Debt-Free Forever
Authors: Gail Vaz-Oxlade
DEBT-FREE
FOREVER
Take Control of
Your Money and Your Life
GAIL VAZ-OXLADE
I
dedicate this book to all the people with whom I’ve worked who had the courage to hang out their dirty laundry where everyone could see. It is because of your bravery, your willingness to share your stories, and your hard work that we’ve all learned so much about debt and how to get out of it. And to all the people who are busting butt to get from Debt Hell to Debt-Free Forever, I applaud your guts and your gumption. You have such a great life ahead of you!
Introduction: Get Ready to Change
PART ONE: FIGURE OUT WHERE YOU STAND
3: Decide What You Really Want
4: Create a Budget That Balances
PART THREE: CHANGE YOUR HABITS
PART FOUR: PREPARE FOR THE FUTURE
11: Cope When the Caca Hits the Fan
I
magine waking up in the morning and knowing that no matter what happens today, you can cope. Imagine that you’ve got enough money to take care of the expenses that need to be paid regularly and to have some fun too. Imagine the sense of peace that comes from knowing you’re in control of your life.
If you’ve been frantically trying to cover your butt because there just never seems to be enough money, I can help you. If you’re up to your eyeballs in debt and can’t even imagine being debt-free, I can help you. If you’re at your wits’ end because you’ve made a huge mess and don’t have a clue how to fix it, I can help you.
I’m gonna take a wild guess and say that if you’re reading this book, you’ve made a mess of your money. Hey, it happens. Staying mired in misery is one option. Pulling up your socks, dusting off your britches, and getting to work to dig yourself out is another. You can wallow or you can work hard. You can whine or you can make your life what you really want it to be. You’re the person who gets to decide whether you’re happy listening to Mother Regret whispering about all the mistakes you’ve made or whether you’re done with the past and are ready to focus on creating the life you want today!
I’ve been working with people for years, showing them how to fix what’s broke and have a life too. I believe you can have anything you want if you’re willing to do what it takes to create it—and I can help you figure out exactly what you want and how to get it!
Ready to get with a new program? I’m going to warn you now that this is going to be very, very hard. Change usually is, and the kind of change you’re going to have to make is monumental. There will be loads of sweat, and maybe even some tears, along the way. But if you’re dead sure that you want a better life, and if you’re ready and determined to take control of your money, then you can. All you need is a good understanding of what to do and some skills to get to where you want to be. I’m going to give you both.
Whether you’re trying to get to debt-free, establish an emergency fund for the first time, or make a commitment to live on a budget, your
approach
is what will make you successful. Be ready to take these steps:
STEP 1: ANALYZE YOUR WEAKNESSES
If you love to shop, and you acknowledge that fact, you should also see that hanging out at the mall isn’t exactly conducive to a No Shop plan. If you love to eat out and always agree to meet friends in a restaurant, you’re simply reinforcing your weakness.
One of the best ways to fight old habits is to recognize the underlying pleasure you derive from them and to then change your environment so you aren’t tempted.
STEP 2: DO ONE THING AT A TIME
If you get so caught up in making things better that you try to do too much, you’ll split your energy and focus and wear yourself out. To be successful at making change stick, pick something you want to do differently
today,
and do that thing. Once that new pattern is established, pick the next thing you’re going to do. This will stop you from shooting off in all directions and achieving nothing.
STEP 3: TAKE SMALL STEPS
Hand in hand with the “one thing at a time” philosophy is the “baby steps” strategy. If you’ve always been comfortable doing things in a certain way, it’s hard to change. Always buy whatever you want whenever you want? It can be hard to quit cold turkey. Establishing a No Shop day is one way to start slowly. No Shop Saturday can grow into No Shop Friday and Saturday. The change doesn’t have to be drastic to be profound. Small steps get you to where you’re going without the risk of sliding back.
STEP 4: DEMONSTRATE STICK-TO-IT-NESS
If you don’t have the persistence to stay the course, it’s pretty hard to succeed. A lack of gumption is the only barrier between you and what you want to achieve. You’ve got to be a hard-headed hard ass and demonstrate determination. Each step you take will create the momentum for the next step.
