Worrying about your money can get downright scary and depressing. Facing our fears about our financial situation can be stressful even when you just start to think about them. But there’s a better answer to your money worries than just lying in bed at night fretting about bills you need to pay, dodging the phone calls from collection agencies, and avoiding opening your mail just to see more bills because you’re too scared to even look at them.
When it comes to finances, if you’re spending too much and living beyond your means, you will become stressed to the max. Not being completely honest with yourself about where you are financially and even worse, not knowing where you are at financially will cause you to have a hard time in exercising any self-control when it comes to your spending. You will pay a huge price for that.
When you are feeling worried about your finances, understand you are not alone. There’s help for you. Here are some of the things you can do right now to lessen your money worries and start rebounding financially to come back out on top.
How Can You Really Ever Get Out of Debt?
The great thing about this problem is that almost everyone can overcome debt regardless of income or wealth level. Seriously, it can be done. The most important part to remember is that if you really want to get the most out of your finances, it’s virtually a requirement that you get out of debt. Once that you have determined to do it the question is how?
While it’s true that some debt is better than other debt…oh hell, for arguments sake, let’s ignore the “good-debt-versus-bad-debt” debate which sparks many a conversation these days and just get to the issue.
In your situation of debt emergency, you are at a point in life where all debt is bad debt and needs to be paid off. That includes your mortgage. Although the purpose of that debt may have been noble at its beginnings, it’s no less a drag on your income than any other debt as time and years go by.
The first thing to do is to look at the benefits getting out of debt will bring you. Getting out of debt has a laundry list of pluses and here are just a few of them:
- Getting out of debt means that you’ll have full control over your income—and that’s an incredible feeling.
- Having no debt leaves you with more money for savings and investing and even more for spending.
- Being debt-free will remove the asterisk from your finances—I make $X,000 per month, but $X00* has to go to pay my debts.
- Having no debt will mean that important decisions are much easier to make, like changing your job of you don’t like it as one example.
- No debt will free your mind of the worry and stress that comes with debt and you will sleep a lot better at night every night.
My Own Debt
When I was about 20, before starting my career and while still a student, I was already in a debt trap. I had accumulated over $5,000 of student loans and some credit card debt and I wasn’t slowing down anytime soon even though I was still in college. A full time job and marriage were on my mind but how was I ever going to pull that off? Thankfully, with my fiancée’s help, I was able to see my debt for what it really was—mostly necessary but still evil. I was determined to work on it proactively and make changes to beat it.
By the time we got married a couple years later, it became both of our goals to become debt-free and never carry a credit card balance again.
Here’s what I did. I started to use the need versus wants rationale when I spent and when I spent, I always used a budget. I started to get ahead of the curve that debt pitches so that I never got any deeper into the debt hole. I had the discipline and then the cash to chip away at my accumulated everyday debt. Other than my mortgage, which came along 3 years after my marriage, I have almost always been totally debt-free.
Even though that first marriage didn’t last forever (and oh yeah, divorce certainly wreaked total havoc with my finances afterwards), my commitment to the goal we set did and I’m proud to say that after that initial time in my life, now over 45 years later, it’s a goal that I’ve been able to totally stick to, so “F” you debt!
The Importance of an Emergency Fund
We normally think of having an emergency fund as being a short-term financial goal. Sometimes that is true. However, an emergency fund is an important long-term goal which is why it’s one of the required actions that you must plan to achieve. The benefits of having an emergency fund are:
- It eliminates the money worries that you had because you know that you will always have a reserve whenever you get into a tight spot. And you will eventually get into a tight spot!
- An emergency fund cushions the blow of a sudden emergency like a job loss or a large medical expense.
- An emergency fund is an important money management tool—if you can save money for an emergency fund then you can save money for any financial goal that you set.
- Emergency funds provide you with an intermediate funding source – a kind of halfway point between your paycheck and your investment accounts. You can use it so that you don’t have to disturb any of your long-term investments.
- Just having an emergency fund will make the wide swings in any stock market investments more emotionally tolerable because you will know that you will survive every time the market hits a bump or falls off a cliff.
