Baby Steps and the Power of Focus
i once worked with a student who for the life of her could never seem to get her schedule organized enough to show up on time to any of her rehearsals (or even lessons, at times). One day, in utter exasperation, i asked her why she didn't at least have a schedule book to keep track of her appointments. In a huff, she told me she already had a schedule book - in fact, not just one, but THREE! One book for her rehearsals, one book for her orchestra schedule, and another one for her personal appointments. Problem was, she never bothered to reconcile all those schedules together...no wonder she never had any idea where she was supposed to be at any given time!
This story gives a pretty good illustration as to why i had such a hard time getting rid of my debts and making fiscal traction. On one hand, i had about 6 or 7 credit "holes" where the accumulated payments worked to overwhelm my paltry incoming cashflow. On the other hand, i had a number of half-hearted attempts to save money across a broad range of tools like auto-drafts into savings accounts and deposits into a Morgan Stanley investment fund. Problem was, things were so out of balance that i would either be constantly overdrafting my checking account by the end of the month, racking up larger debts to cover the differences, or withdrawing whatever i had saved every few months to plug up my fiscal holes in a vicious cycle of save, spend, and plug.
Without a specific focus and plan for getting my money under control, my money was simply getting scattered all over the place and having no effect in any direction. "Treading water" was about the best way i could describe myself at the time - that, coupled with "willful ignorance" (i dreaded looking at my bank account statements and made a hobby out of avoiding them as long as possible) was spelling a recipe for disaster in a slow cooker crockpot.
In Dave Ramsey's "The Total Money Makeover: A Proven Plan for Financial Fitness", Dave outlines some basic "baby steps" to put one's financial house in order. Step #1 involves building a baby emergency fund of $1000 - step #2 involves attacking debt using the "debt snowball" method, where all the debts are listed smallest to largest, irrespective of interest rates and whatnot. The bare minimum payments are applied to everything except the smallest debt, which is attacked with everything available. Once the smallest debt is wiped out, the money that had been used to attack that is then applied to the next largest debt until that is taken care of - attack, eliminate, move down snowball list, repeat.
Of course, no plan of attack could begin to commence without a written plan, involving the dreaded "B" word: "BUDGET". i'm sure glad i'm looking back on this side of experience, because i can still remember how painful, humiliating, and utterly repulsive it was to slog out that first budget, item by item, line by line. i had sensed that things were going to look bad, but i wasn't prepared for just HOW bad until i had all those ugly numbers staring back at me. Outlay was surpassing income, and by a pretty scary amount - we weren't treading, we were actually SINKING, and it was only the fact that our credit card companies were SOOO generous (kaff kaff) that the bottom of the pit was still some ways off. So what to do? Where to cut?
Here are some ideas to help jump-start your budget if you find that you need to get your sinking fiscal ship sea-worthy again:
Things to CUT:
Subscriptions - i never thought we were being extravagant, but the accumulation of little expenses can be as deadly as a pool full of little piranhas. Consider cutting:
Magazines
Video memberships and subscriptions, like Netflix
Book clubs (i had to let go of my beloved subscription to Audible.com, the online audio book resource) - my iPod was a lonely pod for a long time...
Cable TV
Gym memberships - this was hard for me, as i really loved our gym, but running on the street is absolutely free...
Luckily we discovered the joys of our local library!
Dining/Food - verboten restaurant dining was pretty obvious, but some of the more subtle cuts may involve:
Coffee (if you saw my 'debt-free' video, you saw how i substituted instant coffee for Starbucks...*shudder*)
Soft drinks (use the water fountain at work!)
Snacks (i found that bulk microwave popcorn was much more economical than individual bags of potato chips)
Lunch (i read somewhere that packing your own lunch only costs around $2, as opposed to fast food meals which run at least $5-$10+)
Groceries - this was actually the last area i tackled, as i was so reluctant to give up buying yummy things on impulse. A great resource to help with economical food shopping and recipes that utilize everything you get without waste is e-mealz.com, an online meal-planning service. It costs a little money to sign up, but the savings make it worthwhile - and the recipes are pretty tasty too!
Alcohol (i'm a micro-brew kind of guy, so when i had to resort to drinking budget Budweisers, my wife knew i was serious about saving money...)
For more ideas on creative ways to cut expenses, try reading "Frugal Living for Dummies
":
Here are some other ideas to actually put money INTO your pocket:
Pause your retirement/401(k) contributions temporarily - 12-24 months of suspended retirement investment won't make that much difference compared to the tremendous advantage of ending up debt-free using those extra funds.
Car Insurance - Get GEICO. i never realized how bloated my auto insurance plans were with State Farm until i took a closer look. I think i'm saving close to $1500 a year by switching insurance carriers and getting the bare minimum coverage
Switch to Term Life Insurance - we cashed out our Whole Life policy with Mutual of Omaha and were able to collect a nice $12,000 check for the accumulated savings. Whole Life's gimmick is the added savings plan, which in the end isn't much better than a wimpy savings account anyway at a much higher premium than Term Life.
