Heart racing, you open the laptop. You force yourself to type in the bank’s web address. “Ehh, what’s the password? Let’s try this… nope. This one? Okay, I’m in. Time to face the numbers.”
Checking account. Click.
Account Balance. $153.86
Phew. Just enough to pay the utilities and buy a last-minute graduation gift. Payday can’t come soon enough.
“I spent $62 at Target last week? What did I even buy?”
And then the lightbulb moment: You can’t take this anymore.
You can’t afford to have money slip through your fingers on random stuff. You can’t afford to waste your time and emotional energy on worrying about making it to the next paycheck, wondering how you will ever get ahead and save something for the future. Retirement? A college fund the for the kids? A paid-for vacation? You can barely keep up with your car payment, much less even think about having “extra” money lying around.
All you know is you feel trapped in this vicious paycheck-to-paycheck cycle, where one illness, one car accident, or one job layoff could send you spiraling toward bankruptcy. Every other Friday is respite when money is deposited into your account, while the weeks in-between drag on as bills, groceries, and unanticipated needs threaten to drain every cent. The bank account roller coaster has to stop.
Until now, it’s been easier to bury the stress, thanking your lucky stars that you didn’t overdraft (again), but something about today made you say, enough. This is ridiculous. I deserve better. I want better.
I’m here to tell you that you’re right. It is ridiculous. You do deserve better. You can have better. Don’t ignore this feeling. Don’t let this moment of rage-induced clarity go unexplored. Act on it. Because nothing will change until you do. You can’t take it anymore. So don’t.
As your coach, here’s a little tough love: better takes work. Different results follow different choices, sacrificial choices, but the sacrifice is infinitely small compared to the measure of peace and financial gain you will receive in return. It’s worth the work!
There isn’t a quick tip, a weird trick, or a magical formula that will turn your situation around. Oh, there are lots of awesome tips and tricks that I love, but we need to talk fundamentals first. An app that saves a few cents here and there isn’t going to get you to retirement. You need a plan.
Here it is.
Step 1: Dream. What do you want your life to look like? Do you long to visit Scandinavia? Take up cake decorating as a hobby? Kayak on every continent? Stay home with your children? Retire at age 50? The things you want to do are important, but even more important is the way you want to live. Are you okay settling for what’s normal, living paycheck to paycheck? (If you’re reading this I would guess the answer is no.) Do you long for money to be one component of life that you manage with ease instead of a primary stress factor that feels all-consuming? Do you want a life marked by contentment, generosity, and rich experiences? These are the questions you need to think about, answer, and write down. Having these questions answered in written form is helpful when you need that extra emotional boost to remind yourself why you’re doing the hard work.
Step 2: Face the numbers. It’s time to be brutally honest with yourself. In my coaching practice, this exercise always—I mean 100% of the time without exception—identifies the mathematical part of the problem. This is how you diagnose what’s going on. Take your expenses and add them up on this starter budget form. It’s okay to guesstimate a little but remember this is not the time to be in denial and paint a rosy picture. Try to account for everything, including how much you spend on gifts, haircuts, books, travel, subscriptions, everything. This will tell you immediately if you’re overspending—or in some cases, spending within your means but living frugally in fear (that was me). It will also tell you if you’re saving appropriately for expenses that seemingly appear out of thin air (car repairs, school supplies, the dog’s vaccines, things like that), or if you need to set some money aside.
Step 3: Commit to stop using debt. This means no more credit cards, new car loans, or student loans. Love yourself enough to deepen your sense of happiness without buying more than you can afford. Using a cash-based spending system can really help you stay on track.
Step 4: Write a budget. This is a written plan for the month ahead. One very important clarification: accounting for what you have already spent is not a budget. A budget is where you theoretically spend your money on paper before the paycheck even hits your account. Even (perhaps especially) millionaires have budgets. It’s not about how much you make, it’s about how you manage it. When you write the budget, cover your basic needs first (food, shelter, transportation, and necessary clothing). Give next, then save, and then you can spend the rest on discretionary items that are “wants.” (Check out Why I Give Before I Save).
Step 5: Identify your wealth-building step. I teach Dave Ramsey’s Seven Baby Steps and cannot say enough about this basic outline for building wealth (it’s a big reason I became a Dave Ramsey-trained coach). If you work through the steps, you will succeed, simple as that. If you’re not familiar with the steps, you can read my Guide to Identifying your Wealth-Building Step. Knowing what step you’re on will inform how you need to prioritize savings. If you need a starter emergency fund, every spare dollar needs to go to that $1000 goal. If you’re in debt, you will benefit from focusing on paying it off. If you have no debt and a sizeable emergency fund, it’s time to put 15% of your income into tax-advantaged retirement accounts. As you can see, your budget is going to shift depending on what step you’re on, and it provides both focus and fuel for achieving one wealth-building goal at a time.
If you feel a little overwhelmed right now, it’s okay. Sit back, take a deep breath or two, and know that you have already begun the process of getting those financial ducks to start cooperating! Once you take the time to dream and have a clear idea of what you want to get out of this process, you can face the numbers and make some adjustments so that you are working toward a tangible, wealth-building goal. The budget is the mechanism to keep you on track, and staying away from debt will keep you moving in the right direction. Don’t waste another day settling for less. Better is waiting for you.