Your Guide to Financial Planning – Step 2

So you have a jar full of cash!!

You have successfully established an emergency fund, and you’re feeling pretty good about yourself.

• No?  Check out Savings 101 to learn about the first step to taking control of your finances.
• Yes?  Take a moment and pat yourself on the back – you’re an A+ savings squirrel!

Now we move onto the next step toward financial freedom.  It’s time to start paying off some debt.

Ugh….adulting!  (Take a moment.  I’ll wait.)

Savings 102

Ok!  Ready?  The process of paying off debt comes in two parts.  First, is actually paying your bills on time.  I know – I can’t believe I get paid for this either.  Oh, wait… Second, is to eliminate unnecessary spending.  Makes cents – if you’re in a boat that is taking on water, you can scoop the water out with a bucket all day long, but if you don’t plug up the holes – eventually you’re going to sink.  Put your waders on, and let’s get started.

Step 1:  Pay off your existing debt.

I once knew a woman, let’s call her Penny, who had so many credit cards she kept them in a little plastic accordion insert in her wallet. Kinda like what grandparents used to use to show off pictures of their 20 grandchildren before the camera phone was invented. When she pulled out her wallet, the cards cascaded out like the train on Princess Diana’s wedding dress. Even if your credit card collection isn’t as memorable as Penny’s was, interest bearing debt will sabotage your savings plans if you’re carrying a balance each month. It’s a hole in the boat that you need to patch up.

Start paying off your debt with the smallest balance first, regardless of the interest rate. The reason we do this is because we neeeeed little victories.  The human brain is wired to check stuff off of “the list”. And if a goal is tied to that list?  Helloooo motivation!  So take a hard look at your debt items – credit cards, student loans, car payments etc. Start with the smallest balance first. Pay the minimum on the other debts, but pay as much above the minimum on the little debt as you can; until it’s paid off. Then move on to the next debt item!!  Check! Check! Check!

Step 2:  Eliminate unnecessary spending.

(Don’t look at me like that!  We just got done with Black Friday, Christmas, post-Christmas and we’re about to stumble Coach-bag first into Valentine’s Day brouhaha.  You know what’s up.)

Now, every now and again I like to see what the kiddos are into these days, so I can stay hip with what’s jivin’.  Ya dig? Not too long ago I got on Facebook — yes that’s right, some of us actually get off Facebook and then we have to get back on. Focus.  I stumbled onto a video makeup tutorial of a very attractive female celebrity.  I thought “Ooooh! I wanna look pretty.”  I watched as she dotted, blended, contoured, buffed and outlined her whole face with about 25 different foundations, creams and glitter.  My emotions steadily moved from curious, to confused, to frustrated faster then her eye lash glue could dry.  Watching that video, two things crossed my mind:  one – that was 10 minutes of my life I will never get back, and two – that stuff must cost a fortune!  And that was just her face!  I’m not picking on just the ladies, gentlemen I doubt you have it any easier.  Just imagine if you hugged a woman with that much makeup on?  Your laundry bill would go through the roof!

But, I digress. Cosmetics aside, we’ve always been a “wanted-it-yesterday” kind of people, and in today’s world of online shopping and overnight delivery – the “the good life” is literally a click away.  Everywhere we turn, we are bombarded with images of what we should look like, where we should live and what we should drive. It’s exhausting and expensive!  How good is that life we’re trying to buy if we’re stressed about our finances?  We can do better.

But what do we do?  Stay ugly?  Heck no!!

Recognize the game.  Be conscious of your spending habits.

Companies want your money, and they have an army of professionals who are trained in the art of sales manipulation – everything from calming air fresheners to make you stay in stores longer, to raising regular prices right before a big sale season just to give the impression of a “sale price.” They design marketing that is intended to separate you from your hard-earned (and saved dollars).  So the next time you see a “sale,” ask yourself if you really need that item.  If not, then you didn’t save money, instead you spent (errr… wasted) X dollars.

Know the difference between want and need, and channel your inner savings squirrel.

It will take some effort, but you can do it.  You’ve already proven that you have the discipline because you took the first step and started saving.  You got this!!  When you successfully control your spending and pay off your debt, you’ll have your own train – a money train.  This new ‘disposable income’ (that’s what rich folks call it) can be put towards the things you really want.

Next time:  We’re making it rain.