Government shutdowns, company layoffs, union strikes, illness, family emergencies, major car repairs—these are all very real events and it is likely that you have already or will experience a few of them throughout your life. The question you should ask yourself is not will these things happen, but rather when will they happen. The next questions is “will I be okay when they happen?” Unfortunately, for the majority of families, couples, and individuals, the answer would be quick, "No."
Let's take a look at some statistics. They may surprise you:
Those numbers don’t look great! It is clear to me that “normal” is broke. If we want to have good financial futures, we cannot live like everybody else. We shouldn’t have to worry every time we miss a check or have to take unpaid time off. How do we live differently? How do we plan so that we don't have to worry about money whenever something bad happens?
First, we need to decide that we are willing to sacrifice now so that we can live life to the fullest later. This will look different from case to case. With that being said, eventually, you should be able to cover 3 to 6 months of expenses without a check coming in. That makes the events I mentioned earlier seem a lot less scary.
What's been holding you down?
“That’s impossible! How are we going to pay our mortgage, utilities, toiletries, car payment, credit card payment, student loan payment, furniture payment, medical bills, and still have money for food? There’s no way we can save that much!”
I hear you! That’s a lot of payments to cover. In order to reach this point, you need to change your numbers; that will take some hard work. The 3 to 6 month cushion (or emergency fund) is not designed to include your car payment, credit cards, student loans, furniture payments, etc. Why? Because the shortest path to wealth is to ditch debt. Imagine the freedom you would have if you didn’t have any payments in the world! Pretty nice picture isn’t it? What if you didn’t even have a mortgage? Imagine how generous you could be if your money wasn’t spent before the month began?
Most people can’t save 3 to 6 months of expenses because they are giving all their money away in the form of monthly debt payments! Of course, not everyone has willingly stumbled into debt. Even for the financially savvy, it only takes a few major events in close succession to derail their plans. Merely being debt-free is not a recipe for success. If someone is debt free but only has a small cash reserve, how will they pay for the water heater and the car transmission when they go out at the same time? If a similar event happens to you, as it has to many, you will likely end up right back in debt.
Whether it is due to the Visa you signed up for in college, the living room set you financed, or if it is simply due to a rough run with medical bills, debt is what has been holding you down. Now, it is time to put that behind you. It's time to make a change. It's time to win!
If you didn’t have debt payments each month, you could save, invest, and give like crazy. For many people, as long as you are investing wisely, this would put millionaire status within reach just by maxing out your Roth IRA!
Are you ready to take your finances by the reigns? If so, you'll need a straight forward plan of action. Fortunately, Dave Ramsey designed just that!
The Baby Steps
Really, you can do it!
This plan looks simple on paper and, really, the math is solid. But, we all know life throws us some crazy curveballs. People will laugh at your plans and you will get slowed by one, two, or more major crises. Even so, you can do it. You just have to work hard and stay on track.
If you need help, you can always schedule a coaching session with me. We can meet in person, over the phone, or through video chat. Click the appropriate link to schedule your first straight-forward, non-judgmental, future-focused coaching session!
*Graphics and Baby Steps courtesy of daveramsey.com
Lance A. La Croix