Finance

Are You Stuck Financially?

Have you ever been stuck financially?  I mean STUCK.  Do you feel so stuck that you can’t even gain any traction to get control of your finances?

Couple who is discouraged and feel stuck financially

Perhaps you have no income because you have lost your job.  Maybe you are in college and accumulating debt to pay for it.  Perhaps your spouse spends money faster than you make it.  Or maybe you are just lost when it comes to managing money.  It might even be the fact that you have so much unsecured debt that you feel that the creditors should just change the amount owed to a cool $1,000,000 because it might as well be that much!  Maybe you are disabled, and can’t figure out what to do to earn more money.

If this is you, this post is for you!  In this post, I will be sharing steps you can take to become “unSTUCK”.

I am FIRED UP!

Step One:  Why are you stuck financially?

It is important to understand why you are stuck financially.  There are some situations that have definite ends to them (college) and other situations that have indefinite ends to them (job loss, disability, and overwhelming debt).

Why are you stuck?

Write it down on paper.  Right now.  Write “I am stuck financially because …   “.

When I encounter situations where I don’t know what to do, I start writing.  Writing enables me to put all of my thoughts on paper.

After writing all of my jumbled thoughts down, I set it aside for awhile.  After a day or two, I revisit what I have written and identify the repetitive thoughts.  This helps me identify the core issue.

Why are you stuck or what caused you to be stuck in the past?

Step Two:  Plan what you have!

Now that you have written down the reasons that you are stuck, it is time to prepare a written spending plan.

Yes, a budget.  Here is something I have learned – managed money goes farther than money that isn’t managed.

I know that what you have is limited.  In some cases, VERY limited.  BUT, it is imperative that you plan what you do have.

We offer free budget tools on the I Was Broke. Now I’m Not. website to help you start budgeting.

Link to budget tools to help you when you are stuck financially

If you are paid once per month, this is the budget tool for you.

If you are paid multiple times per month (twice/month, bi-weekly, bi-monthly, weekly, etc.), this is the budget tool for you.

If you want to learn how to put together a great budget, you might want to read the “How Do I Budget?” post.

Step Three:  Remember the priorities!

When you have an extremely limited amount of funds, it is important to remember the priorities.  I have met a lot of people who have been tricked and shamed by credit card companies into paying the credit card bill instead of the house payment.

You have completed step two and planned what you do have, so now the next step is figuring out who gets paid and who does not.

My priorities are:

  • Essentials:

House payment (or rent), basic utilities, car payment, gasoline, and food.  This does NOT include cable, internet, phone, restaurants, fashion clothes, etc.

  • Secured Debt:

If money remains after covering the essentials, then it is time to pay for the secured debts.  If secured debts are not paid, the creditor has the right to come take the item.  They will usually sell it at wholesale and come after the rest from guess who?  So I would pay the secured debt next.

  • Unsecured Debt:

Creditors cannot immediately come take something from you so they can be paid later if the money runs out.

  • Fun:

This is last on the list.  Besides I can have fun for free.  Pickup basketball games, watching old movies, etc.

Who is the manager of YOUR money?  It should be YOU!  Not your creditors!  YOU choose where it goes.

Even if you don’t have enough money to pay all of the bills, go ahead and put all of the bills into your spending plan.  This is a KEY step!  You need to clearly understand how large the gap is between your INCOME and your OUTGO.

I call this gap the “GO GET THIS” gap.  That is the next step!

Step Four:  Fill the “Go Get This” Gap!

I am sure that some read this as “Go work like crazy and earn more money”.  I would certainly not disagree with working more and earning more!  It is a GREAT way to fill in the “Go Get This” Gap.

But there are many more ways to fill in the gap!   Here are quite a few.

  • Pray.

I am a Christ-follower, and I have seen the power of prayer.

  • If married, ensure that your spouse is on board.

