Monday to Friday, you will first multiply that $4 by the five days you're working, which comes to $20 per week. Now multiply that $20 by the average of four weeks per month, and you now have an expense of $80 per month for transportation. When you subtract $80 from $700, you now have $620. And you're still not done with the expenses, since you still have to cover the costs of food and clothing. You were planning on eating and wearing some decent clothes, weren't you?

Now we'll tackle the groceries – restaurants aren't included in this exercise – which we will give a conservative estimate of $60 per week. Multiplied by four weeks, your monthly grocery expense will be $240, which you will subtract from the $620. This will leave you with only $380 for the remainder of the month, and you have one final expense to cover; buying clothing for both work and play. Let's assume that you don't have a suitable working wardrobe, and your job is in a conservative industry, such as a bank or corporate office. Chances are, the casual clothes you've been sporting so far will not cut it at work. If suits are a must in your new job, you'll have to spring for at least one, plus the necessary accessories to go with it. Since you only have $380 for the rest of the month, you should stick with discount stores for the time being. Expensive designer clothes are not an option at this point. We'll imagine that you got incredibly lucky and bought what you needed for just $150. Subtract this total from $380, and you are left with a "grand" total of $230.

From $1,500 down to $230; it's not nearly as much as you thought, was it. And the amounts for basic expenses were much more conservative than they often turn out to be in real life. If you live in an expensive city like New York or Los Angeles, your costs will probably be considerably higher than the ones I quoted previously. That was just a hypothetical exercise, to help you go through the process of subtracting monthly costs from your income. If your expenses exceed your income every month, it's not a question of if you will incur high amounts of debt. That's a certainty. The real question is how long it will take before you fall into the pit. This is why it is so important for you to put together a plan now, before making the final move. The better the plan, the better your odds of maintaining a financially healthy and debt-free lifestyle. And I'll take being debt-free over being debt-burdened anytime.