I’m not ashamed to admit that I was afraid to deal with our money problems head-on before our rock bottom moment that put our family on a path to debt freedom. My fear was real. I was concerned about what others might think, that we’re not supposed to talk about our money openly, and most fearful that we couldn’t survive without a credit card safety net.
I knew for several years leading up to maxing our five credit cards that we needed to make a change in our money behavior, but we pressed on, overspending, head in the sand because we were afraid to do something different. That fear kept us in our bad habit cycle because it was comfortable, it required little effort, and honestly, we were not ready for a change yet.
So when I receive reader emails asking for help, I understand what an essential first step it is to overcome that fear. I’ve been there. What I can’t quite figure out, is why my replies often go unanswered. I can only assume, like us they just are not ready yet. But you know what they say about assuming.
The Sooner, The Better
The one regret I have about dumping our six-figures in consumer debt is that we didn’t start sooner. I’m 99.9% sure if you ask 100 people who have gotten out of debt, 100 of them would say they wish they too had started sooner.
It’s a common theme in the personal finance community, articles, and discussions around what would you tell your twenty-year-old self about money, what I wish I knew about money before I Left for College, money advice you wish that you had gotten sooner, etc.
The fact that you’ve already thought enough about your money to realize there’s room for improvement, and reached out for help are significant first steps. Now keep that momentum going and take action. You will not regret starting to get your finances in order.
I’m telling you from my own experience, the thousands of personal finance articles I’ve read, and first-hand discussions I have had; everyone wishes they started paying attention to their money sooner.
I was fortunate to start before my three children were teenagers, and now they have the benefit of years of financial education, as they begin to deal with money on their own.
So please grab my email reply from your trash can, and re-read it, or check out some of the great personal finance books or blogs and get started. Just know that being afraid, having fear is normal. Change can be difficult. Climbing out of debt will take hard work, and sacrifice, but in the end, it will be so worth it.
Steps to Get Financially Organized
Personal finance is about 10% math and 90% behavior. There is no one size fits all plan that works, but here are some general guidelines that if followed can help improve your financial situation.
Realize you Need Help – Once you accept this, it is easy to move on to the next steps. Find resources that resonate with you. There are many books, blogs, and podcasts to choose from. Dave Ramsey’s “The Total Money Makeover” remains my favorite books for someone starting out.
Build a Plan – Now that you’ve mentally and emotionally ready for the change you need to build a plan. The best way is in the form of a budget. I started mine on an excel spreadsheet and still use it today. You can jot it down on paper, use an app or software like Personal Capital, but whichever way you choose, you need to get your total income, debt and expenses down in some format.
A budget could take time to evolve, and you may want to track your spending for 30, 60, 90 days saving all receipts to see where your money is going. You may be surprised at some of the dollar amounts of some categories, and they could be much higher or lower than you initially estimated. This is why tracking all spending over a period of time is helpful.
Communicate and Agree on the Plan – It’s so important to be on the same page with your spouse, partner, children, etc. when making changes like this. I was the one who initiated the plan for us, but before we started anything, I reviewed it with my wife. We compromised on some things but came away with an agreement on our money and budget that we were both in sync.
Then, we looped in our three children, so they were aware of the changes. Involving the kids was an excellent way to start educating them about all things personal finance. Communication is not just a one-time thing, and it’s ongoing every day. Our family talks about money and budgets all the time. It’s the way we’ve stayed on track for over seven-plus years.
Stop Building New Debt – Once you know you’re overall numbers, you can begin to move forward on taking action. If you have debt, the next step is to stop accumulating any new debt, not tomorrow, not next week, but today. You don’t want to dig yourself further into a hole, and you want to begin climbing out immediately. We did this by cutting up our credit cards and only using cash.
Negotiation Yourself – When you are in a tight spot let your creditors know. Some will be willing to work with you. You can call credit card companies and ask for a reduced interest rate. If you have a lump sum bill with someone, you can call and try to work out a realistic payment plan.
Creditors want to know they will be paid so opening a line of communication with them may not be a bad thing. Make sure you get names when you call or confirmation in writing of rate reductions. The worst you can receive is a “no, ” and you can call back at another time and speak with someone else or escalate to a supervisor or manager.
Wants versus Needs – Once you have a clear understanding of the budget and all expenses, it’s time to priority the expenses into two buckets either a want or a need. Food and shelter are needs, the new 60-inch television or pair of shoes is a want.
We were able to cut many wants out of our expenses things like satellite radio, eating out, and entertainment to help reduce spending. These cuts become extra money in your budget that can be used to pay down your debt.
Emergency Fund – Or the peace of mind fund. You need to have some cash saving for when life happens, or Murphy comes to visit you. We never had an e-fund before 2010, and when an appliance broke or we got a flat tire it was stressful. We didn’t have a plan for these things, and we had to scramble to find the money to pay for it or use a credit card. A $1000 saving will cover must events and reduces so much stress and avoid money fights you’ll have no idea until you have the e-fund in place.
Debt Snowball – The debt snowball is the method we chose to pay off our debt. The debt snowball is a debt reduction method where one owes on more than one account and pays off the accounts starting with the smallest balances first while paying the minimum on more substantial debts. After the smallest balance is paid off, the payment is snowballed to the next smallest debt. This method helps build momentum.
Another strategy is the Debt Avalanche method where you pay off the balance with the highest interest rates first. Any way you choose to pay off your debt is fine, as long as you are not adding any new debt along the way and adding as much additional money as possible to your repayment is the key.
Most banks and credit unions offer free credit counseling. Check with yours, and they can supply you with additional advice and information that you may find helpful.
Build Wealth – Once you have completed your debt repayment, you will now have a surplus of income each month to do what you want with. I would recommend building wealth, by increasing emergency fund saving to cover you for when more significant life events happen. Could you survive a job loss? Build retirement saving, by investing. Save money for college, a house, a vacation, a car, etc. The possibilities are endless once you free your income up to spend on your priorities and not minimum payments.
I hope these tips are helpful. If you need any help, please feel free to drop me an email.
Brian is a Dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013. Who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. Brian is involved in his local community. As a Financial Committee Chair with the Board of Education of his local school district, he has helped successfully launch a K-12 financial literacy program in a six thousand student district.