A closet full of food and a desk covered in credit card bills isn’t exactly a match made in heaven. Having stockpiles of food, water and other preps is great, but if you’re swimming in debt, are you really prepared for anything? Emergencies take many forms and a financial emergency can turn your world upside down in a very short period of time. What if you lost your job today? What if you or someone in your family has a major health crisis, could you continue to pay the bills and care for your family? Granted, your food preps will keep you from starving, but that doesn’t necessarily keep a roof over your head. If your income stopped today, how long could you survive? Even if you feel pretty financially secure, chances are you could still improve your situation with a little bit of work.
The average American has 2.6 credit cards in their wallet and owes an average of $7,879. Ouch! Add on car payments, mortgages and other revolving debt and that number grows to $225,236 in debt with most people having less than $500 in savings. Ok, enough with the stats, let’s get on with how to fix it. If you are already financially sound or at least killing off that debt feel free to skip down the page a bit.
Debt is not the issue, it’s the symptom.
I was always told to never talk about politics, religion or money – you’re bound to make someone feel uncomfortable. People are often intimidated by things they don’t understand and money is often one of those things. Just to be clear, I’m speaking from experience here as we made just about every imaginable mistake with money and usually twice. In our younger years we loaded up on a ton of debt, it’s just what you did – buy it now, pay for it later. You know – ‘easy financing!’ At one point we had 3 mortgages, 2 car loans, motorcycle loan, and a slew of credit cards – and we didn’t lose a wink of sleep, this was just ‘normal.’ We were making great money and somehow were always able to out earn our stupidity. We were very lucky to have escaped that situation without disaster, but many folks just aren’t that lucky. Just take a look back at 2008 – enough said? Time to clean up those finances!
Analyze, Identify, Execute
I often hear employees complaining that they don’t have enough/make enough money, but in the same breath they talk about the new video game they just bought while sipping their Starbucks and playing on their $600 cell phone. Madness!
Make a journal of every dollar you spend for a month. I use my debit card to pay for everything then use Quicken to track it – you may find something that works better for you, doesn’t matter as long as you do it. Track every dollar; track not just your monthly bills but every candy bar, cup of coffee, and cheese burger from the drive thru; you will be surprised how fast your list grows.
Even if you cheated and only kept the journal for a week you will likely have noticed a few things jumping off the pages at you. Spending $5 a day at Starbucks gets expensive really quick or even that $1 cup of coffee from McDonald’s isn’t really a bargain if you do it everyday. For example: instead of stopping for coffee on your way to work buy a decent coffee maker and a can of coffee and make your own at home. Coffee maker – $40, can of coffee – $8; the 36 oz can I bought at Wal-Mart claims it makes 288 6 oz cups – do the math. 288 divided by $48 = about $.17 a cup or 85 cents a week vs. $5 at McDonald’s not to mention Starbucks. Your results may vary, but you get the idea. Now analyze everything you spend money on: do you really need 12 gigs of data for your cell phone, 200 cable channels you don’t watch, or that $20 bucket of popcorn at the movies? If you make $2000 a month and your car payment is $500, you bought too much car!
Now that you have identified some opportunities it’s time to start cutting all that fat. Depending on how close to the edge you are at every month you may only be able to change a few things at a time, but you have to start somewhere. Create a game plan, also known as a budget! Yuck, that’s a nasty word right; who wants to have their choices limited by bunch of stupid numbers on a page, ‘I work my butt off and I deserve to have nice things!’ Yes, we all feel that way sometimes, but that’s what got you here in the first place. You deserve those nice things when you can afford to actually pay for them. Here’s a basic downloadable budget form to get you started (I created my own in excel). I would recommend you buy Dave Ramsey’s ‘Total Money Makeover’ or ‘Financial Peace University’ book for some excellent budgeting tools as well as some great investing advice. Note: you may find a Financial University class near you, check DaveRamsey.com. Now, lay out a battle plan and stick to it; cut back the cable by using Netflix, Hulu, or Amazon Prime instead. Do comparison shopping for your car insurance, cell phone, even look for a better rate on that credit card. Cut the fat and use the savings to pay down that debt. Warning: you will slip, mess up, screw up and fail; but success will come if you keep getting up and getting back on track.