There is POWER when you work TOGETHER on your finances!  How do you get a spouse on board could be a year-long series, but it is so necessary.  Jenn and I work together because we wrote down all of our earning and spending.  When we saw that our OUTGO exceeded our INCOME, we knew that it was a serious issue!  One strategy to try is to mail the kids off to Grandma & Grandpa’s (eliminate distractions) and tell your spouse that you want to talk to them about something that you really need them to hear.  Something that is really important to you.  Very important to you.  And then show them your family’s finances planned out on paper.  When you write out where you are stuck financially it tends to reduce the emotion towards each other.  You have the opportunity to become a unified in your effort!

  • Govern your business.

If your business is struggling, it might be worth putting some “mileposts” in place.  Mileposts are points one month, three months, six months, and twelve months away.  An example of a milepost is “If we are at $5,000 sales in three months, we will keep the business.  If it is at $3,000, we will keep it open for three more months.  If it is less than $3,000, we are going to have to shut down the business.”  The hardest thing in the world for an entrepreneur is to close their business.  Tough, but necessary sometimes.

  • Sell something.

Maybe your house payment is eating you alive.  Sell the house.  It could be time to sell the motorcycle, the boat, the truck, the swing set, the four-wheeler, or the 50″ TV.  Whatever you have of value that isn’t a “need” – it may be time to part with to help.

If you’re looking to sell something online check out Episode #106 of the Monday Money Tip Podcast for tips.

  • Reduce OUTGO.

Many times you can substantially lower your credit card payment just by calling them!  I lowered my cable/internet bill by 75% just for calling!  Get rid of the home telephone – you never use it anyway.  Use cash envelopes for the categories you tend to spend impulsively (groceries, restaurants, shopping, entertainment, spending money).  Call and get a new quote on your homeowner’s/auto insurance.


  • Chop up the credit cards!

If they are a crutch that keeps trapping you, it is time to chop them up.  I chopped up my credit cards December 2002!

  • Make it a family effort!

There is NOTHING like a unified family.  Nothing.

  • Pay secured debt before unsecured debt.

If you can’t pay everybody, consider paying just the secured debts.  Call the unsecured companies and tell them that you will not be able to pay them this month, but that you fully intend to pay them.  Tell the truth!  There is power when you call someone and ask for help!  They may or may not work with you, but when you are in bad shape financially you can’t pay them if you want to!

What are some other ways to fill in the “Go Get This” Gap?

 

5 Questions to Ask Before Spending Money

Do you ever get caught in the cycle of  “see it, want it, and buy it?” Before you spend you don’t stop to think through your purchase.  Now you not only have a new gadget that’s all yours, but you also have a high monthly payment to go with.

It is my hope that this post will help provide you with practical questions to ask before you spend a substantial amount of money.   Practical questions that will help you truly understand the enormity of the decision, and help you make the decision that is best for you and your family.

Making a purchase

 

Question 1: “Do I need this?”

This can seem very basic, but as a “spender” I can get caught up in the “I WANT THIS!” moment and never stop to ask, “Do I need this?”

My garage is full of “I WANT THIS!” items that we never use.   EVER!   This includes a RC Airplane (it’s cool – but I don’t use it), bike (never ride it), tennis rackets (once every three years – not a priority), and many other items.

Pausing to ask, “Do I need this?”, can prevent a lot of poor spending decisions.   I’m not saying that I never purchase things that are pure “wants” – I am saying that when I ask the key question, I make much smarter overall decisions.

This question becomes a “gate keeper” of sorts.  Something to help prevent impulsive spending.  If you are an impulsive spender, and need help to stop check out this post [HERE].

BONUS: Wait overnight before answering the question!   It is amazing the clarity that a good night of sleep will bring to a spending decision!

Question 2: Will this item INCREASE or DECREASE in value?”

Asking this simple question can prevent a lot of poor spending decisions!

Chewing gum goes down in value.   So do cars, 4-wheelers, refrigerators, swimming pools, and clothes.

Businesses can go up in value.   So can houses, land, antiques, mutual funds, company stocks, bonds, and intellectual property (patents, licenses, etc).

