By Gene Kuhns, Jr.
As we know, money challenges for an individual or a family are a great cause of stress, and are a contributor to divorce or separation. If money is a challenge for you, there are 4 steps you can take to become more self-sufficient and feel less stress with finances.
Step 1: Keep a $1,000 emergency fund. Emergencies will always happen, and can be devastating to a person’s/family’s financial situation. Have an emergency fund. To start with, this should be a minimum of $1,000, until you are out of debt (see step 3). Have a contest with yourself … how fast can you get $1,000 put away? What can you sell or do to make extra money? Make this happen quickly!
Note, this emergency fund is to only be used for emergencies. No, eating out is not an emergency … nor is a birthday, or Christmas.
Eventually, after you are out of debt, this emergency fund should be built up to be 3-6 months of “survival” income (the amount needed to sustain life, should you be without an income).
Step 2. Live by a zero-based budget. What is a zero-based budget? It means that all your income is assigned a “job” before it is earned … there is nothing (zero) left over. Don’t let your eyes gloss over at the word “budget,” but get excited that you will be in control.
Make a list of all your fixed bills (the ones that don’t fluctuate) and divide them by your number of paychecks. For example, if you are paid weekly, and have a monthly rent of $2,000, you need to put away $500/week in your “rent” budget.
Divide everything out to your paycheck. Don’t forget long-term things like Christmas, birthdays, or car insurance, and also more flexible bills like food or entertainment. Your minimum payment on debt(s) should also be in your budget.
I also suggest you give 10% to charity. This will give you a sense of abundance and it is good to help others.
It takes a bit of work, but you will have a good financial picture when you are done.
Are you spending more than you bring in? If yes, what can you do to reduce expenses, or bring in more income? If you have any “extra,” it should go to paying off debt. If out of debt, the extra should go to savings/investments.
Step 3. Pay off ALL debt, except mortgage. Use the “debt snowball” to get out of debt as quickly as you can (this is everything except for a mortgage). Do not get into any more debt. If you have credit card debt, cut up the cards. Next, list out all your debt in order of the amount you owe, from smallest on top, to largest on bottom. (Don’t worry about interest rates … you want quick successes.)
If you have debt, do everything you can to reduce your budget everywhere you can. Don’t eat out. Reduce your food budget, entertainment, cable, phone, and anything else. Sell cars that you can’t afford. Learn how to wild forage. Also, strive to earn more, by doing odd jobs, etc.
All extra income, or savings on expenses, should go to the top-most debt. Keep paying the minimum amount on the other debts. When the top debt is paid off, then all extra money “snowballs” to the next debt and so on until all debt is paid off.
Celebrate every debt being paid off! Throw a party at the end. Again, do not get into any new debt.
Step 4: Now, without debt, build up your emergency fund to 3-6 months of a “survival” budget. Also, pay extra on your mortgage. Also, invest 15% of your income in retirement investments.
In conclusion: Doing the above 4 steps is hard work, and requires us to sacrifice now, to be better off in the future. Delayed gratification is a challenge in this “buy it now” capitalistic society. But you can do it!
As Dave Ramsey often says, “Live now like no one else, so later you can live like no one else.”
In the end, I promise that you will be happier and experience less stress in your life revolving around finances. You will be taking a massive step towards becoming self-sufficient and being able to help those around you out of love.
Gene Kuhns is the Emergency Preparedness Coordinator of The Church of Jesus Christ of Latter-day Saints, Vashon, WA