Step back from the edge
So now that you’ve sliced and diced through your monthly budget, what’s next? First you need a bit of breathing room; you need to build a small buffer between you and disaster. Before you go after all that debt, build yourself a small emergency fund, $1000 is usually a good place to start regardless of how long it takes you to get there. Even if you only manage to start with a few dollars a week, at least you’re making progress! You’ll be amazed how much better you feel when you have some actual savings.
The debt snowball
You’re probably heard the term before; it’s no mystery it’s just a common sense method for paying down you debt. Now that you’ve cut your costs and saved up your $1000 emergency fund, take the money you’ve been saving weekly/monthly and apply it to your debt. Take on your smallest debt, maybe that pesky Department Store credit card at 28% interest, and hit it first. Pay just the minimums on everything else till the first one’s gone then take that payment and attack the next one. Simple right?
I know some people are closing out their 401ks and buying long term storage food, I get it, but what if the markets don’t collapse just yet? What if you find yourself at retirement age and all you have saved is food and water? Walk into any fast food or retail outlet and chances are you’ll see a few senior citizens working there and not because they want to. To me prepping is preparing for any and all situations including the possibility of actually retiring. Yes, I am worried about the financial state our country is in. Yes, I am worried about our country’s $19.5 Trillion in debt. I am very doubtful that the economy will continue as it is without some sort of major disruption, but what if it does? What if somehow, some way, the economy just continues limping along for awhile? If you’ve been reading some of my other posts you know that I am an ‘all of the above’ prepper and I apply that to our finances as well. We save cash on hand, cash in the bank, employer provided 401k and stock purchase plan, as well as mutual funds with a major brokerage firm – all of the above. That being said, I watch the financials very closely, I took a beating in 2008 that I would prefer not to experience again. The choice of whether or not to invest is yours; maybe your crystal ball is better than mine. We all make choices based on what we think will happen, but the fact is we’re all just guessing.
A few random little tips:
- Open a separate bank account with a debit card for online shopping; transfer only enough each time for your purchase. If the account gets hacked they get little or nothing, and it helps prevent you from running that credit card back up.
- Buy the best quality products you can afford, it’s not a bargain if you keep having to replace it every few months/years.
- Regardless of how tempting that 15% off or 90 days same as cash deal might be, never use department store credit cards as they have the highest rates of interest. And never, never, never use payday loans, title loans etc.
- Comparison shop for EVERYTHING! Car insurance, cell phone plan, cable, clothing, music, movies, food, everything! I love Amazon, but I check prices on everything I can.
- Kill the cable/satellite: Netflix, Hulu, Amazon Prime and others all offer great entertainment choices for $10 a month or less.
- Buy in bulk. Not that I need to tell you folks, but it’s almost always cheaper to buy the big jar of pickles vs. the smaller one.
- For many folks their cell phone is their best friend and constant companion, but do you really need the latest and greatest? Do you really need to rush out and drop $700 on a new phone that you can get for half the price next year? Do you really need to spend an extra $100 a month on data to play Angry Birds or chase Pokeman? Think about it.
- Cut your heating bills by getting a couple of infrared heaters. We have cut our winter fuel costs in half by using 4 of these Lifesmart Infrared Heaters in various locations around the house.
- These days a lot of retailers have a $5-$10 minimum credit/debit card purchase. Carry a few extra dollars in your pocket for when you just need a pack of gum.
- Bring it from home. Similar to the coffee example used earlier, if you drink 2 diet Cokes a day, bring them to work with you instead of hitting the convenience store or vending machine. You might even consider packing a lunch (gasp) instead of visiting the McDonald’s drive thru.
- Plant a garden if at all possible or at least hit the farmers market. It’s a great way to save money and eat better at the same time.
- Opportunity buying is being able to take advantage of an unexpected deal because you can afford to. Getting your finances in shape and actually having money allows you to take advantage of those 50% off Red Tag sales and such without straining your budget.
Just imagine if our politicians thought this way.
Some recommended reading:
The Total Money Makeover: Classic Edition: A Proven Plan for Financial Fitness
More than Enough: The Ten Keys to Changing Your Financial Destiny
Financial Peace by Dave Ramsey Financial Peace
The Motley Fool: You Have More Than You Think – The Foolish Guide to Personal Finance
Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
Hope for the best, prepare for the worst.