Here is what I KNOW: Not all of your purchases can be for items that increase in value, but if ALL of your purchases go down in value – something ain’t right!

BONUS: Find someone you know who is prospering with their investments.   Invite them to lunch (pay for his/her lunch) and ask them to mentor you!   They will probably LOVE IT!

Question 3: “Do I have the money to pay CASH for this item?”

Link to I Was Broke. Now I'm Not. book.  Helping you budget and spend money wisely.

I got to write the “I Was Broke” part of my book, I Was Broke. Now I’m Not. (you should buy a copy HERE) by always financing stuff.   My car, truck, next truck, engagement ring, wedding ring, honeymoon, credit cards, college student loans, furniture, and many other things were financed because I did not stop and ask myself this key question.   I know that the day I started asking this question was THE DAY that my family started winning with money.

If I do not have the cash to pay for it, I’m not buying it UNLESS it is a house or an asset that will increase in value (like a business, rental house, etc).   Even then, the answer is still usually “NO!” unless I have all of the money available to pay cash.

Question 4: “Will this purchase generate income for me or take income away?”

What an incredible question to ask – and what a difference it will make in the way you think about money!   I used to earn money and then immediately begin pondering which fun item I was going to buy.  I rarely (if ever) thought about the fact that I could use the money to buy in to a small business, purchase stocks and mutual funds, start a small business or purchase a rental home.

Even more, I did not truly realize the ACTUAL cost of many of the items I had purchased.   I had purchased a new car (my smokin’ hot Chevy Cavalier) and I only thought of the bank loan as my “cost” to purchase.   In actuality, I also added the costs of insurance, property taxes, license tags, maintenance, repairs, and additional gasoline consumption. Not to mention the lost potential to make money with what I was currently sinking into all the bills associated with that car.

Before you spend, just stop and ponder the options available to you to use those resources to generate more income for you in the future.

BONUS: Review your budget to see how much your current possessions are costing you on an ongoing basis.  There are many purchases that are “gifts that keep on giving.”  By looking at things you’ve already purchased, or subscriptions you already have, you can find ways to lower your expenses.

Question 5: Will this help me achieve my future plans, hopes, and dreams?”

I believe that the number one reason that people fail with their financial plans is a lack of organization and the lack of a plan.  One of the best ways to plan your finances is to budget each month.  To learn more about budgeting check out this post [HERE].  Budgeting is planning where you spend your money with you long term goals in mind.

Without a longer-term perspective, it becomes extremely easy to fall into the trap of living for the minute, and immediately spending every single dime we earn.   As one develops a longer-term perspective, it really helps us recognize that spending all of our money right away will rip our future dreams away from us!

When my family first got started on improving our financial future (Dec 2002), I noticed that we started looking a few months ahead.   Now, eighteen years later, my entire perspective has shifted.   You see, I want to leave a legacy for my children and community.   I want to leave a huge inheritance to my family, church, and others.   My wife and I want to give our children a paid-for college education.   We want to give them a paid-for house when they graduate.   We desire to teach them to manage their finances recognizing that it is not just FOR THEM, it is FOR THEM TO HELP OTHERS!Link to book 20/20 Money Gaining Clarity for Your Financial Future.  A book about how to spend your money to help you achieve your plans, hopes and dreams

I’m 46 right now.   Statistics say I am over 1/2-way through my life.   Time is short.   Too short to spend all of our resources on stuff that does not support our plans, hopes, and dreams.

This is also why I wrote the book 20/20 Money.  I wanted to walk you through practical steps you can take to not only discover, but fund your God-given purpose.  Too often I see people buy into the lie that their big dreams aren’t possible because their income just won’t support it.  My book is about helping you move forward to live a Fully Funded Life.

So Before You Spend…

THINK!  Think about what this big purchase means.  Not just the temporary gratification, but how it will impact you in the long run.

My hope is that by slowing down and asking yourself these questions you will be able to gauge how important a large purchase is to you, and how it will benefit you.  You will make fewer, more meaningful purchases.  You’ll still get to indulge in some “I wants,” but you’ll notice there will be less times that you spend money on something and wonder later “Why did I buy that?”

