The Everything Guide to Living Off the Grid (5 page)

Creating a Budget

The first step to getting out of debt is to see where you spend your money. If you find you have more bills than money at the end of the month but don’t understand where it all went, a budget is an essential step. However, a budget will do you absolutely no good if you create it and file it away. You need to make daily entries into your budget until you have better control of your finances.

The first step in creating your budget is to pull together all of your financial information. This includes paycheck stubs, bank statements, bills, and any other expense or income. Sort these into several piles: income, weekly expense, monthly expense, quarterly expense, and annual expense. The weekly expenses might be things like gasoline for your car, the cost
of baby-sitting, or grocery shopping. A monthly expense might be a utility bill or credit card payment. A quarterly expense might be your garbage or water bill. And an annual expense might be your property taxes or vehicle registration.

First, create a list for income. In one column place the source of income; in the next column place the amount. If you are self-employed and your income can be variable, always use the most conservative amount. Don’t forget to deduct self-employment taxes and any other fees you pay from your income. If you receive a regular paycheck, you should only count your net income, or the amount you receive after the taxes and other deductions are subtracted.

The next list will include your weekly expenses. This list will have three columns. In the first column, record the name of each expense; remember to include even the smallest items, like the cost of your morning coffee or the amount you spend for lunch each day. In the second column, record your estimated cost for these expenses. Fill in the third column at the end of the week, when you tally your actual expenses and compare them to the second column.

Create lists for your monthly, quarterly, and annual expenses in the same way. Remember to include things like car insurance, dry-cleaning costs, veterinary costs, entertainment, and anywhere else you spend money. Make sure to include every expense, no matter how small. Paying a few dollars a day for a coffee may not seem like a budget-buster, but it’s small costs like this that add up to big numbers!

Look at your expenses and see which ones are fixed (the amount is always the same, like a mortgage payment) and which ones are variable (the amount is changing, like a grocery bill). Highlight the expenses that are variable.

Now, add up the columns. If you find yourself in a situation where your expenses exceed your income, you need to look at your variable expenses and see which ones can be altered. You can also look at some of the luxury expenses, like cable television, entertainment, or other nonessential charges, and decide which ones to eliminate. You need to put yourself in a situation where you are in control of your money, not the other way around.

If you find that you have eliminated all nonessential bills and have cut your variable expenses as much as you can, and you still have more expenses than income, you need to make some serious decisions. Talk to your creditors to see if you can reduce your payments for the time being. Most creditors will want to work with you if they know you are trying.

Look at alternatives in some of your expenses. When was the last time you had your insurance policy updated? Could there be a savings in switching providers? Are you shopping at low-cost, no-frills grocery stores? Are you purchasing expensive convenience foods, or are you buying less-expensive ingredients to make meals from scratch? Are you buying costly items like soft drinks, packaged bakery goods, and bottled water that you might be able to do without?

Three in ten Americans age twenty-five and over report they have not saved any money for retirement (29 percent of workers and retirees). Of these, 79 percent of workers and 60 percent of retirees say this is because they cannot or could not afford to save.

Finally, you need to keep a daily record of any money you spend. A small notebook or even an index card is fine for this purpose. Every time you make a purchase, from a candy bar at the newsstand or a pair of nylons at the store or even giving the paperboy a tip; you need to write down the amount. At the end of the week, sort these amounts into the categories you’ve already created in your budget. Add the amounts to see if the estimate you placed in the first column when you created your budget is realistic or if you underestimated your spending habits. If you are like most people, you will be amazed at the amount of money that flows through your hand without conscious thought. If you are spending more than is budgeted, you need to curb your impulse spending, because that is the only way you are going to get out of debt.

Maintain your daily record keeping for at least a month, so you have a good indication of where your money is going.

Sticking to a Budget

Creating a budget is easy. Sticking to a budget is much more difficult. But, if you have a goal in mind, any sacrifices you make will be worth it.

First, be sure that both you and your spouse agree to the new budget. Your budget will not work if one of you is not on board. You need to support each other and work toward your goal together.

Be creative. Find new ways to save money and get excited about it. Rather than going to the movies, rent a movie and pop your own popcorn. Try shopping at resale shops rather than at the mall. Make a list when you go to the store, and stick to the list!

Be frugal. Look at the ways you might be wasting money. Do you leave the lights on in unoccupied rooms? Do you use energy-efficient lighting? Do you run hot water longer than necessary? Do you throw away leftovers every week when you clean out your refrigerator?

If your goal is to eventually live off-grid, you need to not only be frugal, but also resourceful. Think of ways you might be able to add to your income in order to get out of debt. Do you have a hobby or skill that could produce income? Are there part-time job opportunities that would work into your schedule? Are there items in your home that could be sold on Craigslist or eBay?

