Updated: Nov 1, 2020
Hey there Rookie, if the topic of debt is bringing you anxiety and night sweats, its not all your fault. There is nothing "wrong" with you. There is a substantial lack of knowledge handed down generationally when it comes to managing your finances. And guess what, I'm right there with you.
It sucks. It is hard. But now, its our responsibility to educate ourselves and fix it. That's exactly what I'm working on right now, in this very moment - with you.
If you're anything like me, you'll remember the blissfully ignorant days of your younger years: out on your own for the first time, indulging in endless credit card charges; all that wonderful time spent on shopping sprees, temporary shopaholic highs, and maxed credit cards... Man, it sure takes me back. Not dissimilar to the way the smell of Monarch Vodka takes me back and gives me an involuntary gag reflex. But now that I've dug this hole, now that it makes me sick to look at my finances... why is it still so effing hard to quit spending?
Back then I at least had banks telling me when I had to stop spending. They didn't trust me with high-limit credit cards, and for good reason too. But somewhere along the lines (as I got older and continued to make at least minimum payments) they decided I was worth a higher spending limit. Did I earn that privilege? That's a hard No.
Skipping down the road a few years: I found my Main Squeeze and in no time at all we were combining our lives into a neat little package. Once we became a duo, I was sure I was smart enough to be the one to handle our finances - and he was thrilled to not have to do it! I had more traditional education under my belt than my Squeeze, I came from an educated family, and was raised in middle class suburbia. Obviously I knew what I was doing, right? So what could go wrong?
It turns out that my traditional education had failed to teach me literally anything about handling money. And my middle class family? If they knew any more than I do now... they didn't share it. Because that's the cycle: a surprising majority of us are taught to not talk about money. This leaves us in the dark and financially illiterate.
The extent of my knowledge was simplistic at best: you always pay at least the minimum amount each month, you should probably set up a retirement account soon, save when you can, and build credit by using credit cards. It would seem that many, many other millennials got the same message.
The problem is, it is the wrong message. And so here I am, broke; swimming in our debts with all of our pretty, but generally useless, possessions that let people know we have style. But the truth is, those things that make me look like I've got it together - they don't bring me happiness. In fact, they change with every single season! There is always and will always be a new look, new style, or new model. And I kept gobbling them up, year after year. Debt on top of debt because I had to have it. Adding two kids to the mix only made it worse. We had a reputation to uphold. We had our egos to feed.
In a brutal turn of events (which any non-rookie would have told us, had we asked): we can no longer afford to send our children to the daycare of our choice full time. Because we don’t make enough? Nope. Because we pay over $900 in debt each month (excluding housing). We make comfortable money. But certainly not enough to justify that useless monthly payment sitting on our shoulders.
So what does real life look like now? I work just a few hours shy of 40 hours each week from home with a baby on my hip. I attend multiple meetings each week where my attention and focus are needed for a job that I adore (with a sometimes screaming baby in my arms). Babies are difficult. They require a lot of love and attention, as they should. Work is difficult. It requires a lot of dedication and concentrated thought, as it should. But put them together? It. Is. Rough. And that, my rookie friend, is the cost of my debts.
What are your debts really costing you? Now imagine your life without those monthly payments. Imagine what it would feel like to have all that money working to make your quality of life better instead of slowly, painfully going into the lender's pocket.
Imagine it, feel it, define it. Because you will get there sooner than you think. All you need to do is focus.
You've Got it Pictured - So Now What?
Educate, but with caution. First of all, I will always support your choice to self educate, always, always, always! But don't let the process of learning stop you or slow you down.
I’ve read the books. Probably too many of them, which has without a doubt led me to Analysis Paralysis countless times. Which happens to be the best way to stop any over worked mama in her tracks. So here’s the thing. I always recommend reading the books. But don’t allow your mind to get trapped with too many details. Just START.
If you prefer to soak up everything you can, I suggest starting with these bad boys:
The Total Money Makeover
But, if you're a desperately exhausted Mama who can't add books to her daily agenda yet - stick with me and I'll walk you through every step I'm taking. We're going to get you out of debt even if you're broke. We're going to get you out of debt even if you have a low income.
Step 1: The Shift
Buckle up Mama, its about to get real. Simple, but real. You cannot continue to make the choices you've been making and expect to see a change. Quit trying to keep up with the Joneses! Knock it off. Any decent human being who belongs in your inner circle does not care about your clothes, nails, or your new fall décor. Stop. Trying. To. Impress.
Stop feeding your ego beyond your means. You will get to a point where either you can afford these things in cash, or you will not need to feed your ego in the first place.
Just do me a favor and wait a hot minute before you buy. If you really want something, you'll figure out how to afford it without credit cards. You will. I promise.
But for right now... sit your rookie cheeks down. That feeling of a new sweater is nothing compared to how you will feel as soon as that very last debt is paid off. So make the commitment right now. Repeat after me:
I will not buy anything that I have not budgeted for.
