Sometimes when you are in really deep, everything you want to accomplish seems so monumental that you give up before you even begin. I came across Dave Ramsey’s Baby Steps and liked the sound of it. So, I imagined myself working with someone in a bad financial situation, and here are 10 little things that I would suggest to help him toward recover. The journey will be long, but as Confucius said “A journey of a thousand miles begins with a single step.” Without further ado, here is my version of the baby steps.
The first and the hardest thing to do is recognize that you are in a bad financial situation and decide to do something about it. Arm yourself with knowledge about money, so that you can learn to master it. There are a lot of good books, blogs, and web sites that you can peruse to build your knowledge. I recommend this short article on wealth building.
Sometimes the temptation to use these plastic cards is just too great — it is so convenient, isn’t it? A good way to stop yourself from using them is not to carry them around. Carry just enough cash for whatever you have planned for the day. This will force you to think about your spending habits, and prevent you from buying on impulse. If you manage to clear your credit card debt, you can reward yourself by keeping one in your wallet for emergencies.
My friend Glblguy would have you cut up your credit cards. It is a little extreme, but that is your choice.
If you owe money on several credit cards, it is time to make phone calls. Call each of your credit card company and ask them to lower the interest rate. If the customer service representative refuses, hang up and call back again — another person may be more helpful.
While on the phone, ask if they would offer you a better interest rate and waive fees if you transfer all your credit card balances to them. Do not forget to review the fine print carefully — e.g., how long does this better rate last? What is the catch?, etc. You do not want to be surprise by a higher rate 3 months down the road.
While you are going through this phone exercise, make a list of all your credit cards. For each write down the current balance, interest rate, negotiated interest rate, balance transfer fee, and any other note. You will want to come back to this later.
Lastly, ask your Credit Union or local bank to see if they would offer you a personal loan. If the rate is good, you can use this money to pay off balances on credit cards with higher interest rates.
Once you have your list, you can do the following:
Remember, to put your credit cards away until you wipe off your debt.
Only buy the minimum you need to survive — e.g., food, medicine, rent (for shelter), etc. — and do not stock up. That means no Costco and BJ for you. Also, opt for less expensive items over more expensive ones, and buy used instead of new when you can. For electronics, always wait until the first price cut before you buy.
For all other stuff, do not buy anything the moment you want it, wait 1 month and see what happens. If you still want it then, may be it is worth your money.
I cannot tell you how many times I go to the store to buy one thing and come back with whole bunch of stuff I did not plan to buy. Always make a shopping list before you go to the store, and do not be tempted while you are there. I usually walk straight to the items that I want and go through my list as fast as I can. My theory is if I did not put it on my list, it cannot be that important.
If you do this, you can save a decent amount of money each week.
I know it is nice and cool at the mall. You get to look at other people, and play with all the cool toys at Brookstone and Sharper Image. But spending your free time at the mall is a terrible way to get out of financial problem. Instead, spend your time on other activities. Some of my favorites are walking in the park, riding my bicycle, reading books, working on my blog, reading stuff on the Net, watching television and old DVDs, just to name a few.
A good example of this mantra is my dad. He spends most of his free time in his garden. We have string beans, hot peppers, bitter melons, and mints growing in our front yard. Instead of going to the local store, we can go to the yard and get them. How cool is that?
While you are fixing up your issues, do not forget about your future. If you never contribute to 401k before, do it now. Put away at least 5% initially and try to increase it by at least 1% (of your pay) each year. If your employer provides matching contribution, that’s even better.
A slightly harder option (because it is not automatic) is to save a small amount each week and put it into your IRA.
Even if you are tempted to use every last dollar to pay off your debt (that is what you are doing right?), you should pull out $20 each week. Keep this under the mattress if you like. Wherever you keep it, do not use the money once you saved it. After 1 year, you will have your first $1,000 of emergency fund.
Instead of the mattress, you can do even better by putting this in a high yield savings account or a money market fund. Just make sure you can easily get to it in case of emergency.
When was the last time you ask for a raise or go for a promotion? When was the last time you update your resume? The time is NOW. Update your resume and post it on job search sites. While you are there, look around and see what employers are looking for. May be it is time to update your knowledge and skills.
As you put yourself out there, do not forget to approach your boss and ask for a raise.
Here is 101 ways to put $101 in your pocket this month from Blogging Away Debt. I also have a small collection of saving tips, and here are some more from Gather Little By Little and Plonkee Money. How about a game with your family and friends to see how many ideas you can come up with?
I hope that you find these baby steps helpful, simple, and straightforward.