Make sure your budget is revisited often. The worst thing you can do is to create your budget and then forget about it. You need to be diligent and wise when it comes to your personal finances if you ever want to be independent.

Refocusing Your Priorities

Now that you’ve set up your budget, you need to work on a plan to ensure you get out and stay out of debt. First, you need to realize that until you are out of debt, you don’t have extra spending money. Just because you paid off one bill does not mean the money budgeted for that bill is now free for spending. The next step is a debt elimination calendar.

To create a debt elimination calendar, go back to your budget and create a list of all of the bills that are creditors rather than monthly expenses. For example, a consumer credit card would be a creditor, and an electric bill would be a monthly expense. Decide which creditor you want to pay off
first. You can determine that by either who would be the quickest to be paid off, or, perhaps, who has the highest interest rate.

Create a table, either on a piece of paper or in a spreadsheet, listing the creditor on top of the column and the payments needed to pay them off below. Then list all of your creditors in the order you would like to pay them off, in subsequent columns. Start them all off with at least the minimum payment due. If you have extra money, use it to pay off your first creditor. List the monthly payment underneath the creditor’s name on the sheet. When the first creditor is paid off, move the payment amount from that column and add it to the payment amount for the next creditor. With the extra money going to the second creditor, calculate when that creditor will be paid off and add both sums (the first creditor’s payment and the second creditor’s payment) to the payment of the third creditor. Continue your calculations until you have finished your debt elimination calendar. If you are consistent in your payments and do not charge anything else on credit, you will be able to successfully pay off your debt.

Setting Reasonable Goals

As you pay off your debt, it is important for you and your spouse to set short- and long-term goals. By setting goals, you will remind yourself of the ultimate reward for getting out of debt. Every time you save money or eliminate a creditor, you are getting closer to your goal.

Effective goals follow these basic rules: be positive in your goal statements, write down your goal and put it where you can see it every day, be specific when setting your goals so you can track your success, and set realistic goals.

Short-term goals are those you can accomplish within several months or under a year. As you read through the rest of this book, think about realistic goals you can set that will move you closer to your ultimate goal of living off the grid. A short-term goal could be learning to cook using basic ingredients, or attending an alternative energy fair. Create goals you can accomplish as you work your way out of debt.

Long-term goals generally take a year or more to accomplish. A long-term goal could be purchasing a piece of property or installing an alternate energy source in your home. You can have several short-term goals leading up to your long-term goal. For example, researching the costs of solar panels and how to install them could be a short-term goal that complements your long-term goal of installing an alternate energy source.

Long-term goals should excite you and give you the incentive to work hard and sacrifice in order to realize them. Long-term goals can be as soon as a year or two away, or can be as far as five years away. Setting a goal for more than five years can be a deterrent to your day-to-day efforts because the realization of the goal can seem so far away. If you believe you need more than five years to reach your goal, be sure to set some stepping-stone mid-term goals to help you stay on task and motivated.

Either way, it is important that you create goals you can reasonably accomplish, but also set goals that are challenging. Nothing takes the wind out of your sails faster than failing to meet a goal. You don’t want to get discouraged and abandon the whole effort. Paying off the remainder of your thirty-year mortgage in two years is unrealistic and an unfair burden to place on yourself and your family. However, placing a goal like paying off your $5,000 credit card debt in five years makes a mockery of your efforts. Although you shouldn’t be creating goals that will discourage you, goals should make you stretch and challenge you. Aim for the most you can do.

Off-Grid Living as an Escape Hatch

Although not many people take it to this extreme, it must be mentioned that moving off-grid is not an escape hatch for your financial or personal woes. Leaving the grid and living a self-sufficient life does not excuse you from any debt that you have accrued, or any problems that you have caused in your current life. You are ultimately responsible for credit cards, student loans, mortgages, child support, alimony, and all other debts (including any loans on which you were a co-signer), and it is vital that you resolve these issues before embarking on your new life.

If you are planning to move off-grid to avoid paying bills or eliminating your obligation to your debtors, think again, and think long and hard about your reasons. The fact that you no longer rely on public utilities and food
sources does not forgive your previous debt; you are always obligated by law to repay what you have borrowed, and as such will suffer the penalties for nonpayment for any loans on which you have defaulted or ceased payment with no communication. The penalties can be as minor as a lien on your property until the debt is repaid, or as severe as jail. Living off-grid is all about self-sufficiency—you are not self-sufficient if you have obligations chained to you. Hiding off-grid does not eliminate previous debt. Knowing this, do you still want to make that life change?

If your finances are in trouble and you still want to pursue the off-grid life, but you are sensing no feasible way to do so in a timely manner, you should consult a professional financial planner or set up an appointment with a credit counselor. As said before, creditors may be willing to work with you if they know you are trying to resolve your debt honestly.