When my financial life was chaotic, unpaid bills piled up, “unexpected expenses” took me by surprise, talking about money turned into fighting and our bank balance fluctuated wildly.
Eliminating financial chaos is one of the best things you can do to create a happier life. To achieve financial stability, OUST the chaos.
Open an emergency fund.Unpack your money beliefs and expectations.Spend cash.Take time to plan.Open an emergency fundThe first step toward financial stability is building an emergency fund. If you are making less than $25,000 a year, start with $500. Otherwise, set aside $1,000 in a savings account. Once you are debt-free, grow your emergency fund to equal three to six months of living expenses.
Unpack your money beliefs and expectationsMoney is complicated because it’s about more than a “medium of exchange.” It is about beliefs, expectations and feelings. Add a partner or spouse, and it gets even more complicated. But unpacking can be an enlightening and fun process.
Start by journaling your answers to these questions:
When you think about money, what words come to mind?What does money mean for you?Who or what has influenced your financial decisions?When you think about how you handle money, what patterns do you see? If you have a partner, ask him or her to do the same. Later, share your answers. Be open and honest. There are no right or wrong answers.
Next, find a dream – a big goal meaningful to you and your partner. By focusing on your vision, you will be able to say no to lesser desires that may be a source of temptation and conflict.
Spend cashUse cash when paying for groceries, restaurants, entertainment and all everyday spending.
When paying with a debit or credit card, we spend more – and not just a little more. Studies by Duncan Simester, a professor of marketing at the Massachusetts Institute of Technology and the author of the paper, “Always Leave Home Without It: A Further Investigation of the Credit-Card Effect on Willingness to Pay,” show that consumers are willing to pay twice as much for the same item when using plastic.
Take time to planMost of the chaos and minor emergencies we face are a result of putting our heads in the sand and hoping the inevitable won’t happen – cars breaking down, holiday expenses and illness to name a few. Three ways to be prepared are:
Prepare a realistic budget each month.Accumulate money each month for future expenses.Make sure you have adequate insurance: health, life, property, auto, and perhaps most importantly, short- and long-term disability to protect your income. Financial stability can be yours if you take the time to OUST the chaos from your life.
Durango resident and personal finance coach Matt Kelly owns Momentum: Personal Finance. www.personalfinancecoaching.com.