In my last post I discussed my realization that I was not going to have a high(ish) income forever, that my earning potential reaches its peak long before I will retire, and that its upward trajectory is damn near coming to an end. This realization created in me a sense of urgency – urgency to take control of my life and optimize my finances while I still have the chance. I’m making money, but I am spending it almost just as fast. I know better, but I have not been doing better. It’s literally the first financial lesson my dad taught me: live within your means, spend less than you make and pay yourself first. Despite his best efforts to teach me those critical financial pillars, I’ve always been prone to spending and doing stupid crap with my money. I know it’s a little late, but I think there is always time change, to make an effort to do better… to be better.
Onward!
Photo by Minh Pham on Unsplash
As my last post said, it’s time to get my proverbial shit together. It’s a little overwhelming taking stock of my current financial situation versus where I would like to be. I’m really far off track. In the abstract I know what I want: pay for some of my kids’ college so he doesn’t start his adult life drowning in a crippling amount of student loan debt; Pay off my own student loan debt; and retire wealthy/financially independent. I’m at a different place in the journey for each of those goals, and though I’m writing from a place of not being where I want to be, I am not without education or experience in these things. I’m pretty sure I’ve got some ideas on how to move toward where I want to be.
There is no one “right way” to approach personal finance.
The Finance Bitch
Financial independence has been of interest to me for many years. I’ve spent time reading and learning about finances from a whole host of different sources, experts and mindsets. Formal education in finance at the university level also played a role in how much I’ve learned. This education allowed me to experiment, see success, see failure, get on track and fall off track again. Through all of that, the greatest lesson I think I’ve learned is that there is no one right way to approach your personal finances. And I think that’s where I’ve often gone wrong – that I try to play by someone else’s rule book, and either fail and abort the mission, or succeed for a short time only to find myself unable to sustain the lifestyle longer term.
I’ve tried the Dave Ramsey’s Total Money Makeover way. This was really a life changing book for me. When a coworker loaned it to me, I had more than 10k in credit card debt, more than 40k in student loans, two car payments, no savings at all, and really no idea how to manage my money. It was the first job I had with a good salary and I was spending my money like it was going out of style. Despite the good salary and it being far above what I had been accustomed to, I spent damn near every cent and MORE because I just had no idea wtf I was doing. I was contributing to my company sponsored 401K and my kids 529 savings account – but that was pretty much all I was doing right at that point.
Then in walks the lessons of Dave Ramsey and his baby steps, and for the first time in my adult life I was feeling like I might make some really good financial choices. I was onboard and ready to go! Baby step one seemed to take forever… but I got my $1000 emergency fund and felt so empowered! I’d followed his advice to stop retirement and college savings and just focused on the starter emergency fund. From there, I set my sights eliminating credit card debt through the “debt snowball”. It worked!!! 10k of debt down, a small emergency fund, a new frugal lifestyle. It was now time to pay off the cars, the student loan, then Boom! I’m on the road to financial freedom!
Except no. That’s not what happened. I paid off a car. Then bought a newer one. Because of course I did. I thought about paying off those student loans, but I had a new higher car note to pay, so… Then for funsies I “forgot” to start that retirement savings back up again…same with the college savings. Around the same time, I got this great idea to start credit card hacking for cash back rewards. Can you guess how that turned out?
Anyhow, Dave’s steps definitely got me going in a better direction overall. I eventually (years later) made it to baby step three, and largely, that is where I have remained on that journey. What I liked about the Baby steps is that they were easy to follow and the debt snowball made me feel empowered and like I was always making progress. When that progress slowed though, I lost motivation. His book did a lot to get me thinking about my finances and for that I am grateful. He’s made a huge impact with his shows and how much he helps people, so even though I do not agree with all of his advice, he’s definitely changing the world for the better.
After Ramsey I read several other books, got really into Suze Orman and her advice, and even started getting interested in real estate investing. As a lifelong learner I absolutely loved reading these books and gaining an appreciation for finance that I’d never really had before. I finally began to appreciate money as something more than a way to pay bills. I began to see it as a tool to create the sort of life that I really wanted for myself and my family. That new appreciation along with the realization that there is no one right way to handle your money has given me clarity about how I can make the life I want now.
Without further ado, I present to you:
The Finance Bitch’s Step by Step Guide to Getting Your Financial Shit Together
*Since I can’t be troubled to follow someone else’s plan, I made my own. I encourage you to do the same. Be eclectic, do what works for you. If any of what I write here works for you, let me know! I’d love to hear your feedback!
Step One: Begin with an End in Mind
If this phrase sounds familiar, it should. It’s from Steven Covey’s 7 Habits of Highly Effective People. “Begin with an end in mind” was habit number two in this bestselling and timeless self-help book. The phrase at its most basic level means that we should approach each day, each task, with a vision for where we are going to end up. In the case of personal finance, we are asking questions like, “What do I want to achieve? What are my goals? Where do I want to be in 10 years? 20 years? Even next year?”
Right now, my goals span from short term to long term.
- Increase my savings rate using tax advantaged accounts (HSA, 401k, etc.) to save more for retirement while effectively reduce my taxable income.
- Save enough money to pay for at least 80% of my teen sons first 4 years of college, ideally leaving him with minimal if any student loan debt.
- Pay off my student loans.
And a somewhat loftier goal….
- Achieve FIRE (Financial Independence Retire Early).
What are your goals? What do YOU want to achieve? Be honest and be brave. Don’t be afraid to think big! Imagine what you can accomplish!
Here is my challenge to you: Write down your financial goals. At least 3. Think of things that are important to you and that give you energy. Its okay if you aren’t sure how to meet your goals. It’s a journey and we can get there together. Now write those goals down. Keep them somewhere safe, or better yet, somewhere you will see them regularly. Visualizing your goals give them and you power. If you’re feeling really brave, post them in the comment section for some encouragement!