Cash out your scattered investments and focus them on pounding down your debt - we stopped our silly monthly deposits into our Morgan Stanley account and cashed out our various Money Market and Mutual Funds (nearly all of them posted losses in capital gains, so at least i was able to apply those losses as tax deductions). If you find yourself saving a little, but then cleaning those savings out to bail out credit card payments every few months or so, you'd be better off just focusing your funds solely for debt reduction than for scattered cyclical 'gains'. Once you're debt-free, you can restart your savings plan and actually see your money stick!
On his radio show, Dave Ramsey is always giving out income-increasing advice like delivering pizzas at night or cutting grass. I'll spend some time in my next articles exploring creative ways for musicians to pick up some extra income to help attack their debt-snowballs.
[ 28 April, 2008 ] • [ Hugh ] •[ Leave comment - 0 ] •[ Link to this article ]
This story gives a pretty good illustration as to why i had such a hard time getting rid of my debts and making fiscal traction. On one hand, i had about 6 or 7 credit "holes" where the accumulated payments worked to overwhelm my paltry incoming cashflow. On the other hand, i had a number of half-hearted attempts to save money across a broad range of tools like auto-drafts into savings accounts and deposits into a Morgan Stanley investment fund. Problem was, things were so out of balance that i would either be constantly overdrafting my checking account by the end of the month, racking up larger debts to cover the differences, or withdrawing whatever i had saved every few months to plug up my fiscal holes in a vicious cycle of save, spend, and plug.
Without a specific focus and plan for getting my money under control, my money was simply getting scattered all over the place and having no effect in any direction. "Treading water" was about the best way i could describe myself at the time - that, coupled with "willful ignorance" (i dreaded looking at my bank account statements and made a hobby out of avoiding them as long as possible) was spelling a recipe for disaster in a slow cooker crockpot.
In Dave Ramsey's "The Total Money Makeover: A Proven Plan for Financial Fitness", Dave outlines some basic "baby steps" to put one's financial house in order. Step #1 involves building a baby emergency fund of $1000 - step #2 involves attacking debt using the "debt snowball" method, where all the debts are listed smallest to largest, irrespective of interest rates and whatnot. The bare minimum payments are applied to everything except the smallest debt, which is attacked with everything available. Once the smallest debt is wiped out, the money that had been used to attack that is then applied to the next largest debt until that is taken care of - attack, eliminate, move down snowball list, repeat.Of course, no plan of attack could begin to commence without a written plan, involving the dreaded "B" word: "BUDGET". i'm sure glad i'm looking back on this side of experience, because i can still remember how painful, humiliating, and utterly repulsive it was to slog out that first budget, item by item, line by line. i had sensed that things were going to look bad, but i wasn't prepared for just HOW bad until i had all those ugly numbers staring back at me. Outlay was surpassing income, and by a pretty scary amount - we weren't treading, we were actually SINKING, and it was only the fact that our credit card companies were SOOO generous (kaff kaff) that the bottom of the pit was still some ways off. So what to do? Where to cut?
Here are some ideas to help jump-start your budget if you find that you need to get your sinking fiscal ship sea-worthy again:
Things to CUT:
Subscriptions - i never thought we were being extravagant, but the accumulation of little expenses can be as deadly as a pool full of little piranhas. Consider cutting:
Luckily we discovered the joys of our local library!
Dining/Food - verboten restaurant dining was pretty obvious, but some of the more subtle cuts may involve:
For more ideas on creative ways to cut expenses, try reading "Frugal Living for Dummies
":Here are some other ideas to actually put money INTO your pocket:
Pause your retirement/401(k) contributions temporarily - 12-24 months of suspended retirement investment won't make that much difference compared to the tremendous advantage of ending up debt-free using those extra funds.
Car Insurance - Get GEICO. i never realized how bloated my auto insurance plans were with State Farm until i took a closer look. I think i'm saving close to $1500 a year by switching insurance carriers and getting the bare minimum coverage
Switch to Term Life Insurance - we cashed out our Whole Life policy with Mutual of Omaha and were able to collect a nice $12,000 check for the accumulated savings. Whole Life's gimmick is the added savings plan, which in the end isn't much better than a wimpy savings account anyway at a much higher premium than Term Life.
Cash out your scattered investments and focus them on pounding down your debt - we stopped our silly monthly deposits into our Morgan Stanley account and cashed out our various Money Market and Mutual Funds (nearly all of them posted losses in capital gains, so at least i was able to apply those losses as tax deductions). If you find yourself saving a little, but then cleaning those savings out to bail out credit card payments every few months or so, you'd be better off just focusing your funds solely for debt reduction than for scattered cyclical 'gains'. Once you're debt-free, you can restart your savings plan and actually see your money stick!
On his radio show, Dave Ramsey is always giving out income-increasing advice like delivering pizzas at night or cutting grass. I'll spend some time in my next articles exploring creative ways for musicians to pick up some extra income to help attack their debt-snowballs.
[ 28 April, 2008 ] • [ Hugh ] •[ Leave comment - 0 ] •[ Link to this article ]