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Why becoming debt-free is like going on a long car trip
I realised that I have such a lot to say about this topic that I tend to write lots and lots of words…
And my articles end up quite long. Detailed and lots of fabulous information, but too long for a Coffee Break read.
So, here’s the short version of this article and there’s a link to the more detailed version at the end, if you want to go into more depth…
Say you wanted to drive from Dallas to Toronto, you’d know to head kind of north, but beyond that, how would you get there? You need to have a car to get you there and you need to know how to drive it. The car also needs to work. If you don’t know that you need to look at the fuel gauge, you’ll soon run out of fuel. Plus, you need to make sure that you have enough money to buy whatever you might need along the way, right?
Our finances are like that long distance car trip: if you don’t know how to drive, you don’t have a car that works, don’t have a map, no money for fuel or food or places to stay, you’re not going to get very far.
But, if you manage the trip well, do a little preparation and pay attention to things, it’ll be an amazing experience.
It’s time to plan the trip...
1. Check your vehicle: Check your money DAILY
As your dad probably used to tell you, before you take any long car trip, you need to check the car over, make sure there’s enough fuel, water, oil, make sure the tyres are okay, that kind of thing.
We need to do the same thing with our finances.
So, how often do you look at your bank accounts?
When you’re at the checkout to make sure you have enough money to pay for your groceries?
When you get a notification to say that a payment has bounced?
While you’re burying your head in the sand like I did, you’re always going to feel out of control, irresponsible and not good enough.
Get an app for your computer & phone (such as MoneyWiz, Budget or Debit & Credit), load all your information in there and check your bank account…
Every. Single. Day.
You have a certain amount of fuel for your trip, you need to manage it, know how long it’s going to last, what it needs to cover, when it needs topping up and whether you need some extra fuel (money).
2. Decide where you’re going: Set Goals for Your Money and Review Them Regularly
The more complex our goals, the less likely we are to stick to them. This goes for most things; let’s take this long distance car trip as an example. If someone gave you detailed instructions for the whole trip, they’d be pages and pages long and you’d just go straight into overwhelm.
Instead, set clear, concise, easy-to-understand goals and be realistic about them!
Setting a goal of saving $500 a week when you earn $1,000 a week is neither realistic nor achievable. Not unless you’re living in a tent on a self-sufficient allotment, anyway.
Instead, make your goals SMART: Specific, Measurable, Achievable, Realistic and Time-Framed. Write them down and track your progress against them.
Don’t beat yourself up if you’re off track, just honestly reassess things, create a new goal and get back on the road.
You will also need to review your goals because you’ll find that as time goes on and this new savings thing becomes a habit, you’ll find it much easier to put away a lot more money than you first thought was possible.
3. Pre-Start Check: You Must Do This Before You Spend Any Of Your Income
Here’s what normally happens when our pay cheque arrives: we pay the bills, pay the mortgage or rent, buy some food, maybe go out and have a drink or splurge a little on some new shoes, then whatever we have left is “savings”.
Only, most of the time, there’s nothing left.
Here’s what you need to do: pay yourself first.
Now, let me share with you what I thought ‘pay yourself first’ meant for many years. I thought ‘pay yourself first’ meant ‘go out and buy what the hell you like and then use whatever’s left to pay your bills’.
And I wondered why I was in financial hell.
But no one had explained to me what ‘pay yourself first’ actually meant. It means invest it, save it, put it away for your future, but do not spend it now.
Scott Pape, aka the Barefoot Investor (you can get his life-changing book here) suggests that you pay yourself 40% of your income away BEFORE you pay anything else.
David Bach in his bestselling book, The Automatic Millionaire, suggests you pay yourself for one hour each working day.
However you decide to do it, save first and spend what’s left over.
4. Be Prepared: Plan For Emergencies
Think about our car trip; what could go wrong? All cars must carry a spare tyre or a run-flat tyre in case of punctures.
How often do we do that with our finances, though?