Get Your Finances Organized!

It is extremely important to have your finances organized.   In fact, I believe that lack of organization is one of the top reasons that people do not reach the peak of their financial potential.   I am excited about this post, especially because we have a FREE tool to help!

Some of you may hear the word organize and your heart flutters with excitement, while others are probably filled with dread just by the sound of the word.  Wherever you are on the spectrum, you can and NEED to get your finances organized.  For your own sake, and for the sake of those you love.

Person working on finances on computer

Step One Understand why you are doing this in the first place

Let’s face it – we are all extremely busy.   The last thing we need to do is initiate another paperwork process just for the sake of what “might” happen.   I believe, however, that this process is an extremely valuable step toward maximizing one’s financial potential.   If you take the time to complete the steps in this post, you will discover areas where your financial plan is lacking AND also where you are winning (which is very satisfying to see).

Here are some reasons to get organized financially:

  • Control:   It is hard for the finances to run out of control when you are focusing this intently on your financial affairs.
  • Improved financial focus:   We tend to improve that which we focus our attention on.
  • We WILL die some day:   Our family will appreciate a clearly organized set of financial affairs.

Organization and a great financial plan are two of the keys to the reason that Jenn and I have been able to experience financial freedom!

Step Two Prepare a list of all of your financial accounts

If you are a slightly, or very disorganized person (like I used to be!), this is probably going to be the most difficult part of the entire organizational process.   It is important to gather together your financial statements so you can easily prepare a one or two page document that details your entire financial picture.

Link to Financial Accounts Form to help organize your finances

To speed up the process, we are PUMPED to provide a FREE TOOL for you to consolidate all of your information in one place – our Financial Accounts Form.   You can download a copy from our Organizational Tools page on the IWB website.

Below is a sample of how the information can be written into the file.

 

Example of Financial Accounts Form for organizing finances

Step Three Information to include on your Financial Accounts Form

This form is meant to be the be-all to end-all location for your entire financial picture.   When you are looking for key financial information, you won’t have to go far because it is all contained within this file.   When you pass away, it allows your estate executor to easily understand what they are dealing with.

Here are the key items to include in your Financial Accounts Form.

  • Investment Accounts

 Include your 401(k), 403(b), 457, TSP, Roth IRA, IRA, stock, bond, and mutual fund investments.

  • Bank Accounts

Include checking, savings, money market, CDs, and any other accounts held at a bank or credit union.

  • Real Estate

    If you own real estate, be sure to list the addresses and the financial status of these holdings.

  • Will

According to Bankrate.com, 58% of Americans do not have a written will.   Have one, and include it’s location and your assigned executor on this document.

  • Power of Attorney

Healthcare POA, Limited POA, or other legal assignments of responsibility should be included in this document.

  • Insurance Policies

Include life insurance – be sure to include policies provided through your workplace.   Also include insurance on key possessions owned.


  • Jewelry (or other valuables)

If you have valuable possessions, be sure to list them and their locations.

  • Safe Deposit Box

If you have one, indicate it on this document and include its location!

I know.   I know.   This can seem overwhelming, but it is absolutely worth the effort to put this together!

Step Four Make sure you are budgeting

Having your accounts listed out and your financial affairs in order is so important.  What good does that do you though if you aren’t organized with the money that you spend?

Budgeting is another important step to making sure you are financially organized.  If you haven’t started budgeting yet I suggest you check out my post “How Do I Budget?”  It’s chalk full of tips on getting started along with free tools to make it easier for you.

Budgeting is part of being organized with the money that comes in and what goes out of your account each month.  Taking control of this sets you up for financial success.

Step Five Where to Find Free or Cheap Resources

  • Check your local hospital for free healthcare power of attorney forms.

For instance, our county hospital provides links to South Carolina’s free power of attorney form.  Check your local hospital system’s website to see if they have the same available.  They may also offer advanced directives.  An advanced directives form takes the pressure off of your loved ones to make care decisions for you if you aren’t able to communicate your desires yourself.

