One afternoon, two young boys stood in front of their bathroom scale discussing the object at hand.
“How does this thing work?” asked one of the boys.
The other boy answered, “I’m not sure exactly, but I do know that when you stand on it, it either makes you mad or it makes you cry.”
I remember when I had a moment looking at my financial scale. One evening, my wife and I sat down and tallied up our debt, which came out to over $61,000. We were shocked.
To make matters worse, a few months later I was being laid-off at work.
So there I was, again, standing on the financial scale, staring at this massive weight, and feeling a little terrified.
At that point, we made a decision that was crucial to our financial journey.
We decided to own where we were.
That’s the first step. You must accept the fact that decisions YOU made have led you to where you are.
Failing to acknowledge the mistakes you’ve made will only allow you to keep making them.
That car payment was a result of me being impatient and not saving up to pay with cash. We built those credit card balances over time. That expensive cable bill was our decision.
It’s important to acknowledge those facts, but you don’t want to dwell on them.
Dwelling on them keeps you in a state of paralysis. You must move forward while remaining aware of the power of your decisions.
We decided to set some goals.
Once you know what you aren’t going to do anymore, you need to set the direction for where you’re going.
If you consistently wander through life, you will never be able to tell when you’re lost. Direction and vision are essential to thriving financially.
Where do you want to be in 5 years? What type of life would you like to have in retirement? What would you like to leave as an inheritance?
For example, “Within 3 years, we will be debt free with an emergency fund filled with 6 months of living expenses” is a great goal.
Write these down on paper, and put them somewhere you will see them often.
Once we gave our money purpose and direction, tweaking our habits became so much easier!
We no longer dread creating a budget, but, rather, we see budgeting as a vital part in the process of wealth building.
That brings me to the next step.
We decided to create a budget.
Creating goals with no plan to achieve them is only dreaming. The budget is your road map to get you to your financial destination.
The first month we implemented a zero-based budget, we cut our expenses by 31%. Think about how you would react if you walked into work tomorrow, and your boss offered you a 30% raise.
That’s essentially what implementing a budget will feel like.
I’ll be honest here: Even with the spending reduction, it took us about 3-4 months to really get our budget consistent.
We failed to budget for holidays, birthdays, events we wanted to attend, etc.
The key is to not be ultra-hard on yourself, while also demanding the best from yourself.
We decided to eliminate and avoid debt.
Once we knew how much money we had, and where our money was going, it was time to put it to work.
We decided that, not only would we pay off our debt, but we would, also, not take on any additional debt. This went for all zero interest/90-Day same as cash programs as well.
The Black Sheep Finance recommendation for debt elimination is the snowball method.
At the time of our snowball creation, we were paying well over $1,400 per month on debt. Most of that was minimum balances that weren’t getting us anywhere in the long run.
Step 1 to an effective debt snowball is to list your remaining balances in order from smallest to largest. We don’t worry about interest rates when it comes to paying off debt.
The goal is to gather as many quick wins as you can to build the momentum you need to finish the journey.
Begin to throw every single dollar you can at those debts until they’re eliminated.
The goal isn’t to live minimally for the rest of your life, though. The goal is to get you to a place financially that allows you to do whatever it is you want without going into debt to do it.
Those 2 words are the most important in this entire process.
Let’s talk about the first word: we!
Being married, it’s important that you keep your spouse involved in your finances.
If one of us didn’t agree on even one of these steps, the journey would have been way more difficult!
Our financial goals have to align, we both need to agree on our monthly budget to keep things peaceful, and having one spouse continue racking up debt while the other pays it off is counter-productive.
You have to be a team in the area of finances.
If you’re single or just dating, it’s important to make these decisions with an accountability partner.
Your accountability partner can’t be your favorite shopping buddy, but, rather, a person who has no problem calling you out and keeping you accountable as you stretch towards your goals.
Finally, you have to decide. You can toy around with the idea of changing your financial situation or you can actively decide to work towards the future you desire.
Deciding forces you to take action. You’ll begin to look for ways to increase your income or cut back on some expenses.
I can tell you that making no decision at all is choosing to be the person the boys in the earlier analogy discussed.
Being mad and crying at your situation solves nothing. If you’re tired of being broke, it’s time for you to make better decisions and build different habits.