I have a confession to make. I like to spend money. I don’t want to like it. Can I blame Instagram? There’s always something: earrings, gym clothes, a new throw pillow. You name it, I want it. It wasn’t until I sat down and combed through my bank statements that I realized how bad it was. I was disgusted with myself when I realized how much I spent on things I didn’t even use. But like everything, awareness is the first step. My second was Financial Peace University. Most people know it as the Dave Ramsey thing. If I can tell you the one thing that changed my life as much as getting sober, it’s this curriculum. It’s like sobriety for your bank account.
The thing about sobriety, or changing any behavior really, is that you have to get really honest with yourself. You have to come to terms with the fact that you are the problem. Like many addicts, I was functioning. I didn’t have a lot of debt, I had a little savings, but I didn’t live paycheck to paycheck. I definitely wasn’t making progress toward the life I wanted though: a house…traveling. All my dreams were hanging in my closet. Watching the videos for FPU on the computer, I can tell you I cried after every single one. I don’t know if it’s because I had to come face to face with how selfish I was or if there was hope. Regardless, my husband and I sat down and mapped out our expenses and made a plan.
Financial Peace University & The Baby Steps.
- Save $1000 emergency fund
- Pay off ALL debt (except house)
- Save 3-6 months emergency fund
- Invest 15% of your household income into retirement
- Save for your child’s college fund
- Pay off your home early
- Build wealth and give
We already had our emergency fund when we started this program so our job was to attack the debt. We didn’t have much, a couple tiny lines of credit that took us a month or two to knock out. The big boy was an investment loan I had that hung over my head like an anvil. My goal is to knock this out this year. If you read my 2019 recap, you’ll know we knocked out $32000 of debt last year. Just like at target, every little $20 item adds up, the same goes for paying down debt. There were times when I felt like my little $50 extra payments were like throwing a glass of water to a Forrest fire. Not helpful in a real fire but makes a difference with that debt. It boggles my mind that if we didn’t have that, we’d have a down payment for a house. And I can tell you I didn’t adhere to these steps perfectly.
Our bills were on auto pay and I was in a bad habit of checking our bank account, seeing that we had plenty of money and then spending it. This is what is known as bank account balancing and we all do it. Enter the second book that changed my life: Profit First by Mike Michalowicz. This book was an eye opener that
1. I was not alone
2. Even though I loved the Financial Peace University curriculum, only having $1000 as an emergency fund wasn’t working. We needed to save more.
$1000 can go so fast in a grown up world. While Profit First is a book that is meant for business, I applied the principles to my personal finance as well. The foundation is that if you’re trying to lose weight, use smaller plates. If you’re trying not to spend money, keep lower balances. This requires you to open several bank accounts designated for certain things. It’s a lot of foot work but after a month or two, you’ll have it down to a science and you’ll start making progress. You are supposed to only check your bank accounts on the 10th and 25th of the month and make allocations to each account 2xs a month based on percentages. So you need to know what percentage of your income your bills are, what percentage you spend on food and how much you actually can save while paying off your debt aggressively. It may take time and consideration to get your percentages down. I’m on month 3 and still figuring out exactly what percentage to put toward food. We eat a lot hahaha. The chart below is what it looks like for me. It may look a little different depending on you and your needs. The point is that you know where every dollar is going. It’s time to tell your money what it’s going to do rather than your money telling you. You ready? Let’s do this!
|My Financial Diet|
|Operating Expenses 30%||Profit 5%|
|Food | Fuel 20%||Taxes 25%|
|Fun 5%||Owner Compensation 50%|
|Savings 8%||Operating Expenses 20%|