  • Some county library websites will also offer free legal forms, including those that are state specific.
  • Several free legal documents (including power of attorney and a basic will) are located HERE

If you have substantial assets (including sizable term life insurance policies), I highly recommend that you meet with an attorney to have them review your documents to make sure everything is well organized and accurate.  It may cost you up front, however it will give you peace of mind and save your loved ones in the long run.

Where else have you found great free (or cheap) legal documents?

Get Your Finances Organized!

Those Type A people reading this are probably chomping at the bit to get this done (if they haven’t already started).  However, I know this may not be everyone’s idea of fun.  Don’t delay though!

My hope is that as you’ve seen the benefits of having your finances organized it will keep you motivated to see it through.  Getting organized may seem like a daunting task, but you should feel better equipped for it now.

As you organize your accounts and records not only will it help your loved ones in the long run, but it will become easier for you to understand your current financial position.  This will help you as you make monthly decisions in your budget and set you up for success with your finances.

This may be a time consuming task your first go round, but after you have this set up it will be easy to update and maintain it going forward.

5 Ways to Save Money Without Selling Anything

When the economy takes a down turn, one of the best ways to “weather the storm” is to save money!  In this post I will share the top five ways that we see people saving lots of money.

I believe that if you apply these five items, you will save over $1,000 a year.  Don’t believe me?  Try them out!

1. Home and auto insurance

I know that I have mentioned this several times on the blog, but it is so true!  I have had HUNDREDS of stories of people telling me about how much money they have saved by getting new quotes.

Many of them never had to change their current insurer because they took the better quotes back to their current insurer and demanded a better deal.  Sweet!


 

On our Next Steps Insurance page we have links to get both Auto and Homeowner’s  insurance quotes. These allow you to fill in a bit of information and receive quotes without the hassle of having to call around to multiple different companies.

Remember when LendingTree said “When banks compete, you win!”?  Well, the same is true for insurance companies.  Be sure to get your home/renter’s insurance quoted along with your auto insurance because bundling them together will save you 10% – 30%.

2. Life insurance

It is incredible the number of people who have dependents reliant upon their income yet do not have life insurance.  According to LIMRA only 59% of Americans have life insurance, and have of those with insurance have inadequate coverage.

As a teacher and speaker on the subject of personal finances, I have seen many examples of inadequate/no life insurance.  The impact that it has on the surviving dependents is devastating.  I have also seen instances where there was adequate insurance.  The result is much different!

I have also seen a lot of people who are paying way too much on life insurance.  Some people are paying thousands of dollars a year in life insurance premiums who tell me that the cash value will be worth $1,000,000 when they retire.  I tell them that this is great, but if they would have term life insurance and invest the difference in cost, they would have $10,000,000.

I recommend term life insurance equal to eight to ten times one’s annual take-home pay.  For healthy people term life insurance is SO CHEAP.  I personally carry thirty year level term policies on my bride and me.

HavenLife Insurance link - get quotes to save money on life insurance

You can obtain online quotes without speaking to anyone HERE

Go ahead and check them out.  If you do not have life insurance and you have dependents who are reliant upon your income, purchase a policy ASAP.  If you already have life insurance, compare the costs.

My bet is that you will save a ton of money.

3. Zero-percent balance transfer credit cards

I do not know how the credit card industry has been so effective at teaching Americans to believe that 15% is a good interest rate.  But they are great at it!  I cannot tell you the number of times I have heard the following statement during a financial counseling appointment:

“The interest isn’t bad on this card.  It is only 17%.” Or 13%. Or 11.99%.  Or …  You get the picture.

I used to say the same thing (when I was BROKE).  I got “unBROKE” by challenging my belief system and realized that I was allowing myself to be legally robbed of my money!

If you are paying high interest on a credit card, you should seek to restructure that debt.  One great way to restructure debt is to play the “surf the balance” game.  Move the balance to a zero-percent balance transfer credit card and then work like crazy to pay it off.  If it is not paid off by the end of the zero-percent period, surf it again.  This ensures that all of your payment goes to reduce the principal balance of the debt.