While many people start off with a baby emergency fund of $1,000, it’s important to save a full emergency fund when you can. You never know when a serious change to your income or expenses might set you off-course.
Planning for (Early?) Retirement
When I first started working full-time after college (I was all of 22), I barely grasped the concept of compound interest and I was far from being determined to put myself in a situation where I could plan any retirement. Even if I had heard of people who wanted by the age of 35, 40, or 50 to accomplish that, I hadn’t ever thought of me doing so and it was completely off my radar.
I wasn’t thinking about retirement at age 22, but soon, after I started building my career, I discovered that even if you absolutely love what it is you do for a living, planning for retirement is one of the best financial goals you can ever have. At my job, I was told about my eligibility to start a 401(k) and why retirement planning and thinking about early retirement is so important:
- Reaching your retirement goals may take longer than you think; if you plan to retire at 35, 40, or 50, you’ll still have plenty of time to make it by 67 in the event that you hit a few snags along the way, as long as you start early.
- Poor health could make early retirement a necessity—if you’ve planned and prepared to retire early, then you will be ready no matter what has happened.
- Family circumstances often require more of your time, and early retirement will help you to have it.
- Though you may not want to fully retire early, you may decide that you would like to downshift and not work as hard or to pursue another interest that is more to your liking. Having funds in your retirement plan means you are not starting over from ground zero if you do.
- It’s better to be able to retire early and not need money than to have to retire early and need money.
- There’s one other advantage to planning to retire early, and it’s a big one. By working toward early retirement, you will be front-loading your retirement investment portfolio. That will give you a larger portfolio early, which will mean that you won’t have to work so hard saving for retirement later in life. That compounding interest and “time being on your side” will allow you to have bigger funds than the people who begin thinking about retirement in their 40’s and 50’s!
Early in my career, I witnessed too many couples in their 60’s that hadn’t saved enough to retire at all, let alone to retire early. That’s when I made it a goal (and a mission) that I wouldn’t let ever that happen to me.
Create Multiple Income Streams
Even if you love your job, creating multiple income streams is a form of income insurance. For that reason alone, it needs to be on your list of good financial goals and ways to eliminate debt. But here are even more reasons:
- One of those income streams could be the part-time cash flow that enables you to semi-retire at an early age.
- If you have always wanted to start your own business—but don’t want to or can’t quit your job—starting a side business could be the way to do it, a side business that produces an income stream!
- The extra cash flow from any additional income stream could be used to help to speed up and pay off your debts.
- Several income streams could provide you with the money for an income portfolio and that means that you’re not dependent on your main source of income only to invest and that reduces a lot of risk!
Over the years, I dabbled in many side hustles looking for “it”, the way to financial security. That has included things like organizing baseball card shows, selling party invitations from home catalogs (before the internet took over), and being a vendor at the flea market just to name a few. Some did well and others proved to be a flop but all of them educated me in some very beneficial way.
Learn to Live on Less Than You Earn—No Matter What!
I’ve covered this topic in other posts, but it is well worth repeating here since it is one of the most necessary of all of the good financial goals. By learning to live on less than you earn—no matter what—you will always have plenty of money. That means that you’ll have plenty of income for savings, investments, and for paying off debt.
Ideally, doing both at the same time is the security blanket that gets you to your goal.
It’s important to always be on the hunt to increase your income. But that strategy will only be effective to the degree that you are able to live on less than you earn so that you can put the difference to better use to improve your life.
Eliminating debt and reaching a point of financial independence in life has nothing to do with luck or magic. It’s simply a matter of setting good financial goals and having a concrete plan as to how you will achieve them. Once that plan is established, and working toward those goals becomes part of the habits that make your life what it is, achieving financial independence can almost seem as if it’s happening on automatic pilot, but only if you make it happen.
What is the status of your debt today? Are you in control of your finances or is it the other way around? Do you have a good financial plan in place and if not, why not and when will that happen? Are you ever going to be debt-free?