When I found myself deep in financial meltdown, I threw myself into learning as much as I possibly could about personal finance. I was quite scared of losing everything that I had because I had dug myself in such a deep hole, yet it was my personal nature that I didn’t talk to anyone about it. I tend to be the person that people come to for advice, not the person that asks for it.
Yet it wasn’t too much later that others came to me during their own financial crises and asked for help. I managed to give them some simple advice, but it wasn’t until recently that I sat down and actually came up with a list of things to tell people who have finally realized that their finances have to change.
Before you give any advice, though, the best thing you can possibly do is listen without interruption. When they’re telling you about all of their problems, just listen to what they’re saying. An open ear is often the best balm you can provide.
When they’re done, though, here are seven things to tell people who are in financial armageddon.
Realize that you’re not alone.
Depending on the person, I often show them things like Make Love, Not Debt, where their financial situation is out there in the open for everyone to see. Quite often, financial desperation creates a feeling of desperate loneliness as well, because they see everyone else being successful and find themselves being a failure. You’re not a failure because you don’t know how to manage money; many, many people have to learn the hard way.
Make a list of every one of your debts and how much you pay on them each month.
For most people, this winds up being a long list of credit cards, followed by more stable loans such as home loans, car loans, and educational loans. Once they’ve made this list, you can suggest some ways to consolidate and reduce these amounts: doing balance transfers on the credit card debt, consolidating student loan debt, or refinancing a home loan. This is a quick way to reduce the monthly payment burden on an individual.
Make a list of every one of your regular bills and how much you pay on them each month.
Most of these bills can be reduced quite easily. Do you really need premium movie channels on your cable bill? Do you really need unlimited minutes on your cell phone each month? Do you really need that Netflix subscription?
Ask them what they spend on clothing, beauty, hobbies, and entertainment.
There is almost always something that can be cut from these categories. Do you really need a $200 pair of pants when you can wear one of your other pairs? Do you need to go out to a movie every weekend?
Tell them the “count to ten” rule.
When I was first getting myself off of the consumerist wagon, I found that counting to ten every single time that I considered spending money caused me to re-think a lot of my purchases. Tell them to do just that; count to ten before any situation where you are going to spend money. If you’re still leaning towards it after ten seconds of contemplation, go ahead with it.
Demonstrate how to shop with less expense.
You should consider taking the person to the grocery store with you. Show them how a shopping list works and demonstrate how to figure out what the best deal is among the items of the same cost. I usually use a lot of coupons at the checkout, too, if I’m showing someone how to do this, and I show them coupon sources such as the Sunday newspaper and coupons.com.
Recommend a general book on personal finance.
Different books work for different personalities. You might find a solid choice from my 52 personal finance books in 52 weeks series, or you may want to go to the bookstore and browse through some books with the person. A good personal finance book will match their personality but also contain a solid overview of personal finance issues and some healthy advice.
Walking a person slowly through each of these pieces of advice can usually trim hundreds (sometimes thousands) of dollars from their monthly budget and get them on track to extracting themselves from debt.