Link for 0% transfer credit cards to help save money on interest

There are several 0% Balance Transfer Credit Cards located on the “Next Steps” tab (HERE).  Move the balance and make progress toward 100% debt freedom!

You will save a ton of money by restructuring high interest debt!

4. Online savings accounts

Do you have money in your savings account?  If not, it should by your TOP PRIORITY.  $1,000 as a minimum or $2,500 if you have kids or a house.  I repeat – this should be your TOP PRIORITY!

For those with money in savings, how much interest is your bank paying you?  If it is a local bank, it is likely that the interest rate is very, very, very low (close to 0%).  Online banks pay much higher interest because they do not have to pay the costs of maintaining local branches (people, buildings, etc).  These online banks pay around 5X – 8X the national savings interest rates of other banks.  I hold all of my savings in online banks and have done so since 2007.  They are FDIC-insured and are very easy to use.

Link to online banking options to save money on fees and earn more interest

There are several excellent online banks. Click HERE to see the online banks I use or recommend.

The bottom line is that your money should make you money – the most money possible.  My online banks allow me to do that for all money that I plan on using within the next five years.

5. Groceries and cash envelopes

Cash envelopes allow me to save a TON of money.  How?  I have a written spending plan that my bride and I prepare every month.  In this written plan there are several items that I tend to be impulsive with.  Groceries, dining out, clothing, entertainment, and spending money are the top five impulsive categories for me (can I get a witness?).  To control my impulsiveness, we pull that money out in cash.  We stow away the debit card and only allow cash to be used to purchase items in our impulsive categories.

This one move saved us over $200 a month in groceries alone!  You can read more about how to start with cash envelopes HERE.

Link to budgeting tools and budget boosters, like money saving coupons

You can also use coupons to save a ton on groceries.  In fact, my team has prepared an entire section of money saving tips for groceries under the Next Steps budgeting tab.  You can check it out HERE.

Our Top 5 Ways to Save Money

Saving money, especially a large amount of money, can seem impossible.  Our hope is that after reading this blog post you come away with practical ways to save money NOW!

Some of these savings ideas will take some work.  No one ever says, “I’d love to be on the phone with different insurance companies all day!” However, if it means saving $500 or more each year those phone calls are worth it.  Not to mention, most companies now offer online quotes that eliminate the hassle of waiting on hold.  We’ve heard from numerous people that after they called for new quotes not only are the saving money, but they’re also getting better coverage.

Decide to take action today.  Think about the last time you got a new insurance quote. If you have balances on credit cards look into transferring them over.  Move your savings to an online bank to earn more interest and save on banking fees.  Identify areas where you overspend, and start using cash envelopes and coupons for those things.

I believe that by pursuing these five money saving areas you can save $1,000 or more.  Tell us how you did!

You Can Be Debt-Free

I have found that a vast majority of those who sign up to attend the Financial Learning Experience are living paycheck-to-paycheck AND carrying debt.  In fact, statistics from surveys I have conducted show that 72% of those attending my classes are living paycheck-to-paycheck.  Of those 72% living paycheck-to-paycheck, 24% are BEHIND on payments.

Only 3% felt that they are doing well financially.

Wall with script "until debt tear us apart"

 

This is a NATIONAL problem.  No matter where I go, I see the trappings of debt – marriages failing, stress, depression, and hopelessness.  And all of this is happening in one of the wealthiest countries on the planet!  This is entirely unacceptable!

So, as part of my crusade to help America become debt-free, I am going to share the process I followed to become debt-free.

Before I get started, I want to ask you these questions.

  • Would you join me in my crusade?
  • Would you share this with others?
  • Would you commit to become debt-free?

I WANT YOU TO BECOME DEBT-FREE!!!  It changes your life!  It enables you accomplish far more than you ever thought possible with your personal finances!  It allows you to go do exactly what you were put on earth to do – regardless of the income!

