Max always seemed to have trouble living without massive amounts of credit card debt. When he graduated from college, he had over $20,000 in credit card debt and even though he had a very well paying job, he was barely able to cover his monthly rent, car note and ballooning credit card payments. A few years out of school, furnishing his apartment, dinners and drinks out with friends and mindless spending caused his credit card debt to grow to $30,000.

In 2009, at the prompting of his new girlfriend, Max decided he no longer wanted to live with the burden of debt. A financial planner was made available to Max through his office’s employee assistance program. Working with his financial planner, Max developed a plan and made some very difficult choices that put him on the path toward financial security. Max’s financial planner advised the following:

1. Log Your Finances. Before you can make a budget, you have to know how you spend your money. Reviewing your checking account and credit/debit card activity is a great place to start. However, if you are someone who uses cash for even small purchases, try keeping a log to track where those extra dollars can go. Max found that his $3.50 morning coffees, $15 lunches and $20 happy hours with friends quickly added up.

2. Write Down Your Current Budget. Once you know how you spend your money, you need to write down all your monthly expenses in one place. Log what you really spend over a few months. If you pay your bills online, looking back over banking statements can help you see trends in what you pay for variable monthly expenses like food and utilities. Tools like Mint.com are great at helping you track what you really spend.

3. Look for Places to Save and Ask Hard Questions. Can you take in a roommate to save money on rent and utilities. If you commute to work, is there a cheaper way to get to the office or can you telecommute. If bringing your lunch to work every day is not possible, can you bring it your lunch 2 or 3 days a week. It may be helpful to share your budget with a trusted friend, advisor or family member. They may be able to ask you hard questions about your budget and help you brainstorm areas where you can save.

4. Determine Savings, Spending and Debt Payments. There are different schools of thought about how quickly to pay down debt and how much to have in a savings account in case of emergencies. Most experts say that you need 3 – 6 months of savings before you should begin paying down debt. And, of course, the faster you pay down debt, the less interest you will pay on your debt.

For Max, steps two and three were his secret sauce. By logging his expenses, he was able to see where he often mindlessly spent his paycheck month. A few of his findings included:

Max was planning to take a week-long trip in July to the beach. He estimated it could cost close to $2,000 or more.

In step 3, Max committed to a budget and made a few hard lifestyle decisions. He moved in with his girlfriend and cut his rent and utilities in half. Max started taking his lunch to work three times a week and invested in a nice coffee maker at home. He limited himself to one night out a weekend. His girlfriend helped with the puppy and Max started jogging with the dog a few times a week, allowing him to cancel both the gym membership and the very expensive dog walker. And, he committed to a budget-friendly a “stay-cation” instead of his beach trip.

To help even further, Max put any extra income toward debt: received increase in pay after a promotion, small tax refund from 2008 and a year-end bonus. Within one year, Max was out of debt, free of crushing credit card payments and looking forward to saving for his next beach trip!

If you’ve got a compelling story to tell, then click here to contact us.