Here is a personal insight on the plan I used to lower monthly commitments. I call this whole process ‘financial planning for dummies like me’. Although this post is about financial planning, I emphasize that financial habits and lifestyle changes are the key to making this successful. On my earlier post I’ve shared some basics on how I lowered monthly expenses.
☢WARNING! : This post includes lots of numbers!
After deciding that I going to continue this journey I panicked because of my debts. So I needed to find ways to stay out of any new debts for at least the next 6 months. The 6 months goal was so I could find new passions I could do to keep afloat. To accomplish this I needed to get my finances on track and
- Know how much was I in debt
- Understand my actual commitment.
- Have a plan to lower my commitment
- How much money I need for the next 6 months.
How much am I in debt
I am not an accountant, investor nor did I study anything on financial management. I however as you would know from my earlier post was in love with Excel. So all that I did was gather all this information and put them on a spread sheet. After tabulating the debts as below it appeared as though I was half a million in debt.
What are my monthly commitments.
Now after knowing my total debts I needed to know how much I needed on a monthly basis to survive. I broke them down by a 2 parts
- Fixed commitments – Minimum commitments which does not change
- Variable commitments. – Commitments which changes every month.
Planning Financial Debts
Now basing on my monthly commitments I need about RM10k a month. Since the genius in me decided to go nuts and try fighting this rat race, I need to find ways to reduce it by half which will allow me to not depend on a 9 to 5 and diversify my focus on things I would enjoy. From my earlier post I managed save up an average of 1k with just some minor adjustments to my lifestyle. Also since I decided to move out to a lower budget house which I already own I adjusted my rental value as well. With just this minor changes, it was a successful reduction in commitment by RM2900. So now instead of ~RM10k a month I need ~RM7.5k. Now it gets more tedious to work on the fixed commitments.
Since I had yet to quit my job I had the opportunity to clear up a few debts before I officially quit. If you noticed there are mainly 4 types of debts (Personal Loan, Automotive Loan, Credit Cards & Housing Loan). I needed to clear some loans and reduce my commitment. I broke them in 4 priorities to work on with just 2 criteria
- Does the loan generate value
- Does the cost of interest rate reduce as I cover more on the principle
I marked the car as a ‘yes’ to generate value because of the potential of renting it out or to use it for e-hailing service.
If I am successful to follow the priority table and the change in lifestyle, I would be able to reduce my monthly commitment of earlier ~RM10k to now ~RM4.5k (Another way to see this is ~RM150 per day).
So now I had a plan in place the next step is to strategize and execute the plan.
I wanted to share how I worked on top 3 debt priorities on this post but this post is already 4 scrolls long with too many numbers I will save this topic for the next post.
Do drop me a note if you would like me to help you plan out your debts management or if you have some questions on this.