Step 1 – Understand WHY you want to be debt-free!

I believe this is the most important step in becoming debt-free!  In the hundreds of financial counseling sessions I have held, it is amazing how many people do not have a plan for their lives.

I ask them, “Why do you want to win with your money?”  and they stare at me like I am from outer-space.

“Why?” they stammer back at me.

Seriously, I believe that it is the first time that many of these people have ever seriously thought about what they want to accomplish with their lives.  As a result, they are bumbling through life just “trying to make it through the day”.

What a miserable way to live!

I cannot overstate this fact – IF YOU AIM AT NOTHING, YOU WILL HIT IT EVERY SINGLE TIME!

Write out your hopes and dreams.

When Jenn and I wrote down our hopes and dreams on paper it opened our eyes to the fact that our money management (or lack of) was literally ROBBING us of our future!  We wanted to move back to Anderson, SC to take a job that paid way less than what we were making, but every single dinner at Outback was robbing us of that opportunity.  Every single debt payment went off to make the bank wealthy while at the same time robbing us of our God-given dreams!

That made me MAD!  It made me FURIOUS!  It made me realize how incredibly STUPID I was to be managing our money so crazily!  I had $755 PER MONTH going out to pay car debt, credit card debt, and student loan debt.  Add in the stupid house payment, and I had over $1,700 per month running off to make the bank wealthy!

By writing out our hopes/dreams on paper, Jenn and I were motivated to manage our money differently.  It caused us to view debt differently.

Are you ready to get rid of your debt?

Couple working on their budget so that they can become debt-free

Take your first step today by print out THIS FORM and filling out your own hopes/dreams.  If you are married, you need to do this separately and then take time to discuss it with each other.

By the way, one of my hopes/dreams is for you to become debt-free!

What has kept you from attacking your debt?

Step 2 – List your debts.

During financial counseling sessions, it is a guarantee for any person who has debt that I will calculate their debt freedom date.  You should see people’s reactions as I put together a list of their debt!  Their reactions relay to me the true facts of debt.  Here are some very common reactions that I see or hear.

  • Hiding their eyes
  • “Oh no!”
  • “I’ve never added it up.”
  • “This is scary.”
  • Moving to a defensive position as if to guard themselves against the debt
  • Turn their head so they don’t have to look at the debt total

I KNOW that it can be scary to total up debt.  The mere fact that it is so scary tells me two things:

1.  People do not like debt.

2.  People have not been paying attention to their finances and do not have a well-defined plan for their life.  Otherwise, they would not have incurred most of the debt.  It is literally ROBBING them of their financial future!

Here is what I say to them – “If you don’t know how many heads the dragon has or how large the dragon is, how can you effectively defeat it?”

It is time to slay the dragon.  Use THIS FORM to prepare a well-organized list of your debt.

Why is it so scary to total up debt?

Step 3 – Calculate your debt-freedom date.

It is really very simple to calculate your Debt Freedom Date.  You need two numbers to calculate your Debt Freedom Date – Total Debt Owed and Total Monthly Payments.   I pretend that there is actually only one debt – with one big balance and one big monthly payment.

Debt Freedom equation. Total debt owed divided by total amount of your monthly payments equals months until debt-free.

Look at the sample debt list below.  This family will be debt-free in just 33 months!

Chart of monthly debt payments, including the debt balance for each and the monthly payment for each month.

In the TOOLS section, there is a free tool called the Debt Freedom Date Calculator.  If you enter your debts and monthly payments into this tool, it will calculate your Debt Freedom Date for you!  If you don’t have Microsoft Excel, click HERE for a web-friendly version.

How many months until you are debt-free?

Step 4 – Establish accountability to become debt-free.

The strongest among us can still fall to temptation!  You could be making fantastic progress toward debt-freedom and then a new truck pulling a new boat passes you on the road.  If you are not careful, you will also be pulling a new truck and boat down the road!

There are two key ways to ensure you are held accountable to your goal of debt-freedom!

