Insanity: doing the same thing over and over again and expecting a different result. When you think about the meaning behind this type of madness, you might be able to relate. I know I can. Year after year, a recurring New Year’s Resolution of mine would be to boldly claim “I’m going to payoff my debt.” Well, for starters this wanna-be goal was all wrong and far from being a SMART (Specific, Measurable, Attainable, Relevant, and Timely) goal. This claim would be made without even knowing how much debt I had. So as you can imagine year-after-year, I did not accomplish my goal to payoff debt. However, at the end of 2017, I consciously made a shift. I was tired of handing over almost my entire pay check to creditors which left me very little to fund the lavish lifestyle I wanted to live for the next two weeks until I got paid again. Some months I even robbed Peter to pay Paul. As I’ve heard my elders say, I was sick and tired of being sick and tired. So, I’d like to share with you 5 steps that I followed which helped me get serious about my finances and most of all, FINALLY TAKE ACTION!
I’ve Had Enough!
This is like Oprah having a “ah-ha moment”. You get to a point where enough is just enough. Maybe this is where the inflated consumer lifestyle gets old. How many shoes, clothes, and gadgets does one need to feel happy? This is where you’ve hit your limit and need to break the toxic living paycheck-to-paycheck cycle. If an unexpected event happens that requires you to quickly put your hands on $500-$1,000, would it disrupt your life or cause you to use some money that you had earmarked for a bill that month? Having a peace of mind and no worry from wondering how I was going to pay my bills became the most important thing in my life. Being able to take care of myself and my family in case there’s an emergency and create a stable financial life suddenly trumped everything else. If this hasn’t happened for you yet, maybe you can summon it. I recommend going into a place of quiet and be honest with yourself. Can you make better decisions with how to manage your money? Asking yourself this one question just might lead you to the kick in the butt needed so you can finally lay your debt to rest.
Check Your Values
Ponder on what matters to you the most. I heard a saying once that went something like in order to know what a person values are, take a look at their credit card and bank statements. In other words, we spend our money on what’s important. If you value leading a life filled with entertainment, bars and alcohol, the latest fashions, shopping, restaurants, then one might surmise that you value having a good time over saving and investing. While nothing is wrong with these things but when the majority of your money (or even worse – borrowed money) is going to these categories, you will always get what you’ve always been getting. This step requires some intentional introspection. In order to change your financial life, you need to first understand how you’re spending your money. I use the Mint app to track my expenses. It pulls all of your transactions into a single view from whatever sources you tell it and categorizes your transactions in nice charts. This has been a lifesaver for me. Knowing where your money is going is powerful. You will be able to pin point where there are opportunities to cut back, and then manage your money in a way that’s more in alignment with what you do want.
Knowledge is Power. I wanted to learn everything I could about personal finance. I submerged myself in reading many books and listening to podcasts. I’ll put together a list of my favorites in a future post. I think getting multiple perspectives from inside and outside the FI community is important. This helped me to consider multiple ways to accomplish a goal rather than a one-size-fits-all approach. Another great thing about this is you get to take bits and pieces from different methods to create a tailored plan that will work best for YOU. The more information you absorb, the more clear you will become on not only your goals but how you plan to accomplish them. Lastly, plans can change. If you start one approach and feel like its not working out, tweak it, or try something else. Whatever you do, just keep moving! But don’t be a victim of analysis paralysis.
Buy a Megaphone then Climb to the top of Mt. Everest
You have your plan and you’re excited to take ACTION! But here’s where the rubber meets the road: when you start telling people about your plans, you now have held yourself accountable to follow through on what you said. There is power in verbalizing your goals to others. Having them written down in your journal or your Notes app is fine and dandy but its another thing to tell your closest friends or family about the changes you’ll be making. Yes, thoughts do become things, but saying it makes it kinda real. You don’t want to be that person that blows smoke all the time talking about what they’re going to do but never does it. If it becomes a pattern, people will either stop listening to you or not take you seriously. The point here is don’t be scared to tell people you trust about your journey to blow a hole through your debt in order to create abundance and wealth. This will not only increase the accountability you have of yourself but this might even be the start of forming your support system. When your friends see you saying no to going out and blowing money like you used to they may start bringing the party to you or suggesting more free stuff to do. This might even reveal who your real friends are and who are just there to party and help you spend your money.
Don’t Take Your Eyes off the Speedometer
As you’ve started to 1) lower the expenses that you identified in step 2, and/or 2) find ways to increase your income, and 3) redirect every extra dollar to killing your debt in a methodical way, keep track of how you’re doing. Keep track of how long it took you to payoff that credit card with the smallest balance or the largest interest rate. Make sure you celebrate your wins along the way. It’s so easy to fall into feelings of deprivation and scarcity during this phase, but keep your eyes on the prize. Remember WHY you started down this path. Yes, you are paying off debt but that doesn’t mean you have to live like a hermit. There are many frugal and fun things to do out there! Keeping track of how much you paid off in xx amount of time keeps you motivated and momentum growing to keep going. And plus it give you a story to tell to your support system.
“Change will not come if we wait for some other person, or if we wait for some other time. We are the ones we’ve been waiting for. We are the change that we seek.” – Barack Obama