Budgeting and tracking your spending are helpful habits for anyone who wants to achieve financial goals. But, when you’re financially sinking, it’s a whole ‘nother ball game. If you are exhausted by your financial mess, or not sure what the first right step is, this post is for you! If you want to get your head above water, you’ll have to identify the problem, attack it with a vengeance, and learn what to do differently in the future. This post will tell you exactly what to do, step by step, to get out of financial ‘survival mode.’ It will not be easy, and it may take some time. But, you don’t have to be where you are 1 year from now. You can start controlling your money instead of letting it control you. Are you ready? Let’s go!
FIGURE OUT WHAT HAPPENED
The first part of getting out of financial survival mode is figuring out what went wrong. How did you get here? Maybe something happened that was out of your control – a spouse’s secret spending or a massive medical debt. Or maybe something in your control caused the problem – quitting a job you didn’t like when you didn’t have more work lined up, spending money on credit cards that you didn’t have, borrowing massive amounts of student loan debt.
A crisis reveals a process that’s been going on for a long time.
And if you are in a financial crisis, something has been going on for a while that caused the mess.
The good news is, money is concrete, and turning your finances around is actually pretty simple.
Notice, I said simple. NOT easy. No, it’s definitely not easy. If YOU caused problems, it takes immense self-discipline to learn new habits. If the financial crisis is because of someone else, then there is probably relational pain to deal with. Whatever the issues, it’s important to identify what happened… no more excuses. Just be honest. In fact, grab a scratch piece of paper and jot down your answer to these questions:
Why am I in this financial mess?
Okay, now tear up your paper! Come on, just do it! It’ll feel good. That’s in the past. Time to move forward.
Changing habits may be hard, but the formula is simple.
HERE IT IS: THE WORLD’S NOT-SO-SECRET FORMULA FOR FINANCIAL SUCCESS
Live on less than you make for a long period of time.
Then, manage the extra money wisely in this order:
- Extra $ goes towards building a very small emergency fund. We did $1,000. Because, life happens.
- Extra $ goes towards paying off non-mortgage debt. You’re gonna get rid of all of it! Credit card debt, car payments, student loans, medical bills. You will have no payments after this step (except a house payment if you own one of those).
- Extra $ goes towards building an emergency fund (3-6 months of living expenses saved up in cash).
- Extra $ goes towards saving for college & retirement. Because it’s smart to plan ahead.
- Extra $ goes towards paying off your house early. You’ll finish off that whole no-more-payments thing once and for all!
- Extra $ goes towards giving away money like a crazy person!
Dave Ramsey – the get-out-of-debt guru – calls those the baby steps. “Baby steps,” meaning, you do one thing at a time. You don’t try to build an emergency fund AND get out of debt AND save for college AND save for retirement AND pay off your house AND give tons of money away simultaneously. You’d never make progress in any of the goals. Instead, use all your extra money to focus on one thing at a time, in that order, until you have reached financial freedom.
Okay, let’s get to the nitty gritty. Here’s what you need to do, day in and day out, until you are out of survival mode. Once you’re out of survival mode, you can make a more normal monthly budget.
CHECK IN DAILY & WRITE STUFF DOWN
This is no time to be wondering how much money you have in the bank. You have to know exactly how much you have, when you’re getting paid, and when things are due. I made a free worksheet to help you with this. Click the button below and it’ll be in your email in about 30 seconds. Otherwise, just follow along with the post & write your numbers down on a blank piece of paper.
I highly suggest you download it immediately and get to work!
- Print it out
- Follow the directions in the remainder of this post for filling it out
- Put it on your fridge
- Make yourself “obey” it for your spending
- Update it if anything changes (like an un-forseen expense or some overtime income)
HOW TO USE THE WORKSHEET
Step #1 – How Much Do You Have?
Total up the amount of actual money accessible to you in a bank account. Not a line of credit or your next paycheck or retirement money.
2. Make a Survival Expenses List.
This is money you need to spend before your next paycheck. Use the worksheet as a guide. You will be budgeting paycheck to paycheck for right now. For example, if your rent isn’t due before your next paycheck, it doesn’t go in this column. Only write down exactly how much you need to spend on food before your next paycheck comes. This isn’t your forever budget, it’s your survival budget.
3. Add it all up.
Add up how much you need to spend until your next paycheck and figure out how much money you’ll have leftover.
THINGS NOT TO SPEND MONEY ON RIGHT NOW
- Any recurring subscription services
- Cable & other tv services (yes, even netflix).
- Amazon Prime
- Kid’s activities
- Non-essential food items
- Random crap at the dollar store, Target, Walmart, gas stations, etc…
- What else am I forgetting!? Put it in the comments below and I’ll add it to the list.
Cancel it all. Return all your recent purchases. Cook what you have until you have no food left in your house.
4. Figure out how much leftover money you’ll have for the next paycheck cycle and write it down.
5. Write down expenses you’ll have during your next couple paycheck cycles.
Look at your calendar while you plan to make sure everything gets paid on time. You should be able to see the leftover amount getting higher and higher if you continue to live on bare bones survival expenses for a few paycheck cycles.
The less you can live on, the faster you’ll be able to get out of a financial sinkhole.
WHAT IF YOU I DON’T HAVE ENOUGH TO MAKE IT TO THE NEXT PAYCHECK?
If, even after cutting all your extra spending out, you still don’t have enough money to make it to the next paycheck without a credit card, you either have a serious expenses problem or a serious income problem.
I have another post on figuring that out that you can read about right here.
WE WERE FINANCIALLY DROWNING A COUPLE YEARS AGO…
We were pregnant with our second child, and had just moved across the country after my husband finished his 1 year master’s program. We’d spent the year living on student loan money, so we had a massive pile of debt to pay off. The student loan money ran out since we were pretty terrible at budgeting, and my husband wasn’t slated to start his job for a month. So, we started putting necessary purchases on a credit card.
Talk about stress! A big chunk of his first few paychecks went to paying off the credit card we’d been using to live on. We cut up the cards and learned how to budget the money we had in the bank. After about 6 months of playing catch-up, we were able to save a $1,000 emergency fund, put a more sustainable budget in place, and set goals for how much extra we’d pay off in debt each month.
It’s been 2 1/2 years, and our finances are DRASTICALLY different.
- We’ve paid off over half of that student loan debt.
- We are a month “ahead” of our expenses, so we’re no longer living paycheck to paycheck.
- We know how to communicate about finances.
- We have systems in place that make budgeting feel more like routine maintenance than teeth-pulling torture.
We are not perfect at budgeting or financial experts. We are normal people. And if we can do it, anyone can!
Financial change is possible.
Financial freedom is possible.
Financial peace is possible.
We are experiencing it first hand and I really want anyone who wants it to experience it too. You can do it! If there’s any way I can help or cheer you on, let me know in the comments or by hitting reply to an email newsletter