We're continuing in our Money Management Series. If you missed the previous entries, then read Part 1: Introduction, Part 2: Budgeting and Tracking, Part 3: Allocation and Payments Schedule. Reminder: at the end of the month, The Lampo Group, inc. (Dave Ramey’s company) has kindly offered the book The Total Money Makeover and Deluxe Envelope System to be shared through a giveaway* here at Reviving Homemaking!
What would you do with hundreds of dollars more each month? Furthermore, how would you feel? I imagine that we'd all jump at an offer to be given more money or less stress. Truth is, that offer is available to us but we choose against it by tying our money up in debt. The concept is simple- the more money obligated to payments is less money for your own living, savings, giving, security etc. The path to freeing up our finances isn't simple and isn't easy, but is more than worth the endeavor.
Don't be fooled into believing that debt is acceptable to carry in life because it is unrealistic to eliminate it. Not only is your money rendered unavailable for other uses each month, but it's also being thrown away by paying interest. By the end of the loan, you will have paid more for the item than it originally cost. If throwing money away is a distressful thought, then so should paying interest. Again, what could be done with that money instead? It's a matter of changing our thinking from being comfortable carrying debt to be so uncomfortable with it that we're willing to make changes towards eliminating it. I understand that there are times in which the urgency of a situation leaves little option but debt. When those times arise, do what must be done. However, in every situation thoroughly examine as to whether a little patience and sacrifice upfront can keep you from feeling forced into signing away more of your income.
So, how is this seemingly insurmountable task accomplished? One bite at a time! Dave Ramsey, Crown Financial and others use debt snowballing to get things moving. It works by ranking your bills from smallest to largest balance, and then rolling one payment amount into the next loan as the previous ones are eliminated. To see this in action with your own debts, use this Snowball Calculator. I find it much more encouraging to have a visual of progress made.
The two financial advisers mentioned have a system of steps or destinations for achieving financial success. Both lump paying off consumer debt, which includes vehicle loans, student loans, credit cards etc, in one step. This is where I break from the path each detail in their philosophies. The reason is that it is assumed debt can be eliminated in a short enough time period that for the duration of this single step: 1) you stay motivated through, 2) you will be okay with only $1,000 in emergency savings and 3) your vehicle will not need replacing or any other major event you would have needed to prepare for occur (i.e. medical). While I still believe in the concept of working towards becoming debt free, I need steps that are going to be meaningful to me. Therefore, instead of one step, I break each debt source into sub-steps. I also include a savings goal with each, thereby allowing myself to take bites at that as well. Finally, I add an allowance to each goal for a small reward. I feel like it's important to celebrate the accomplishment and take a moment to relax a bit. If you set aside a specific amount as part of your savings goal then you won't be blowing your budget to taking a set back to go off and have a little fun. If your debt is on the lesser end and can be paid off in a shorter time frame as is assumed by the advisers, then I completely recommend following them precisely. However, if your time frame is more extended then I believe making adjustments is appropriate. Just make sure you keep taking steps and keep taking debt down one bite at a time!
Because I'm a visual person I like to have charts and pictures in front of me showing me the progress. I created two sheets to do this for me. The first is of all my sub-steps with their goals, Bible verse to focus on, and the reward clearly written. The second is a graph that I can fill in as I work towards accomplishing that single sub-step. It's encouraging to me to color in that chart and see progress being made. Two generic sheets are provided below and as with all the sheets provided in this series, feel free to print them off and make them your own.
|Financial Goals Printable|
|Current Goal Printable|
Up next we'll discuss Insurance and Savings. Plus, the giveaway will begin! :)
|*Note: I’m not an affiliate of any kind with The Lampo Group, Inc. or Thomas Nelson publishing. These materials were given to me by The Lampo Group,Inc. and it was agreed upon that they may be offered as a giveaway.|
Please feel free to leave any tips you may have in the comment section below. This is simply how I've come to work with finances, but I'd be interested to know of other ways as well. :)