I have friends who are in a horrible place with money. My heart hurts for the emotional pain their relationship with money gives them. They feel they can’t get out of it. Their hopelessness is almost crippling. There is simply more going out then there is coming in. They have thousands in credit card debt. They are paying down the debt, but are not getting ahead. I’ve watched them for the past several years and can see the effort they are making. Last night they asked me for help.
The biggest thing was wrapping their head around that they can’t keep doing things the same way and expect a different outcome. As a couple, they have to agree that what they want more then anything is to be financially liquid. That’s where we have to start. Not out of debt. Not wealthy. Just “liquid”. That means, we are able to pay for the life we want with the cash we have. No credit. No borrowing from family. No scrambling when emergencies happen.
They were shocked to learn that I didn’t’ think they should focus on their debt first. Instead they should focus on creating an emergency fund and simply not going deeper into debt while that fund is being built.
How to build the emergency fund when there is no cash? Well the best way is to focus on “Damn Denial”. And keep track of everything. Keeping track is something that those of us who have been drowning in debt don’t do very well. And to keep being able to “save” you have to be able to feel the “pleasure” that saving gives. So keeping track is vital. You won’t feel pleasure if you don’t know where your money is going. There has to be immediate gratification. It would be like if I told you to lose weight but you could never get on the scale. If you have a lot to lose, it’s going to be MONTHS before you can “see” the payoff. So the scale helps give you a boost day to day. So keeping track of your finances is key.
But the key to Damn Denial is not to keep track of what is going out. It’s to keep track of what is coming in. The definition of Kym’s Damn Denial program is to look at denial as paying yourself.
Here’s how you do it. First you have to both agree and buy in to do this. Decide to try it as a pilot project and really commit to keeping track of everything. Both spouses must be bought in or this won’t work!!! Set a timeframe. Perhaps start with just a month. You will use your checking account for this exercise.
Every time you deny yourself something, write a check for it. Try to write at least two checks a day per person.
No Latte today so write yourself a check for $3.50
Dropped yourself down to basic cable write yourself a check for the $25 you saved. If you do this more then a month, then this becomes a reoccurring check.
Saved $5 bucks in coupons at the grocery store, write yourself a check.
Saved $10 shopping sales at different grocery stores, write yourself a check.
Didn’t buy that book in Costco you would have before, write yourself a check.
Didn’t take the family to the movies one time save $40. (No popcorn!)
Or perhaps, just didn’t get snacks at the movie: $10
Put all the checks aside (don’t cash them but assume the money is “spent”).
For big purchases, like say you didn’t buy yourself the new washing machine and made do with your old one… write the check…but you’ll never cash it. You’ll put these aside. And add them up for the shock factor later. Seriously do write the check though. Because six months from now, all these big Damn Denial checks will show you how much further into debt you would have sunk if you had gone for it.
Most people who have incomes over 50K are able to save more then $400 a month doing this. You seriously don’t realize how much you are spending. And it is all a big choice. You have to deny yourself things. But what this shows you, is that you don’t have to deny yourself everything. You can find the middle road and start saving significant money.
Now … take those checks and go deposit them into a savings account. Make sure that BOTH spouses, including the one that doesn’t deal with money too often, actually is aware of how much money was saved in 30 days. And do it again for 6 months.
You’ll find that after about 4 months, you’ll be able to save more if you really get into it. If one parent is a stay at home spouse, then have their job become “saving money for the family”. It works.
Your first goal is to get 2 months of living expenses into savings. Once you do that, then you can transfer part of this money to again paying down debt. Or perhaps, you will start another saving’s account for other projects. But you have to focus on having an emergency fund FIRST. If you don’t, and an emergency comes up, then you will simply go back to borrowing to get yourself out of the emergency. You have to have the emergency fund FIRST. A place to go if the car breaks down. A place to go if your spouse gets laid off.
Of course, now that you have this fund, you have to not touch it. You and your spouse have to write out an agreement for the reasons the money can be spent. And the key here is to view the money as “emergency money”. Not money for any big project you haven’t been able to stay focused enough to save for in the past! If you have a big project, after the emergency fund is created, then you can save for your other project. Do not use the emergency fund for big projects!
After talking with my friend, she actually decided that she’s going to take a part time job for 3 months to help them get there faster. She was resistant to the whole job idea until we talked about that the job doesn’t have to be “forever”. It can be on her terms. And it can be just for a set goal. For them, she’s going to go do temp work in a call center at night till summer just so they can have an emergency fund.
I am hopeful. Both my friend and her husband seemed to really buy into this idea. They have hit bottom and realize they have to make changes. I hope that in a few months, I’ll be able to report back with a positive progress report!
