How you feel when you think about your money is a big indication of what you’re doing right and what you may need to tweak. If the thought of opening up a bill, reviewing your spending, or adding up your debt makes you shiver in your shoes, you may be experiencing that dangerous mix of denial and worry that keeps so many people stuck in whatever mess they’ve made for themselves.
I met people on my last book tour for Money Talks who had yet to crack the spine on their copy of Debt-Free Forever that they bought the year before. It’s almost as if they think that just by buying the book they’re going to solve their money problems. Jeeze Louise!
No matter how stressed, how nervous, how reluctant you may be right now about your money, the only way you’re going to move out of the Nervous Zone is to do something. Yes, you must DO something. You can’t just wish things were better. And you can’t hand it over to someone else to sort out for you. You messed it up. Now it’s time to clean it up.
1. Start by doing a spending analysis
A spending analysis is the only way to figure out how you got into the mess you’re in. I know this is hard work. I know your stomach will churn and you’ll want to hide under the bed. But only by figuring out where your money has been going can you plug the leaks.
Gather up six months’ worth of all your statements: bank, credit card, line of credit. You’re going to break every transaction out so you can see EXACTLY where your money has been going. (Resist the urge to make quick work of this exercise. If you shortcut, the results won’t be accurate.)
Use your common sense when it comes to deciding where to put stuff. If you have someone who cuts your grass, that’s home maintenance. If you pay for monthly massages, but it’s a self- indulgence not for health reasons, put it under beauty or pleasure, not under medical. Don’t lie!
2. Add up your debt
It’s time to make a list of your debts. For as long as you don’t add it up, you can convince yourself things aren’t so bad. To calculate what it will take to eliminate that debt, divide the principal you owe by the number of months in which you wish to have the debt paid off. So if you want to be debt free in four years, divide what you owe by 48. That’s how much you’ll have to pay off the principal each month to achieve your goal.
Make the minimum payments on all your debts to keep them from going into default, but put the majority of your debt repayment money on the debt with highest interest rate. When that’s paid off, move to your next most expensive. Each time you move down the list, add the payment you were making to the next most expensive debt that you’re about to tackle – that’s called “snowballing“.
3. Make a plan
A budget and a debt repayment plan mean you’re serious about getting out of the mess you’ve made. Need more details? Borrow a copy of Debt-Free Forever from the library. Or maybe you just have to open up the copy you bought last year and do the work I told you it would take to change your life. I don’t mean it to sound as if I think this is easy. It’s damn hard. I know that. I have worked with people who swooned when I showed them their debt, their spending, and where they were headed. But you HAVE to do it if you want your life to be different.
The people I’ve met who have done the hard work and are debt-free or getting there are so much happier with their lives. With a plan, with the determination to never go down the road to Debt Hell again, they feel free. They feel like they can accomplish anything. They’re sure of themselves and of what they’re doing with their money. There are no Nervous Nellies amongst them.
Hey, if you’re nervous about your money that’s a sure sign things should be doing something different with it. Get moving!