We may have thought about it and even tried on several occasions to squirrel away a nice little saving fund only to have the entire amount soaked up because the car breaks down or one of the kids gets a broken tooth or the washing machine dies. Suddenly, our nest egg is back to being an empty collection of twigs (and we give up on the whole savings thing because it just never works).
We need a fund that really will see us through those emergencies.
Scott Pape, the Barefoot Investor, recommends you put away 20% of your income as your own insurance against all of those things that life throws at you.
Imagine how much more easily you’ll sleep, knowing that no matter what life throws at you, financially, you’ll be okay.
5. Use Your Resources Wisely: Spend Less Than You Earn
Imagine we’re bobbing along on our car trip. We have a certain amount of money for the trip to buy fuel & food and every night, we book ourselves in to a 5-star hotel, order room service and a maybe nice bottle of Champagne.
Pretty soon, our money has run out. As we’re walking down the street, feeling a bit depressed and uncertain, we see a sign in a shop window saying “Run out of money? You can get some here!” So, in we go to get some of the money from the nice people. We’ll have to pay it back at some point, sure, but at least we’re okay right now and off we toddle to our next five-star hotel.
Unsurprisingly, pretty soon, we find ourselves out of money again. We see another sign: “Need money fast? We can help!” and in you run to get some more money quick. And on it goes.
It sounds silly, doesn’t it, but this is how we are around money: we borrow more and more, get more and more cards, until we’re drowning in debt.
In his book, The Secret Language of Money, David Krueger says “through justification, luxuries have a way of evolving into necessities overtime. The special coffee becomes a routine, the better restaurant becomes the assumed standard and our expenses sneak upward and expand laterally”.
What this means is that if you go over your spending limit one month, then the chances are you’ll think, ‘oh well, I can do it again’, the next month. But this is a slippery slope, one that you don’t want to start on, so avoid spending justification at all cost.
6. Learn How To Drive and Read A Map: Become Financially Savvy
We’re not allowed to drive a car until we’ve passed a test to say that we know the road rules, then we have to take lessons to learn how to safely control the vehicle before we go for another test and show someone that we can drive well enough and safely enough to be allowed to drive by ourselves.
We don’t consider money in the same light, yet how much emotional misery is caused by money because we don’t know how to handle it and we head for disaster unknowingly?
I’ve put together a heap of resources here, with the books that I recommend, particularly the ones I’ve mentioned on this page.
Reading is one thing but doing is something else. Playing games is incredibly effective in having us understand what we read and helping us learn how to apply the principle, and there are two games that I’d recommend:
Learn how to use your money and what impact every little financial action that you take has on your goals.
7. Use Your OWN Car Not Someone Else’s: Get Out of Debt – and Stay Out
Picture this: we’re about to set off on our Big Road Trip but then we look across the road and we notice that our neighbour has a much nicer car than the one we’re about to set off in. It has air conditioned leather seats, shiny bits on the side and it just looks cool.
As a society, we’re taught that buying more things will make us happier. We’re constantly encouraged to go further and further into debt.
You know what The Millionaires Next Door all had in common?
Of any kind.
Debt kills off our ability to grow financially. No matter how much debt you have right now, you can pay it off much quicker than you think you can.
We feel great as we’re setting off for our road trip in the flashy car, but then we realise that the payments on the car are eating up all our spare cash and then some. We can’t pay for fuel. We have to sleep in the car because we don’t have enough money for a hotel. We can’t go anywhere because all of our money is going towards payments for the car. We’re stuck. We can’t move.
That’s how we live. We live in a constant state of fear about debt payments.
Make it your priority this year to pay off as many of those debts as you can as quickly as you can.
Over to you…
What small shifts can you implement this year that will have the biggest impact on your finances?
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Hi! I’m Karen O’Connor, Along with my husband, John, and my brother, Alan, we are the YouTube channel, Stop Being So Poor - The hows, the whys and the fun in making money.
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