There’s nothing like a job-layoff notice, getting a call from the bank saying you’ve bounced your account to the moon—or in my case back in the ‘80s learning that our home was about to be foreclosed—to tell you that you need an extreme money makeover..
Before picture. Any makeover worth its salt needs a great before picture. A personal financial snapshot is called a Statement of Net Worth—a realistic estimate of how much money you would have left if you sold all that you own and paid off all that you owe. It’s a picture you need no matter how dire your situation may seem to be.
Your attitude. Face it. The only thing you control absolutely is your attitude—the way you choose to respond to life and all of its challenges. This is a season in your life that has come and will go. It’s not forever. You can handle anything as long as you know it will end. Choose to face your extreme situation with an equally intense response.
Get a plan. Write a simple plan for how you will reach your goal keeping in mind that a good plan is specific, reasonable, realistic, finite with a way to measure results. Give yourself a date by which you plan to have this makeover complete. Now create stepping stones so you can measure your progress.
Freeze spending. Yes, it’s extreme but so is your makeover. Imposing a spending freeze for the next week or two will give you the jumpstart you need. Then move into a non-essential spending freeze for the foreseeable future.
Track spending. Starting now—today—keep a written list of where your money goes. If you spend it, it better be written down. That is how critical tracking will be to your successful makeover.
Stop debting. Okay, it’s not really a word, but it should be. To debt means to use a credit card to create debt. This has to stop because of its negative effect on your net worth. No more debting.
Start saving. Even five bucks a week put aside consistently is going to change your attitude about living frugally. Money in the bank offers a kind of security that is difficult to describe. And the more you save, the more willing you are to find ways to make it happen in bigger and better ways.
Sell assets. Unless you use it regularly or it’s a cherished family heirloom, selling assets to raise cash is a great way to return the powerful jolt that brought you to your financial knees. Use the proceeds to catch-up on your bills, to start an emergency savings account or to pay down debt.
Downsize. If you are in over your head with a mortgage you cannot afford or rent that is beyond reasonable, move to a cheaper place. Or get a roommate. Yes, it’s extreme and but may be exactly what you need to do.
Get another job. It won’t be forever, but for right now working nights and weekends may be what you need to do. If a part-time job can net $400 a month, that’s $4,800 to apply to your situation.
Give up a vice. At $22 a pop, giving up a bi-weekly manicure habit will save you $650 annually. Emery boards and polish are cheap. Or switch to once a month. You’ll still save. Other vices like cigarettes, short cab rides and fancy coffee drinks are huge money drains.
Sell a car. Add up what it costs you to operate that second car—gas, payments, maintenance, insurance, registration, washes—and it won’t be so difficult to live without it. At least for a while.
The relief you will feel after taking such extreme measures to deal with your financial situation will far outweigh the temporary discomforts along the way. I’d love to know how you are doing with your makeover. Write to me here.