It’s no secret that the only reason that I was able to pull myself out of my debt situation was that I had help. In fact, I had a lot of help. Just over 5 years ago, I had no idea where I was going or what I was doing both in personal finance and life. I couldn’t even spell the word B-U-D-G-E-T. I used the Baby Step method that was pulled together by a guy named Dave Ramsey. If you’re not familiar with the guy, he has been instrumental in helping people get out of debt and headed towards financial freedom. Two words that he would say “don’t go together”. He’s quite the showman. So you might ask yourself:
Why bring up this guy when you are trying to help others with their financial situations?
Answer: For the very reason you asked that question. To help others improve their financial situation!
One of the main reasons I even started this blog was in hopes that I would be able to reach out to people who could relate to where I was and where I wanted to go. Money touches all of our lives and let’s face it, we as consumers are not even remotely educated to where we NEED (yes, I did say need!) to be by the time we leave high school. We are in a state of financial stupidity in this country, and we are going to need all the help we can get to get out of it. So if I have gone through a program that worked for me, or if I find/create a tool that I believe will help others, you can bet that I will share it with my readers!
If we need so much help, is it hopeless?
Not even remotely hopeless. The best part about most if not all of the advice given is common sense. I mean this particular article involves just 4-steps! It’s basically the Foxtrot of Finance. You know what? I like that and am going to coin that right here! So without further ado, I bring you the Foxtrot of Finance!
Step 1: Accept Help
This is by far one of the easiest and hardest of the steps. I remember sitting down with my parents one night, tears streaming down my cheek as I setup the second budget of my entire life. It was on a legal pad and we spent what seemed like hours hammering out the details. That budget would later be abandoned as it was a very passive form of budgeting. We set it up once and didn’t revisit it month to month which I later learned was not very effective. However, this moment was very pivotal in my entire life as it was the moment that I realized I could not do this on my own and needed guidance.
It was a humbling moment. Looking back I realize that those tears were not just from the overwhelming fear of facing my financial demons, but relief that there was hope. That as dire as my situation was I could still get out! I never would have realized this without the help of others. That is why, if you are in a dire or what can seem like hopeless situation take that first step. Seek out and accept the help of others who are being successful. A mantra that comes to mind would be:
Best practices are just taking the ideas of others and adopting them as your own.
Step 2: Create a Zero Balance Budget
One of the best budgeting systems that I’ve found is creating a Zero Balance Budget. Essentially, it is a budget where you take how much you earn each month and allocate those funds to your expenses for that month until you have “spent” all of the money you are bringing in. Even if that means putting the funds into a savings category.
This form of budgeting is a proactive approach versus a reactive one. I’ve adopted this type of planning when scheduling my time and tasks for the week. It really gives your dollars/hours more power and focus. My Tae Kwon Do instruction used to say that:
Focus yields intensity!
There is a lot of material out there and I have linked you to a shortened version of it for now. If I write out an in depth post in the future I will link it here.
Step 3: Build a Starter Emergency Fund
Once you have become current on all of your payments to your bills and debts, build yourself a small nest egg as insurance against the unexpected expenses (emergencies only)! This does not mean it is money you pay your pizza guy when you don’t have cash on you! Dave Ramsey will teach you to put $1,000 towards this fund of $500 if you make under $25,000. This can vary depending on your situation, but for 90% of households, I would say that this rule is a good one to follow.
You may be saying to yourself:
I don’t feel very comfortable with that little in my bank account…
There is no way I will be able to save up that amount in my account…
“Whether you think you can or can’t, either way you’re right.” –Henry Ford
(I love quotes if you hadn’t guessed.)
Chances are if you have said either of the two sentences mentioned, then chances are you are not living on a written budget of any kind. If you knew where all of the money you were spending was going every month, would you be so worried about what is left? If you found that you didn’t have any extra left over after expenses, would you be able to trim down some categories or perhaps get a second/third/fourth job for a little to boost your income to help you get started?
The point of the starter emergency fund is not to feel 100% secure as later on you will build it to a fully funded emergency fund. This is just to get you started for now and not a forever thing. I know I didn’t feel comfortable with only $1,000 in the bank. But you know what? It motivated me to get my debts paid off even faster so that I could build up that fully funded emergency fund. If I had secured my fully funded emergency fund before hand, I would have been comfortable and complacency would have kicked in.
Complacency is the killer of progress.
Step 4: Become Accountable
This may seem like Step 1 in disguise but it is completely different. By being accountable for our actions, we are more likely to follow through with them. The American Society of Training and Development (ASTD) did a study on accountability and found the following:
The probability of completing a goal if:
- You have an idea or a goal: 10%
- You consciously decide you will do it: 25%
- You decide when you will do it: 40%
- You plan how you will do it: 50%
- You commit to someone you will do it: 65%
- You have a specific accountability appointment with a person you’ve committed to: 95%
95%! You can reach these extreme levels of success by having an accountability partner whom you can talk to regularly.
Married people: this would be your spouse. You should be talking to each other about finances anyway. Trust me it works. When I’m at the store and I see some fancy gizmo that I would love to get my hands on I think about what my fiance would say. After a second or two, I quickly move on and it’s helped me avoid buyers remorse for the past year and a half!
Singles: find a friend that will hold you accountable for your purchases/finances. This is someone you trust to hurt your feelings if need be. Set up to have a meeting with this person so that you know you’re on the right track!
There you have it. The Financial Foxtrot (coining this way too)! The first four steps to set you on the right track. The hardest part is starting. So don’t delay and start today!
Which step do you think will be the hardest for you? Please leave a comment and I will definitely respond! Don’t forget to Like this post if you found it helpful!