Handling the Hardest Moments of a Financial Turnaround

It’s an experience common to a lot of people. You overspend for years and don’t really think about your finances. Something changes and you begin to take notice. You start turning that ship around. You struggle, and sometimes you succeed and other times you end up reverting back to the same old habits.

I was lucky to be in that “succeed” camp. Part of the reason, I believe, was The Simple Dollar – getting into the regular routine of writing the site forced me to think again and again about my financial state, and that process helped me to overcome some of the biggest challenges of my financial turnaround.

Looking back, I can identify four key moments that offered the most challenge to my turnaround. Two of them happened just once; good solutions and the passage of time helped to fix them. Two others recurred fairly often; good solutions and knowing how to use them again and again helped those moments to pass.

At some point during your financial turnaround, you’re likely to hit all four of these moments. In fact, it’s pretty likely that you’re already facing the first one. Let’s look at all four in turn, along with some strategies for taking care of them.

The ‘Financial Bottom’ Moment

For me, this moment occurred in April 2006. I came home from work one day and got the mail, which contained several bills. When I sat down to pay those bills, I looked at our checking account balance and came to the quick conclusion that I didn’t have nearly enough in there to pay the stack of bills in front of me, and it was almost two weeks until either Sarah or I got paid again.

That was the moment when it really hit home that we were in real financial trouble. We had tons of credit card and student loan and auto loan debt. We spent money in very irresponsible ways. We were barely saving for the future and what we were saving was actually being overrun by our debt accumulation. We lived in a tiny apartment with no hope of living elsewhere without some serious changes.

Not only that, we had a tiny baby at home, one that Sarah and I together were learning to take care of.

That night, as I was rocking that baby to sleep, I cried. I felt as if I was letting him down with my terrible financial choices. I didn’t really know what to do, though. I felt very trapped in that moment, as though I was in a hole so deep that I couldn’t realistically dig out of it any time soon.

Here were three key things that helped me get out of this financial bottom, and can help you with yours.

No Matter What, Do Not Escape By Spending More Money

Many people respond to troubles of any kind in their life with “retail therapy” – they go shopping and buy things that they want because it gives them that little burst of pleasure that one gets from fulfilling a desire. Often, the desire that’s fulfilled is a fleeting one; it’ll be forgotten in a few days if nothing is done about it.

Sometimes, that can be okay. There are other kinds of stresses in life that can be aided by a bit of retail therapy.

With money problems, retail therapy doesn’t help. In fact, all retail therapy does is make the problem worse. You’ve chosen to take some of your money and spend it on a very fleeting desire. This means you have less money than before, which makes a financial panic worse once you step back from that retail therapy.

If you need a short-term coping mechanism, find something – anything – else to do. Anything that doesn’t involve opening your wallet is a good coping mechanism. Spending money isn’t.

Do Not Believe You Are a Failure

Many people buy into the idea that a personal finance hole is an indication of some kind of personal failing and that, because they are inherently flawed as a person, they’re never going to dig out of it.

That’s nonsense. You are not a failure. You are not flawed as a person.

The only thing that’s happened here is that you were given a number of tools before you really knew how to use them. College students – and many other people – are often handed credit cards without any real sense of the ramifications of debt. By the time they figure out the drawbacks of such debt, they’re often stuck in a lifestyle that’s difficult to simply overturn and they’ve usually got a pile of debt hanging over their head.

Again, that has nothing to do with you being a failure. Would a six year old be a failure if someone handed them a butcher knife without teaching them anything at all about it and they cut themselves with it? No. They would be someone who had a tool before they knew how to use it.

Credit cards (and other debts) are tools that people can use to do a lot of damage to their finances before they really learn how to use them. Similarly, there are many vital tools – such as 401(k)s – that people shy away from because they’re only shown the immediate drawbacks and not the long term benefits.

You are not a failure because of those things. You are just a person who has taken their first few steps into learning how those things really work. Unfortunately, those first few steps sometimes happen after you’ve already hurt yourself with those tools.

Remember That You Have a Lot of Valuable Assets Already

It’s easy to look at your bank accounts and your investment accounts and think that you have nothing – or that you have very little. That’s not true.

You have your health. You have your mind. You have your education and knowledge. You have your work experience. You have your skills, both the ones for your career and the transferable ones. You have time, too.

Those assets add up to a lot. They add up to the ability to turn your time, energy, and skills into money – and some skill sets can do that quite well.

Not only that, you have your mind, which is going to be what you’ll really need to figure out the next steps forward.

Really, that’s all you need to dig out of this hole. You already have all the tools you need. The challenge is figuring out how to use them.

The ‘I Don’t Know Where to Start’ Moment

Once you’ve reached that financial bottom, you recognize it, and you overcome the shock of realizing the situation you’re really in, there comes a point before too long when you’re simply feeling overwhelmed by the challenge ahead of you.

You look around and all you see are bills and payments for the bad choices you made in the past, and often the sheer number of them is overwhelming. When you look at your overall situation, it can be hard to figure out where to start.

Here’s where to start.

Hit the Library and Read Some Key Books

This is the first step you should take. In fact, it was the first step I took.

This is your education on the ins and outs of personal finance.

Yes, there are a lot of good blogs out there on personal finance issues – The Simple Dollar being one of them, in my opinion – but the articles on blogs often just hammer home on a single point in each post without giving you the larger perspective that a book can give you.

Right now, you need that bigger perspective.

So, what books do you look for? There are many, many books in a typical library’s personal finance section. Here are a few I recommend grabbing.

Of all of the books I’ve read, Your Money or Your Life by Joe Dominguez and Vicki Robin has had the biggest impact on my own thinking about personal finance. It takes a “whole life” approach, looking at the many intimate ways in which spending and finances connects to every aspect of your life, and offers a way to build a strong life free from financial burden.

If you’re facing a big debt crisis, The Total Money Makeover by Dave Ramsey is a solid choice. Here, the focus is on developing a smart plan for getting yourself out of debt and the author serves as a strong “coach” for helping you achieve just that.

If you’re suddenly panicking over retirement issues, The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, Richard Ferri, and Laura Dogu is my recommendation. It does a wonderful job of outlining a sensible retirement strategy no matter what stage of the game you’re in.

What if you simply want a big pile of tactics for cutting back on your spending? I’d recommend The Complete Tightwad Gazette by Amy Dacyczyn. The book is a bit old and thus some of the articles don’t perfectly match modern life, but there is still no better book out there for flooding you with countless ideas for how to trim back on your savings. Even if the idea doesn’t perfectly match your lifestyle, it will likely inspire you.

Make a Full List of All of Your Debts and Bills

This is usually painful, but it’s a key step in getting started on fixing your financial state.

Go through all of your bills that you pay each week, month, quarter, and year. You can find these by going through your mail, your online banking, and your credit card statements. You want all of them, even if it’s just a dollar a month.

Once you’ve found all of these bills that you pay regularly, list them all in one central place. You can do this on your computer or on a blank piece of paper. Have a column for the name of the bill and, next to that, columns for the frequency of each bill – monthly and yearly are the most common, but you may also need quarterly and weekly columns, too.

Why do this? It gives you a picture of your required expenses. These are the things you have to pay, either because you need the things they provide (like rent and utilities), because you signed up for a service (like a gym membership or Netflix), or because you spent money you didn’t have in the past (like a car loan or a credit card bill).

The first category – you can’t do much about those things, for the most part. The second category – the services you’ve signed up for – is a great place to start cutting. Do you really need those bills? Do you really need both cable and Netflix? Do you actually use your gym membership? Cut all you can from there by canceling unnecessary services.

Assemble a Debt Repayment Plan and a Net Worth Calculator

So, what about that third category – your debts? Those deserve special attention.

The best way to pay off your debts is to build a debt repayment plan and follow it to the best of your ability. A debt repayment plan is a really simple tool that can make it easy to figure out what to pay off first.

Ideally, you’re committing more each month to debt repayment than the minimum payment on each debt. Your best approach is to always throw that extra amount into one single debt rather than spreading it across a lot of debts.

Which debt, though? That’s what a debt repayment plan tells you. It’s simply a list of all of your debts sorted by interest rate, with the highest interest rate at the top.

Each month, you should make minimum payments on every bill but the one on top of the list, and then throw everything you’ve got at the one on top. The result will be that the top bill is paid off as soon as possible, in which case you cross off that top bill and move on to the next bill in line.

Another tool I started back then and still find really valuable is a net worth calculator. Your net worth is a number that sums up your personal finance state all at once – it’s simply the sum of the value of everything you own (and the money in your accounts) minus all of the debts you owe.

Your net worth is easy to calculate with a spreadsheet, but the real value in calculating your net worth is that it lets you see your positive progress over time. Start calculating it as soon as possible, then calculate it again every month or every quarter. Keep those calculations so you can look at them later.

The ‘I’m Tired of Frugality’ Moment

Most people quickly discover that cutting back on expenses is a great way to free up money to pay the bills and pay off debts, so they dive in with a fervor. They’re cutting back left and right and living really lean and enjoying watching their debts melt away.

Of course, with every change comes a bit of backlash. Before long, people often reach a point where they start to miss their old lifestyle choices and begin to grow “tired of frugality.” It happened to me, too.

I found that three strategies really helped with this.

Get Out of the House and Do Something Active (and Free)

I found that most of my negative thoughts about frugality – and my biggest desires to fall back on my old spending habits – came about when I was sitting at home without anything to do. As the old saying goes, “the devil finds work for idle hands to do,” and that’s certainly true here.

At home, I would often fall into thoughts about the things I’d like to be doing and spending my money on. Even worse, at home, I would have time to shop online for things and it was oh so easy to click the “buy it now” button.

The best way to avoid those thoughts, I found, was to keep busy. I went on a lot of walks. I started geocaching during the infancy of the hobby. I went on a lot of hikes. I got exercise. I found outdoor projects to work on which later grew into some volunteerism.

These things kept me simultaneously busy and healthy, and it kept me from spending money or even thinking about it.

One big key is to do this without your cell phone. Put it down. Turn it off. Don’t let it be a distraction to you, because your smart phone is an easy tool to convince yourself to spend money and to do it easily.

Deconstruct Your Want List

If you’re sitting there thinking about the things that you’d like to spend money on, don’t just think wistfully about the positives. Break those things down with some serious focus.

Most of the time, when desires float through your head, you only look at the positive side of those desires. You would have fun with whatever that desire is or receive some sort of pleasure from it. What isn’t usually captured is the drawbacks of that desire.

So, go through the things you’re wanting to have that you’re denying yourself out of a sense of “frugality,” but instead of thinking just about the positives, think about the negatives. Will you remember this treat at all in a few days? Will you use this item for just a while and then never use it again? Is there a way to rent this item or borrow it instead of paying money for it? Do you already have something that does more or less the same thing? Do you gain anything worthwhile by buying this instead of a lower-priced version or a used version?

Put your want list through the charcoal filter of good sense and see what comes out on the other side. You’ll find that quite a few things just drop away.

Decide on One Singular Thing That You Want More Than Everything Else – and Have It

If you do decide to splurge – and that’s okay, every once in a while – figure out the one thing that you want the most after deconstructing that list of desires. Splurge on just that one thing.

However, before you do it, wait a little bit. Give it some anticipation so that you can enjoy the buildup a little.

After you decide to go for it, give yourself as much time as possible to enjoy whatever it is that you spent your money on. Savor it. Let the enjoyment last for as long as possible.

When it fades, rather than just jumping to the next thing that you want, remember the joy you got from this splurge. Keep it in your mind and make it last. Squeeze every drop of juice from this rock.

I find that when I do this, I get far more enjoyment out of single purchases and events than I do if I just load up my life with them. It’s also a lot healthier on my wallet.

The ‘My Progress Is So Slow’ Moment

As the days and weeks and months roll forward, it’s easy to start getting a sense that your destination will never come. You’ve been working on debt freedom for years, yet debt freedom is still years away. You’ve been saving for retirement for years, but you’re still decades away from having enough to quit.

Those moments are rough. Rather than being tempted by desires, you’re beaten down by the seemingly endless grind.

Here are three ways I get through those low moments.

Take a Real Look at How Far You’ve Come

This, right here, is why I keep a net worth calculator and calculate my net worth each month.

If I ever feel as though I’m not making any progress, I can just pull out my most recent net worth calculation and then go back and compare it to my net worth in, say, June 2006.

In June 2006, I had a negative net worth. Today, I don’t even have any debts and I own my house – those things alone, ignoring my other investments, blow away my net worth from 2006. Over the course of nine years, I’ve made more progress than I can hardly believe.

Seeing raw proof of how far I’ve come makes me feel much, much better about the journey.

Spend Some Time Focusing on Shorter-Term Goals

Sometimes I get far too caught up on big long-term goals. I think about financial independence, which is years away. I think about buying that house in the country, which is (probably) years away. And I can’t help but wish there was something for me now rather than years down the road.

When I feel that way, I start focusing on short term goals. What do I want to achieve today? What do I want to achieve this week? I focus on knocking those things out of the park.

For one, when I’m bearing down on something that can be done in the short term, I think almost entirely about that short term focus.

For another, actually achieving those short term goals leaves me with a strong sense of accomplishment, which is almost the perfect antidote for that negative feeling about being so far from the big goals. Even better, many short term goals often lead into those long term goals.

Look at Your Month-Over-Month and Year-Over-Year Progress (or Start Preparing to Do So)

This is another reason for keeping net worth numbers.

If I compare my net worth to where it was a year ago, I can see real progress. Our family’s net worth over the last twelve months went up almost as much as our total income in 2014. That’s amazing, and it’s proof of how we’re racing toward our targets.

Even early on, when we were mostly just eliminating debts, the change from month to month and year to year in our net worth was inspirational. It was real proof that we were making changes in our life and, if we looked close, we could see it in our day to day life, too, in the form of lower stress and more contentment.

The simple step of comparing your net worth to what it was a year ago not only can provide reinforcement that you’re doing the right thing, but it can also provide evidence that you can always do better. For me, it’s just the right push to keep me going on my journey.

Final Thought

We all reach difficult moments in our financial journey. The key thing is to not allow those difficult moments to become impenetrable roadblocks that keep us from making future progress.

Good luck in wherever your financial path may take you.

Trent Hamm

Founder & Columnist

Trent Hamm founded The Simple Dollar in 2006 and still writes a daily column on personal finance. He’s the author of three books published by Simon & Schuster and Financial Times Press, has contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and his financial advice has been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.