If married, work together with your spouse.  If unmarried, have someone you trust (someone who has won with their money) hold you accountable!

There is incredible power when you work together with your spouse toward debt-freedom!  It is a common goal that will unify your marriage and cements your commitment to managing your resources together.

I have also found that when I have a bad case of the “I Wants” and “I Gotta-Have” Jenn does not.  She shuts me down!  Then, when Jenn gets a bad case of “I Really Want This” I do not.  I shut her down!  Why?  Because we are not doing debt!  We are THROUGH with it!!!

Plan your spending every single month!

Planned money goes farther than unplanned money!  Every single month Jenn and I sit down TOGETHER and spend every single dollar on paper before we are paid.  Don’t miss that – that was good!  Every.  Dollar.  On.  Paper.  BEFORE.  We.  Are. Paid.

From the day that Jenn and I started budgeting, we have not incurred any new debt.  In fact, we became debt-free (minus the house) in just 14 months!

I can tell you this.  I HATED the idea of budgeting and now all I do is yell from the mountaintops about how important it is and how EZ it is to budget!  There are FREE budget forms that are available HERE.  Use one of them to start your journey to debt freedom!

Your budget will hold you accountable.  I wouldn’t be surprised if it helped you free up $200 – $500 per month to attack your debt even harder. It did for me!

If you’re already debt-free, how did accountability help you stick to your debt-freedom plan?

Step 5 – Secure your debt-freedom.

Save at least $1,000 before attacking your debt!

I have seen so many people calculate their Debt Freedom Date and get all fired up about attacking their debt.  They sell everything and everyone in sight.  They can’t shut up about getting out of debt.  It is all they talk about with their spouse.  They have even sold their Clay Aiken AND Celine Dion albums!

Everything goes great for two months.  They smile every time I see them.  “This is awesome”, they tell me enthusiastically.

Five months later, they avoid me.  When I ask them what is up, they say something like, “Well, Johnny broke his arm and the emergency room bill and doctor bills cost me $1,500.  I had no savings so now I am right back where I was – falling back into more debt.”

How demoralizing is it to attack debt so fervently and then have to go right back into debt?  It is AWFUL!  Don’t do that!  Instead, save up at least $1,000 into an emergency fund before attacking your debt and THEN you can attack your debt all you want!

What happens if you have an emergency pop up while you are attacking your debt?  You can use the emergency fund to cover the expense.  To replenish the emergency fund, slow down on the debt pay-off plan until you have the $1,000 back in the emergency fund!

By the way, if you have a house, kids, or more than one car I highly recommend $2,500 for your emergency fund.

Secure your debt freedom plan with your emergency fund!

Congratulations!  You now know the process that Jenn and I used to become and STAY debt-free!  You are now equipped!

What are you going to do now that you are equipped to become debt-free?

Family at the beach.

You can be debt-free!

I want to equip you to become debt-free!   Jenn and I became debt-free in 14 months by following this process, and I can tell you this – there is NOTHING like living life without the trappings of debt!

Let’s review the steps to debt freedom.

Step 1 – Understand WHY you want to become debt-free!  You greatly improve your chances of becoming debt-free when you understand the reasons that you are making sacrifices in lifestyle!

Step 2 – List your debts.  If you don’t know how large the giant is, it makes it really difficult to understand the overall situation!

Step 3 – Calculate your Debt Freedom Date.  When you have put together your Debt Freedom Date calculation, print it out!  Put it on the refrigerator!  As you pay off each debt, draw a big line through it!  You will not believe the conversation this will start with your family and friends as they come over to visit.

Step 4 – Establish Accountability.  If married, hold each other accountable.  If unmarried, have someone who has won with their own money and has your best interest in mind.

Step 5 – Secure Your Debt Freedom.  Before attacking your debt save at least $1,000, or $2,500 if you’re married with children, so you have an emergency fund.

I hope that you have taken the time to write out your plans, hopes, and dreams for your life.  Knowing these will help you stay the course.  It will motivate you to say no now so you can win later!