How It All Started...
Recently (about three months ago) I was sat discussing my financial situation with a friend. We were joking about how it seems like no matter how hard we work and how much we push our salary up, we never have cash. Yet, as young adults at college we earned next to nothing compared to what we do now, yet we always had cash in our pockets and were out partying every weekend. Why? What's changed?
I then got talking about this to another friend who then lent me a book. This book changed EVERYTHING. Sounds dramatic I know, but I am really not kidding.
The book is "The Money Makeover" by David Ramsey. I strongly urge you to grab yourself a copy. This is my first tip!
I intend to write a series of blog posts covering what I learned from the book, how I am applying it and the difference it has made to my life in the hope that you too can feel as good as I feel right now!
Before we begin, lets cover a few key issues..
Ask yourself why you are here and why are you still reading this post. If you can say any of (or similar to) the following, I suggest you stick around for a bit:
- "I don't know where my money goes after payday"
- "I am spending too much on credit cards"
- "I have an empty bank account, or it's in a negative balance by payday"
- "I get some savings but then Christmas comes and it's gone"
- "I can't buy stuff I need, my card is maxed out"
- "I want more financial security for my family"
- "I'm trying to clear my credit cards and overdraft but the interest is too high"
- "I want to have more FUN!"
- "What money?"
Let's Get Real
Before we start going down the rabbit hole discussing the plan and associated tools, let's have a moment to think about the situation we are in, and perhaps more importantly why we are here.
Ask yourself these questions:
- What is your total debt? (Including loans, credit/store cards, borrowing from family/friends, overdraft etc.)
- How often do you say things like "I know I was naughty, but..." or "treat yourself"
- Do you withdraw cash for fun, because "it's cool you have an overdraft"
- Have you recently got yourself a new toy (games console, TV, stereo, laptop, whatever) on the credit card?
- Have you paid for it yet?
- How much interest have you paid?
Now, when I started my makeover, I went through this same process. Before I started drawing up budgets and plans, I spent some time brainstorming and asking myself many questions like the above. Here are my answers to the above:
- No idea. About £20K (I think).
- Probably once to twice a week.
- No idea.
Starting to see signs of a problem here? I personally (like many others) have a really callous attitude to cash (or should I say "spending cash I don't have"). I viewed credit/overdraft facilities as "my money". Now for the important bit:
This is bull crap.
I was being ignorant and stupid. Note the "I". Stop blaming the banks for everything, our recent (global) financial situation is caused by too many morons like me spending cash they didn't have and couldn't afford to pay back. Don't piss and moan about the banks "making it too easy to borrow". Of course they will! It's a part of their product line that generates revenue (and a lot of it) for them. Would you stop selling too much of your product if it started getting money in the door? Of course not!
So, repeat after me:
"I have been stupid, I need to stop being stupid."
Keep saying this for a bit, it will slowly start to sink in. After a while of going through this, I started to resent and feel angry at myself for my stupidity. This is good. Welcome to the dark side of the force, let's use it.
Let's Face Up
OK, so we have finally woken up and smelled the coffee. We have screwed up. That's OK, we are human. Mistakes are fine, but continually making the same mistakes is NOT fine. Let's be honest with ourselves and think about getting out of this hole.
- "I made many mistakes, but I am committed to fixing them now"
- "It's MY money, and I want it to go straight into MY pocket"
- "Buying on credit" or "buy now pay later" is NOT buying, it's borrowing. We don't borrow, we BUY.
- People with stuff are not necessarily people with sense*
- "This makeover is going to be HARD"
- "I am going to go without now, so I can have more later"
* There was a great quote in the book - "Don't keep up with the Jones', the Jones' are broke". Loved it!
OK, enough lectures and feeling sorry for ourselves, let's get started shall we? :)