Last month, I told you that I’m traveling around the country for a year and getting to live in Hawaii for the winter. I bet that sounded great.
But life hasn’t always been that way for me. In 2007, my wife and I were drowning in debt. Our credit cards were maxed out. We had $65,000 in credit card and student loan debt. Worst of all, I’d lost my dreams.
Maybe you feel like I did:
Do you feel like you are making enough money but you aren’t getting ahead? Do you wonder where your money goes every month? Do you have credit card debt that you wish you could pay off?Do you feel like there is always some small financial crisis to manage? Are your dreams of travel, adventure or financial stability a distant memory? If you answered “yes” to any of these questions, the next four Money Savvy columns are for you. Today, in three action steps, I’ll help you start to regain control of your money and, ultimately, reclaim your dreams.
Step 1: MotivationGet a journal or notebook. Ask yourself, “Why do I want to take control of my money?” Write down your answer, but don’t stop with your first response – or your second. Keep asking “why” and keep answering. This is crucial.
By going deeper and deeper into why you want to take control of your money, you will understand your true motivations. This will help you set a course for your future and help you create new habits and behaviors.
Step 2: BudgetIn your notebook, create a budget with these four levels:
Necessities: I like to call them warm, safe and dry. They include rent/mortgage, groceries, utilities and gas for your car.Obligations: These are debts and contractual agreements that carry consequences if they go unpaid. Less than monthly expenses: Remember Christmas? Each month, set aside money for expenses that occur only occasionally or unexpectedly. Nice-to-haves: These are small luxuries such as restaurant meals, entertainment, miscellaneous expenses and spending money.Write down how much you spend for each expense in the four categories. Now, cut your planned spending as much as you can. The money you save each month will buy back your dreams.
Step 3: Controlled spendingStart using cash to pay for your groceries and all of your small luxuries. Each time you get paid, withdraw cash and put it in envelopes labeled with the name of each expense. Only spend the money in the envelope for its intended use. When the cash is gone, you’re out of money for that category until your next payday.
Once complete, you will have told your money where it’s going and be saving for future expenses each month.
Next month, we’ll tackle paying off your debt in 12 to 18 months.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoachingcom.