How to Stop Financial Stress and Take Control of Your Money
How to Stop Financial Stress and Take Control of Your Money
Financial stress is one of the biggest issues for American’s today. Stress about money gets progressively worse but thanks to covid, this is one of the worst years since 2008. Before the pandemic, Carnegie Mellon reported that 78% of American’s were living paycheck to paycheck. The average American has over $6,700 in credit card debt and 2/3 of American’s struggle to come up with $1,000 in an emergency.
After talking with a few clients, I realized that this is a huge issue for MOST people and so I wanted to bring someone onto the podcast to talk about money, budgeting, saving and all the things around money and being more in control of your finances.
Rachael Lopez is on the podcast this week, to listen to part 1 of our financial series click HERE. Next week for part 2, Rachael and I talk about how to not blow your Christmas budget, how to shop on the cheap, and how to use a few holiday money savings hacks. So, stay tuned for that.
Rachael Lopez is a financial coach and she teaches Dave Ramsey’s Financial Peace University. She helps families get out of debt, get control of their finances so they can change live better lives. This is the same program that Zack and I enrolled in when we were first married.
The Christmas before we got married my mom gave us Financial Peace University (or FPU). At the time, I thought it was just her way of telling me I was spending too much money on our wedding. Hind sight being 2020, it is the best gift we have ever received.
If you don’t know who Dave Ramsey is, he is a talk show host, professional money educator and all-around financial mastermind. He runs a huge company which teaches people how to get control of their money, live on a budget, build wealth and give. All the principles he teaches are based on the Biblical principles and they have helped millions of people get out of debt, build wealth and change their family tree.
His program is called Financial Peace University and it is taught at churches, community centers and other types of offices all around the world. Today, we will talk about the 7 Baby Steps, living on a budget, and how sinking funds eliminate money stress in your life.
How to get started when getting control of your money?
Live on a budget. Live on less money than you make.
A Zero-based budget is the best way to go. If you want a worksheet to help with this go to www.daveramsey.com to get a free budget tool, or download the Everydollar app. Basically, you write down your income, then subtract all of your expenses and it should equal zero. There should be a line item in there for debt payment and all your extra money, everything you save, sell, or find in your couch cushions goes in this category.
Now, with the money you were able to save from your budget on the debt payment line, you apply that to the Baby Steps.
What are the Baby Steps?
The Baby Steps are a 7 parts system for exactly how to save money, get out of debt, invest for the future, and give. These should be done in the order they are presented, one at a time.
Baby Step 1:
Have a $1,000 emergency fund
Don’t panic, we will build this up higher, later. However, while we are working to get out of debt that is all you need. This should be used for emergencies only.
Baby Step 2:
Get out of debt using the debt snowball (all debts except your mortgage)
List your debts from smallest balance to largest balance. Pay the smallest debt first. Then take the money you were using on that debt payment, plus the money from your budget and pay off the second debt, then the third. So, the money you are able to use to pay off each debt grows every time. This builds momentum and it is the fastest way to get out of debt.
Note: The average person is tens of thousands of dollars in debt, so while baby step 1 is fairly quick and easy, baby step 2 is the hardest and the most frustrating. Stick to it and you can be debt free!
A couple of tips that really helped us . . .and Rachael kick baby step 2 faster. . .
Cut out unnecessary spending like:
going out to eat
unnecessary food at the grocery store
All these things can be cut out or cut down, while you are getting out of debt. Those things will come back after you are done with baby step 2 but if you can tighten your belt, or as Dave calls it “be gazelle intense” you can do this!!!
Dave Ramsey always says “You’ve got the live like no one else, so you can live like no one else”.
Baby Step 3: Save a fully funded emergency fund of 3-6 months of expenses
Baby Step 3B: Save for a down payment on a house
Hold up: Baby steps 4, 5 and 6 can be done at the same time. You should start with 4 then after you have 15%, take the remaining money you have and apply to 5, then take the remaining money you have and apply to 6.
Baby Step 4: Put 15% of your income into retirement
This includes your work contribution as well as any Roth IRA’s, 401k contributions, etc.
Baby Step 5: Save for kids’ college
Don’t start saving for this until you actually have children.
Baby Step 6: Pay off your mortgage
Baby Step 7: Build wealth and be generous
Easy peasy right? No! But it is absolutely do-able and absolutely worth it.
If you are looking for more resources or to listen to the talk show where Dave answers your questions, (It is also now also a podcast) visit www.daveramsey.com
Now, if you are stressed about money, listen up.
Rachael and I both agree that this is where the biggest change in our stress level came in.
For large purchases or bills use sinking funds.
A sinking fund is a line item on your budget where you save a little money each month for a big purchase or bill. For example: Insurance, taxes, a new vehicle, home improvements, travel, Christmas, etc.
We all know that these big bills can cause a lot of stress and headache when you forgot about them or when something needs to be replaced.
Here’s where this really clicked for me. Things like new roofs, wells, washing machine or other large appliances need to be replaced every few years. You can kind of plan it even. We all know that roofs have a certain number of year guarantee, your big appliances last about five years. Now imagine if when the next big thing needed to be replaced you had been saving for it and you can just go out and get a new one, paying cash!
We have all been in a position where the car breaks down and the water heater takes a dive the same day! That is a terrible day, but imagine if you already had that money saved! Still stressful sure, but no more putting it on a credit card, paying all that interest, and taking months or even years to pay it off.
So, add a line item in your budget for the things you know are going to need to be replaced soon.
The best part is, when something lasts longer than you had planned, you can just save up all that money, or add it to your debt snowball. Our refrigerator has been on the fritz for a long time, and it’s about 12 years old. I know that one day it will finally croak and instead of being stressed out and panicked I will be excited. I will take my envelope full of cash that I have saved over the last 4 years and go pick out a new one.
So, the moral of the story is, when you are in control of your finances, when you live on less than you make, when you are paying off debt, debt free and living your life intentionally money is not stressful.
The best part is, anyone can do this program. Single mothers, students in college, people who are retired, young parents and YOU!
This program changed our lives, no more living pay check to pay check, no more huge credit card bills, no more worry and no more debt. Now we have savings, we have sinking funds for big purchases and we have financial peace.
Connect with Sarah
Pinterest Page: https://www.pinterest.com/micultivatebalance/
YouTube Channel: https://www.youtube.com/channel/UCMVcExxS1xgVghkfXQ7e
Get the Free Download A Killer Morning Routine Framework and How to do a Daily Gratitude Practice at www.micultivatebalance.com/tools
Connect with Rachael Lopez
Join the Challenge: https://www.facebook.com/groups/betheheroofyourfinanceschallenge/
Connect with Dave Ramsey and get all the financial tools: https://www.daveramsey.com/