Achieve Financial Peace: (Alternative) Steps to Take Control of Your Money
These are the steps that we took to improve our financial situation and greatly reduce our stress around money. While many financial gurus might frown upon our approach, the traditional ‘right way’ simply didn’t work for us. The truth is, personal finance is deeply intertwined with the psychology of money and the emotions that come with it. People aren’t always rational when dealing with finances, and that’s okay. It’s crucial to explore alternative paths that can still lead to success, and our story is a testament to that.
Step 0. Facing reality - sort of
Though facing the reality that we were going over budget most months wouldn’t come until later, we did finally start to look at all of our income and expenses in a consolidated way. This took the form of a spreadsheet that went through many iterations (and is still used today). This sheet was the first time that I got really organized around what was coming in and what was going out and when. It started me on the path to financial stability, but I would later learn that this process was giving me a false sense of control over my finances.
Step 1. Slowly building an emergency fund
Building an emergency fund critical for getting and staying out of the financial hole that you may have gotten yourself in. It doesn’t have to be a ton of money either. I started with $1000 based on the Dave Ramsey plan and built it up to 3 full months (6 lean months) of cushion. The amount of peace having that fund brings is indescribable.
Keep your emergency fund in a high yield account. I cannot emphasize this enough. Our emergency fund is earning 5% interest, which is almost as good as a decent year in the stock market without the ups and downs of putting your money in the market short term. We use Wealthfront which I highly recommend but there are several high interest savings accounts at the moment.
Step 2. Contributing to 401k (up to company match) and our own investment account
If you are wondering where debt payoff is in this - stay tuned
After a series of fits and starts with my long term/retirement investing, I finally committed (in my mid 30s) to automating my investing and not touching that automation EVER. A big reason why it took me awhile to commit to that was because of lingering debt - both student loan and credit card. I knew logically I should pay off my debt, so I kept doing that instead of committing to investing for the future. But I was trapped in a cycle of getting in and out of debt so I never got around to investing. I had to start putting my future self higher on the potem pole and start committing to investing, despite being in debt in order to start to benefit from the time that compound interest needs to build a solid retirement portfolio.
Step 3. Automating bill pay
Yes, it took this long to get to this step! Going back to the belief I had that taking the time to pay my bills manually every month was me being in control of my money. Let me tell you - paying your bills each month is not managing your money! I know to some of you this is so obvious, but to some of us there is a false sense of control happening that needs to be called out.
Automate your bill pay. Free up that mental capacity to take your finances to the next level. Or free up that mental capacity to be more present with your family or your friends. Or take on a new hobby. It was this freed up mental space that allowed me to finally see clearly that we were overspending just enough every month to keep us from really getting ahead.
Step 4. Paying off debt (In Progress)
Back to the dreaded debt conversation (just can’t shake this thing). I won’t speak to student loans, because I basically set up those payments and forgot about them until they were paid off. Forgot about them is putting it lightly, I loathed those things but I couldn’t get into more student loan debt so the balance was going down consistently without much thought.
Credit card debt was another story. I spent a lot of time cycling in and out of credit card debt. To the detriment of my future self (investments). I would get into debt, throw everything at paying it off because that was what I was supposed to do, then I would end up back in a little credit card debt (see Step 1) and the cycle would continue because I wasn’t addressing my overspending each month. It was like being in a weight loss cycle. I would crash diet, lose the weight, not really address the deeper lifestyle changes that needed to be made so I would gain the weight back.
Implementing the process of keeping spending top of mind (via the system that would later become the Frank Spend app) was when the longer term lifestyle changes were finally made around spending - allowing us to break the cycle of credit card debt.
Step 5. Determine our rich life and start to apply that to our money (In Progress)
I think this step is hugely important to getting out of the shame cycle around money. Getting really clear on the fact that you cannot spend on everything, that you do not deserve everything, that you need to work with what you have (income wise) or make more income to be able to have everything you want. Determining your rich life (a concept from Ramit Sethi of ‘I Will Teach You to Be Rich’ fame) is about determining the few things that are really important to you - quality food, travel, giving back, for example - and spending guilt free on those while cutting back ruthlessly on everything else. This creates healthy boundaries with money but also allows you to spend on certain areas without feeling the least bit bad about it.
Again - our path has been a bit unconventional, but it’s gotten us to a place that we feel good about. This is in no way saying this is THE path to take, but it’s an option and one that I haven’t seen talked about. I hope we can start to share more of our own unique money journeys.
