Step 1: Admit that you have a financial problem. Admitting that you have a financial problem, whether it’s charging too much on credit cards or acknowledging that you own too many credit or store cards is the first step. You can’t begin to erase debt until you are able to admit to yourself (and maybe others) that you have a issue.
Step 2: Make a list of all your debts. You can’t know where to start until you have some sort of blueprint in front of you. And that blueprint will be your list of debts to attack. List out every debt you have (you can even put down your mortgage if you’d like) but list EVERYTHING! You cannot forget, by accident or on purpose, any of the debts. Many people will purposely not add a debt to the list on purpose because it’s a way of ignoring the problem. Part of your success in erasing debt will be how well you acknowledge each and every debt you have. List your debts starting with the smallest debt to the highest. Place them all in a column, one above the other.
Step 3: CREATE A BUDGET. The dreaded B-word. Everyone has a story or excuse or reason why they can’t create a budget or stick to a budget or a budget doesn’t work for them. I’m here to tell you that a budget does work if done properly. I’ve done it wrong and I used all of the excuses in the book to avoid creating one. But a monthly budget that is constantly reviewed and updated is the KEY to erasing your debt. Oooh, that sounds like work. Well, yes it is….
Step 4: Maintain Your Budget. You cannot create one budget and then think that that one budget is going to be the same budget used, month-after-month for the next few years until you get out of debt. If you do that you’ll be frustrated by month two and your budget will go down in flames as a miserable failure as most budgets do. A budget has to be modified every month to meet the needs of your family’s life style. Maybe even updated every week until you feel comfortable with it. And then even when you are out of debt, you will need to continue with a budget. The one guarantee I have for you if you stop doing a budget is that once you stop doing a budget, I guarantee that you’ll be back in debt again. Once you get use to managing a budget, it shouldn’t take up a lot of your time.
Step 5: Include Everyone in the Budget. Be sure to communicate with everyone in the family (spouse and kids) about the budget. Everyone needs to be on the same page and rowing in the same direction. You can’t have a wife following the budget and the husband off buying tools that weren’t budgeted for. It won’t work. EVER! Even tell the kids about the family budget. Now a nine year old doesn’t need to know all the finite details. But make them aware that there is only so much money. And that money is allocated to certain things. And some things are “not in the budget.” They will catch on soon and before you know it, they will be telling you what is not in the budget.
Bonus Step: Start living on a budget. It’s all fine to create a budget and talk about it. But if you don’t implement it, it will never work. What’s the worse that can happen if you go on a budget. You finally may actually start to understand where all your money is going. That may be scary at first but eventually it will feel liberating and you’ll soon erase that debt and start saving.
We are still not done yet. You need encouragement from friends and family for sure. You also need to keep on educating yourself in this money adventure. You must read books and keep reading blogs about personal finance. Also get some of Dave Ramsey's books. His "Total Money Makeover Book" is what you need to read again and again. Find other authors to read and learn all you can. You will be successful if you have a plan and follow it. I Promise.
Great tips! I too have done better at budgeting than I have at eating right and exercising.
ReplyDeleteYour bonus tip is critical. It is amazing how many people think that simply putting numbers on paper is accomplishing something. It means nothing unless you actually make it work.
Here is wishing you a Happy New Year, Dave. And not just January 1, but all of 2011!
I'm looking forward to a better New Year for all. Happy New Year to you and your family. See you next year.
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