STEP 5: SET MILESTONES
If you want to maintain momentum, you’ve got to create a map for where you’re going, and you have to take pleasure from each milestone you pass. Change is hard. Rewarding yourself with a pat on the back when you achieve a goal is the best way to keep moving forward.
STEP 6: ACCEPT YOUR MISTAKES
There are a lot of people who say they won’t do something because they can’t do it perfectly. “If I can’t be completely debt-free by Tuesday, then I’m not even going to bother to try.” This is an excuse. It’s a sign of weakness that you can’t get past your idea of perfect so you can achieve some small glimmer of change. When learning anything new, mistakes are part of the process. Accept them. Learn from them. Move forward.
STEP 7: DO YOUR BEST
It’s hard getting from one place to another if you’re always beating yourself up because of what you haven’t done right. People who are successful at changing promise to do their best and accept that sometimes they’ll miss. But it’s the effort that counts. Don’t whine and moan about how hard the change is. Do whatever you can to make the change a new part of your life. And don’t resort to self-pity when things hit a wall. Say, “I’ve done my best today. Tomorrow I’ll try again and I’ll do my best.”
Through it all, you must be intentional. Each choice you make throughout the next days, weeks, months must be on purpose, not simply a spur-of-the-moment reaction to whatever stimuli has hit your brain. The only thing that’s going to get you out of a financial mess is to stop doing the
bad
and start doing the
good:
•
Stop
spending money you don’t have and
start
living within your means.
•
Stop
flying by the seat of your pants and
start
making a plan for how you’re going to change things.
•
Stop
making excuses and
start
making changes.
•
Stop
whining and
start
taking responsibility for your past mistakes.
People are always trying to find someone to take over the reins of their money, clean up their mess, make ‘em rich. Sure, you can find someone on whom to offload the responsibility for fixing the problem. But it won’t stay fixed. Nope. You’re the person in the best position to figure out what went wrong, what you have to do to make it right, and how to never go down the road to Debt Hell again. This book has all the steps you’ll need.
You’re going to have to do the work yourself. I’ll warn you again, this isn’t going to be easy. In fact, it’s going to be bloody hard, and only the strongest and most tenacious people will make it. Your success will come from your actions. And as you achieve each small success, you will learn (or relearn) how to trust yourself.
It’s your life and if it sucks, you may have had a little something to do with that. If you’re determined to change what you’re doing wrong, not just patch up the problem with some quick-and-easy short-term solution, you can take control and have the life you’ve always wished you had. And the peace of mind.
So, are you determined to make a better life? Are you sure you’re ready to change? Are you willing to do anything … ANYTHING … to get out of the mess you’re in? If you are, then you’re in the right place. If you’re still waffling, put away this book and go buy something else you don’t need.
ANALYZE YOUR SPENDING
N
ow comes the hard work!
Crap! Really? I have to do the math?
Darn tootin’. You’re going to have to sweat some before you can clean up the mess you’ve made of your money and your life. This is where you figure out what you’ve been doing wrong so you can stop. If you skip this step, you’re lazy, uncommitted, and looking for an easy way out. There is no easy way out. You’ve muddled up your money and now it’s time to do the detail work and sort it out. The numbers don’t lie, so you must get busy facing up to your reality.
Wait a second. Can’t I just start from where I am now?
You could, if you knew where that was. You don’t. You think you do, but it’s that fuzzy thinking that got you into a mess in the first place. The only way to truly know where you are now is to get completely familiar with where your money has been going. This is the step that separates the responsible
from the immature, the committed from the wannabes, the successes from the failures. Skip it and you might as well just go shopping!
Ready? Then it’s time to get out all your bills, bank statements, credit card statements, a pen, a piece of paper, and a calculator, and get ready to do the math.
Every couple I work with has to send me six months’ worth of financial paperwork for me to do the analysis that shows them where their money is going. We enter all the numbers onto a spreadsheet to come up with monthly averages I use when I show them their details.
People are always shocked. The reason: most of us spend without a clue. A couple of dollars here, $10 there, $50 on this, $100 on that; in no time we’re in overdraft. How’d that happen? Here’s how you find out. Even if you simply take the last three months’ worth of statements and do the numbers, you’ll get a big ah-ha! Six months will give you a more realistic view. A year is overkill!
The next part of the process is going to take some time and some organization. It will help if you’re familiar with a spreadsheet program on your computer. But if you aren’t, it just means you’ll be doing a lot of pencil work. Make sure you have a calculator at the ready.
There are loads of people who tell me they “just don’t have a head for math.” I know that some people find the math challenging. If you can find a buddy to help you, great. If not,
you’re going to have to suck it up, take your time, and work through the process slowly and steadily if you want to change your financial landscape. Holding your head and saying, “Oh, I just can’t” won’t cut it if you’re serious about becoming debt-free forever. It may be hard, but it’ll be worth it.
First, organize your statements. Put all your Bank of Zulu credit card statements in one pile, all your Bank of Make More Money statements in another. Get everything ready before you start so you aren’t chasing paper around once you’re into the process. A little preparation at the beginning helps the whole (miserable!) process go a little more smoothly.
Make a spreadsheet using the categories in the expenses column of the worksheet on page1221–23. You are going to be using this worksheet to record your spending so that you can see just what you’ve been doing with your money. We’ll call this your Spending Analysis Worksheet, and it must accurately reflect what you’re spending your money on. The idea is to make it as detailed as possible to begin with, so that you have a really good sense of where your money has been going. Resist the urge to lump together amounts or to round up. Lumping and rounding just makes it easy for you to hide what may be your problem-spending areas. Breaking everything down not only makes it clear where the money is going, but also helps you to see your weaknesses.
Brace yourself. It’s time to enter every single transaction you made on your bank statement(s), credit card statement(s),
and line of credit statement(s) onto the Spending Analysis Worksheet.
If you have one, choose a credit card statement to start with. Look at the transactions on the statement. The first one may say Big Chicken Delight, which is your favourite place to grab dinner when you’ve been schlepping the kids around all afternoon. Enter the amount you spent at Big Chicken Delight under Restaurants. Put a check mark beside the Big Chicken Delight transaction so you know you’ve entered it on your Spending Analysis Worksheet. If the phone rings or you have to get up to turn off the kettle, you’ll know where you are when you return to the process.
Go to the next transaction on the statement. Enter the amount you spent in the appropriate place on the Spending Analysis Worksheet. Keep going until you’ve finished entering all the transactions on that statement. Don’t forget to enter the amount you were charged for interest under Interest Costs. If there were insurance costs, over-limit fees, or any other type of charges, stick ‘em all under Interest Costs.
GAIL’S TIPSWhile the interest rate on a credit card may be set at 19.99%, you may be paying much more than that if your card has additional fees tacked on each month. Let’s look at a credit card with an insurance fee of $28.44 on a balance of $1,623, along with an over-limit fee of $35. When you add it all up:
•
monthly interest = $27.03
•
plus insurance fee = $28.44
•
plus over-limit fee = $35
•
divided by balance = $1,623
•
multiplied by 100 (to get a percentage)
•
and then multiplied by 12 to get the annual percentage
the effective interest rate on this card is a whopping 67%. The fees are just as important as the interest rate when it comes to determining what your credit card is really costing you.
Once you’ve finished with one statement, start with the next month for that form of credit. After you’ve entered all the amounts from all the statements you have for that card, move on to the next set of statements.
I know, I know, it’s a lot of work. But hey, you’ve been sweeping dirt under the carpet for months, years, maybe even decades. Now it’s time to move the furniture, take up the carpet, and give the whole place a good cleaning.
If you ate out 12 times on one credit card, 6 times on another, and 10 times using your debit or cash card, you’ll have a total of 28 numbers to add up that would go under Restaurants. Coffee shops and drive-thrus count too. You have to account for every penny you spent.
This is going to take some time. Don’t rush through it. It’s a big eye-opener, and you need to go through every statement,
line by line, allocating the amounts to their appropriate categories. Don’t lump too many things into a single category. The devil is in the details.
GAIL’S TIPSIf your batch of statements includes a big-spending month like December because of the holidays or a vacation, your numbers will be somewhat skewed by that spending. But this isn’t a budget. This is a spending analysis, so if you spent it, the amount needs to go into the analysis. You’ll be able to correct for these big-spending months and for things like house insurance, car insurance, and other periodic expenses that may not be reflected in the six months’ of paperwork you are using when it comes time to make a budget.
For every statement you have, fill in the various categories on the Spending Analysis Worksheet. Use your common sense to decide where to put things and what you can group together. Anything that you did to maintain or improve your home goes under Home Maintenance. Lottery tickets and football bets go under Gambling, I don’t care how benign you think they are.
If you have a bunch of transactions in department or discount department stores that you can’t break into categories, simply enter them into the Department Store category. It’s
stuff, and the fact that you don’t know how much you spent or on what is telling you something.
All that money you took out as Cash Withdrawals or Cash Advances on your credit card or line of credit has to go under Cash. While you may not be able to figure out where that money went, it went, and it has to be on the Spending Analysis Worksheet. Monthly bank charges, ATM fees, and NSF fees go under Bank. Look carefully at your cash withdrawals. If there are amounts that end in $1.50 or $2.00, those are the ATM fees associated with having made the withdrawal at a machine other than your own bank’s, since banking machines do not dispense “change.” Enter those amounts under Bank and make sure you enter the rest under Cash.
Under Debt Repayment, put the minimum amount you must pay on all your forms of credit (except your mortgage and car loans) to stay on the right side of your lenders. (We’ll talk more about your debt in Chapter 2: Face Up to Your Debt.) You’ll have to deal with this category differently—not entering how much you’ve actually been repaying but using your minimum payments required—because so many people use one form of credit to repay another. They then feel very good about how much they’ve repaid when they haven’t actually repaid anything at all; they’ve simply shuffled the debt around. Using your minimum repayment amounts avoids a huge amount of confusion.
Under Savings, put the amounts you’re setting aside for your long-term retirement savings, emergency savings, kids’ educational savings, and whatever else you may be saving. If
you’re accumulating money for a vacation or to buy a bigticket item, that’s not savings, it’s Planned Spending. Start a new category, PS Vacation, and put your amounts where they’ll be clearly identified.
GAIL’S TIPSCan’t afford a vacation away from home? You can still have loads of fun while you save tons of money if you opt for a staycation. That’s when you stay home and pretend you’re on vacation. Imagine you’re in a foreign city and drum up the same excitement as you would if you were seeing local things in a place you had to pay thousands of dollars to get to. Pick a start and end date for your staycation to make it official. Declare a choratorium—no one has to make their bed, do the dishes, or vacuum. (Consider hiring a cleaning service for midweek to whip the house back into shape.) And pack your schedule full of fun and fabulous things to do.
Communities everywhere have productions ranging from high school musicals to community theatre to professional theatre. Plan to take in a night at the theatre, or go to the symphony, the opera, or a rock concert. With all the money you’re not spending on accommodations, you can have a ball.
Want to spend a quiet day sipping margaritas while the kids swim their hearts out? Find a local hotel with a swimming pool and book in for the day. Have lunch
on-site and take a break with the kids for far less than it costs to zoom away to the tropics.
Try new restaurants. If you want to go with a theme, decide you’ll only eat in Spanish restaurants and eat your way through a good cross-section. It’s almost like being in Spain!
Chill out on the couch and read that book you’ve been longing to get into. Rent a mountain of videos for the evenings. And don’t forget to take lots of pictures of your staycation. After all, without photos to flip through, you might forget what a great time you had sticking close to home and doing all the things you love to do.