Shame, guilt and judgment are liars and I suggest we kick them out of here. Would you rather I try to shame you into living off a budget, or would you rather we have a two-way conversation about aligning your personal values, mission and vision? Yeah, me too.
Budgeting, debt elimination, and emergency cash are all foundational. However, it seems everything we’ve heard from the talking heads on this topic falls in the “How” and “What” categories and runs right past the “Why” (thank you Simon Sinek for this vernacular). The alignment of our thoughts and behaviors with our values is the nearly magical place where lives are carried out with purpose and intentionality. Once we find this untapped power source, the budget, debt elimination and emergency cash will happen. And get this…you’re going to like it. You’re going to demand it! It’s no longer a best practice or principle, it’s a way of being that comes from your most meaningful reasons. Way back when, gold old Zig Ziglar said it beautifully when he said, “You can tell a lot about a man’s heart by looking at his calendar and his checkbook.” Where does your heart live? Where is it aimed? Zig also taught us that if you aim at nothing, you’ll hit it every time.
There are endless budget templates, software and ideas on how it should be built. We have our favorites at the Foundation for Financial Wellness, but whichever you decide to use, it must be a zero-sum budget. Meaning, you must “spend” every dollar on paper before the money hits your account. Dave Ramsey tells his readers to “Tell every dollar where to go, rather than wondering where it went”.
Debt elimination is a really interesting, (and unfortunately all too common) topic. We teach two types of approaches; 1) Mathematical approach, and 2) Behavioral approach. The mathematical approach would have you pay off your debt in order of highest interest rate (most expensive) to lowest. This is logical. The behavioral approach has you pay off your debt in order of smallest balance to largest balance. This is emotional. The emotional brain gets the chemical release quickly by knocking out the smallest first, then builds momentum by rolling those payments into the next debt item, and so on.
The vast percentage of people we have taught through the years prefer the behavioral approach, and for good reason. The best approach is the one you complete! Not to mention, it was emotion, not logic that got you into the consumer debt, so likely, it will be the power of the emotional brain that gets you out.
Finally, the third component of the financial trifecta, emergency cash. Nothing sexy about it. But then again, there’s nothing sexy about an Ambien either, and it’s debatable which one helps you sleep better at night.
1. Busting budget myths!
Make a point this week to get real, call out and write down your own personal self-limiting scripts. Then, write down an empowering belief to replace each one. Be sure to share these with someone who cares about you. Here are just a few examples to get the juices flowing…
- “Budgeting means being deprived and uncomfortable.”
- “I make enough money to pay my expenses so I don’t need a budget.”
- “This will take too much of my time to maintain. I have better things to do.”
- “I’m comfortable with my current spending habits.”
- “I’ve tried this and never stick to it anyway so why bother.”
2. Gate check your pride
This flight is bound for freedom! Gate check your pride and take care of business. Start selling “stuff”! Seriously, sell all that junk!! Apply it to your debt elimination plan. Stop pretending and get real. If that makes you uncomfortable, then you’re really not going to like this one. Get a second, or third, job! I know you already work hard. So what? Are you going to choose to be, a “Victim” or “Owner” of your current situation? Sorry, nothing but tough love here my friend. If you want sugar cookies and tea, call your grandma. I know…I know, it’s probably a bit much, but this is serious. This is your future, your life, your financial freedom. Why am I more fired up about your life than you are?!
3. Define and commit to your new “zero”
Define it. Calculate it. Protect it. It’s that simple.
- Define what an emergency is before it happens. Meaning, it looks a lot more like a hot water heater going out than it does a new flat screen the week prior to the Super Bowl. You decide.
- Calculate your minimum emergency cash reserve balance. There is a really simple rule of thumb for this. Go to your budget and determine which of the line items are “non-negotiable”. They must get paid even if your income went away. Then, multiply that number by at least 3. The reason for this is because most long-term disability policies have an “eligibility period” of 3 months (more on this later, so just trust me for now).
- Protect it means not putting it at risk. Market risk, liquidity risk, default risk…no risk! So, basically this means putting it in a checking, savings or money market account that is preferably just out of arms reach from your sweaty little fingers! Pulling money from your emergency cash reserves should feel terrible, agonizing, and cause loss of sleep. This dollar amount of emergency cash is your new “$0.”
The National Wellness Institute has partnered with the Foundation for Financial Wellness (FFW) to develop financial wellness trainings.
Brent Hines, CFWE, CFWC is the founder and Chairman of the educational non-profit, Foundation for Financial Wellness. The Foundation’s mission is to improve people’s lives by empowering them with the knowledge and the motivation to take control of their financial lives. The Foundation’s curriculum is rooted in the principles of Behavioral Finance which makes every class topic taught by the Foundation unique, innovative and extremely valuable.