Step 2: Figure Out Where the Hell All Your Ducks Went
This step was critical (for me). Potentially one of the most gruesome and eye-opening steps. This is where you realize just how bad (or potentially not as bad as you expected) your current situation is.
Go look at your debt, all of it. Create a list of every debt you're paying on and how much that minimum payment is (for now we won't include your home). For kicks, go look at how much that interest is causing you each month as well.
For me, this step was staggering. Over $900 per month in minimum payments! My ducks aren't just out of line, they straight up deserted me. Think of all the things you could be doing with that cash in hand.
Step 3: Set Realistic Goals
Alright, now we're getting to the good part. Now that you know what your finances really look like, its time to figure out what you want to achieve. The good part: the sky is literally the limit with your end goal. But right now, we're taking this one little step at a time. Here are my first two goals:
Establish an emergency fund
Pay off debts
I recommend two things when setting your first goals.
First, save a bare minimum of $1,000 for emergencies only. As Dave Ramsey so brilliantly opened my eyes to: if bad things can happen, they will. Don't let your lack of an emergency fund completely derail your progress mid-way through. If you have to dip into that emergency fund at any point, stop the plan (temporarily) and resupply that money. That is your first priority.
If you've already got your emergency fund, you're ahead of the game! Start tackling the debt.
Second, be real. Is it honestly realistic for you to cut back on your groceries? Is it feasible to plan on spending zero fun money during this whole time? To say that you will never eat out, or buy a birthday present? Probably not. All you need to do is plan for it. Do not deviate from your budget, but plan ahead for things. Set aside a little money (and save it) for special occasions - or your daily latte if that's you're priority. You do you.
Remember, it is not our goal to never have nice things. Rather it is to simply wait until we can afford them with cash. Now, if you're taking the same path as me... repeat after me:
I will not buy anything that I have not budgeted for.
Step 4: Create a Hyper Focused Plan
This is where it all starts to come together. You know what the treasure is, its time to plot the journey. You know the full extent of the damage and you want out. There are many paths to follow once you've made it to this point, so for now I'm going to tell you my path.
Zero Based Budgeting
Let me preface this one with: this is the method that has worked the best for us. There are other methods that you might prefer, but sometimes you need to go all in to get yourself back on track. With zero based budgeting you will put every single dollar to work for you. At the end of the month you are not left with that sinking feeling in your gut and that denial about where your money went. Because you will have mapped out every single dollar ahead of time.
At the beginning of each month (I prefer to use Excel) list out all of your expenses as well as all of your income for the month. Assign every single dollar to a task. Every one. Do not short yourself on necessities, no matter how tempting. As soon as you tell yourself "I'm only going to eat lettuce this month" your entire being will rebel and you will likely not succeed. With that in mind, go as hard as you realistically can.
Our first goal was to save $1,000. So every single penny that is not used on bills and food goes straight to that emergency fund. Hustle to get there! I promise you will feel relief as soon as you get it.
As soon as you get this money stashed away, shift your focus entirely from saving to crushing debt. Now we're going to put the Debt Snowball into play. Just as before, there are other methods that mathematically work better - but my reasons for this one are strong. So hear me out.
The Debt Snowball is the method of paying off your smallest bills first. You may be smart enough to balk at this choice because you know it is mathematically better to pay off your highest interest rate debts first. I'm happy you're so smart - but the thing is... we need some wins on our scoreboard. Paying off the biggest debts first takes longer to actually get a win. Without any wins we, as humans, sure do lose motivation quickly.
Once you've listed out your debts from smallest to largest. You will be making only minimum payments on everything other than your smallest debt. We are hyper-focusing on the smallest debt first. Scrap for any extra money you can find and shove ALL of that money into your smallest debt. Get it out of there as fast as possible.
Once that smallest debt has been paid off (and you still have that $1,000 saved, you should be feeling pretty damn good about yourself! You did it! You got rid of a debt, no matter how minor! Now, every penny that was going to the first debt, goes to the second smallest debt plus the minimum payment you were already making.
Do you see where I'm going with this now? Hyper focus on a single debt at a time. Get them paid off one at a time. These quick wins will help us modify our behavior.
Step 5: Stay Committed
Now we're really on a roll! You've made it this far, you can make it the rest of the way! Here is where everyone else gets swept away. They can't stay committed. Something comes up and they just have to have it. Sometimes, once they break the budget they don't come back to it.
But you're different. You're going to see it through. You are not the Joneses, you are smarter than the Joneses. You are going to change your behavior to change your life. The more you change, the more your life will change. Make this time count.
From here on out, the rest is will power and determination. You've got an effing mountain to climb in front you, but the view from the top will be spectacular! Do not stop half way through, keep going.
Each month re-work that budget. Fix the things that didn't work the month before. Be honest with yourself, are you really putting away as much as you can each month? Are you drawing this process out unnecessarily?
You've got this Mama, go fix the damage that has been done. Your dreams are worth it.