Yesterday, I described my financial meltdown, when I reached a point where there was more money going out each month than coming in with no real hope for redemption without a change from within. Then, thanks to some inspiration, I made that change.
The first thing I did was I laid out every single expense I had each month and asked myself what I could do to reduce them. I piled all of my credit card bills together in one place, my student loan bills together in one place, and so on. I then called each of the credit card numbers and simply told them that I am going to transfer all of my balances to one card and would they like my business? The first couple pulled my credit report and didn’t comply, but the third one did. I then proceeded to consolidate my student loans into one loan, and set up an automatic payment plan. With these two moves, I eliminated about 75% of the interest I was paying each month.
The next thing I did was I set up a loose monthly budget that I re-evaluated and tightened at the end of each month. I had so little idea of where my money was actually going that I didn’t actually save anything for the first two months – I just made large debt payments with my money. Once I realized where all that money was going, I was prepared to make even bigger changes in my financial life.
Once I understood my budget both in and out, I put strong caps on all of my frivolous spending. I allowed myself to spend a bit on entertainment, but I strongly budgeted it. I also began to cut down on frivolous spending even on things like groceries, where I taught myself how to shop in a much more frivolous fashion using tools like coupons and shopping lists.
The biggest step was making clear short term goals for myself. I clearly stated that I wanted my credit card debt gone and I wanted a two month emergency fund and I developed a week-by-week plan for getting that done. As I met the goal for each week, I began to develop a sense of pride as I watched my debt disappear much quicker than I would have ever thought possible.
The icing on the cake was I began to build up some savings so that disasters wouldn’t derail me. I opened up a high-interest savings account and set up an automatic deduction plan so that the money would simply move automatically into savings; all I had to do was mark it in my budget and savings would just happen. Soon, I was seeing the joy of compound interest and the peace of having an emergency fund.
Each of these financial moves helped to get me on track to righting the numbers, but how did I right my soul? Tomorrow, I’ll conclude this series by discussing the real lessons the road to financial armageddon taught me.
Want to jump quickly to the other Road to Financial Armageddon posts? Here’s an index to help you out.
#1: The Earliest Mistakes
#2: Early Profits … Lost
#3: Cash & College
#4: The First Taste of Real Money
#5: Love & Marriage
#6: The Yuppie Years
#7: Here Comes Baby
#9: The Road to Recovery
#10: What I Learned