Where to start if you want to get on track financially

Finances can be confusing.  There is a lot of information out there.  Where do you even start?  If you are trying to get on track financially speaking, I've got three steps to get you started.  They are simple steps but they do take determination and focus.  Winning with money isn't rocket science, but it does take a strong dose of self discipline  

Transcript

Hello, my name is Tiffany, and welcome to the podcast, Working on Amazing. This is a podcast where we talk about the work that it takes to rebuild an amazing life.

And I am using that word rebuild specifically, because we're designed for women who feel like they're starting over in the middle of their life. Now, I believe a lot of things can lead you to the point where it feels like you're starting over.

For me, that looked like divorce after a 20-year marriage. For my sister, it was the unexpected death of her spouse. And for you, it could be something totally different.

I think the commonality is when all your plans, all your hopes, all your dreams for the future have gone up in smoke, the rug has been pulled out from under your feet, and even your day-to-day life looks completely different.

If that's you, from the bottom of my heart, I truly want to say I'm sorry. I know how horrible that feels, how overwhelming and just stressful and so itchy that feels. But I'm here to offer hope.

I'm here to tell you it gets so much better. And I'm here to talk about the details of how to get from where you are to an amazing life. Okay, that's what we're here for.

So welcome. I'm so glad you're joining me today. As we get down to today's episode, I'll remind you in the beginning, I said I focused on five areas when I rebuilt my life.

I focused on my spiritual health. I focused on my mental health, my physical health, my financial health, and my growth and goals. Okay, so those were the five areas.

And I said each podcast would fall under one of those five categories. Well, today, we're going to be talking about financial health. I think this is so important.

And in reality, how well we're doing financially, if we're struggling financially, it's going to affect our mental health and our physical health. It's going to affect a lot of things, right? You can win with money.

Unfortunately, we don't talk about it enough in our society. And women, for some reason, don't talk about it enough. And we need to talk about it more.

And we need to have open and real and honest conversations about money and how to win with money. It's not rocket science. You can do it.

If I can do it, I know you can do it. But we just have to talk about it more. And we have to make it culturally acceptable to say no to the temporary want and yes to the long term need of winning with money.

And I think culturally, our society isn't really set up in that mindset. So sometimes, winning with money, the process to get there is counter culture. Just a little bit.

Because our culture is definitely, I want it now. I mean, even DoorDash is offering financing. After pay for DoorDash, you can pay later, you can make payments later.

That's, oh my gosh, I could not believe it when I read that. But that's the society we live in now, instant gratification. And winning with money is going to take delayed gratification.

One of the things that I think we've got to be gentle with ourselves when it comes to learning about money. Because so many of the things we learned, we learned in childhood.

Your eating habits, the way you think about food was probably established in your childhood. Maybe you were told to eat more vegetables. Maybe at the time you didn't like vegetables.

But now that you're an adult, you're like, oh, those are pretty good. That happened to me. I love vegetables now.

But as a kid, I kind of had to be told to eat them. Most things we learn about, we learn about in our childhood, and we carry those lessons into adulthood. Money is not one of those things.

By the time we are old enough to make money on our own, somebody isn't telling us what to do with it and how to manage it. Once you make your own money, you have to manage yourself. It requires self-discipline.

Somebody isn't teaching you and showing you along the way how to manage it well. You have to have the self-discipline to seek out the knowledge and then follow through and manage your money well. And that's just the way society is right now.

We're trying to change that. Hopefully, we're raising our children with good financial principles.

But it's going to take self-discipline and sometimes be in counter culture to win with money, to have delayed gratification instead of instant gratification. All right?

So, if you have decided, I am ready to get on good financial footing, but I don't know where to start. This is the podcast for you. What are some good goals to have?

What order do you follow them in? Do you pay down debt first? Do you have savings?

What do I do? Do I just try to do all of it at once? Let's give you some guidelines.

Let's talk about some good guidelines. And I'm just going to keep it to three today. Three simple things.

And I say they're simple, and that's deceptive. They're simple to say, and they're kind of really simple to do, but they're not easy. It takes time and discipline and follow through, okay?

But the concepts are not hard. The concept, the idea is super simple. And we have talked about all of these things in earlier podcasts before.

I've talked about everything that I'm going to talk about today, but I'm condensing this down three steps to follow to get on good financial footing if you don't know where to start.

They're just like three simple things that you can start working on. And most people will fall in one of these steps that they can start working on. Maybe you have step one or step two down, but most people can work on one of these steps.

You do need to take them in order. It is important, the order that they're in, okay? It matters.

So, step one, you want to get on a good financial footing. You want to start taking control of your money and managing it well. What's the first thing you do?

Well, step one, I mean, we've already talked about budgeting and all that kind of stuff. Step one to get your financial house in order is to have a baby savings account. You need to have a savings account.

That is paramount. Emergency fund, you can call it what you want. How much do you need to have in your savings account?

When I first heard Dave Ramsey talk about this, he said $1,000, okay? And that was probably 15, maybe getting closer to 20 years ago. I think in today's economy, with inflation, you really need $1,500 to $2,000 set aside.

This is an emergency fund. This is your baby savings account, and it doesn't feel baby to save $2,000. That's a good chunk of money.

But this is why you need it, because we know that in life, the unexpected happens. We know that things come up that are beyond our control. We may not know what thing is going to come up that is beyond our control.

We may not know the detail of how it's going to happen, but what we do know is that things come up. The car breaks down. The kid ends up in urgent care for a dislocated kneecap.

All kinds of things happen that we did not plan for. So, while we can't plan for the exact eventuality, we can plan for the money to cover it. So, we're not taking on more consumer debt.

So, we're not stressing out. We have the money set aside. If you want to get your financial house in order, if you want to be on good financial footing, step one, set aside $1,500 to $2,000 in a savings account.

That's step one. And you don't touch this money because those cute shoes are on sale. You don't touch this money for something you want.

This is only for emergencies that come up out of the blue. Like I said, the kid ends up in urgent care for a dislocated kneecap. Both my children did that.

I will just have you know. Or the car breaks down. Or a dear and close family member who lives out of town ends up in the hospital and you need to go visit them.

That's gas and a hotel stay and food out. That's what your emergency fund is for. When you have an emergency fund, you have the money to draw on, okay?

And when something unexpected out of the blue comes up, you are able to cover it. Financial footing, getting yourself on the right track financially.

And when something major shift has happened in your life, they cause you to feel like you're starting over, getting on sound financial footing is paramount, okay? You want to be the master of your ship.

You don't want your money telling you what to do. Oh my gosh, I owe so many things that by the time my paycheck comes, it's already blown. It's already gone out to all these things I owe.

You want to be in charge. You want to be in control. You want to be the master of your ship.

Step one, you have to have an emergency fund, because emergencies will come up. Life has taught all of us that it's going to happen. We don't know what it is going to be, but we can plan for it by having the money to help cover it.

Okay, so that's step one. $1,500 to $2,000 in a savings account. Now maybe whatever has led you to the point you are now, you actually got some kind of settlement, some kind of insurance payout, and you've got that money in your savings account.

High five. Step two. Step one, get the money.

If you don't have a payout or an insurance of some kind, you've got to work on step one. Before you can move on to step two, you have to have an emergency fund. This is how we write the ship, financially speaking.

This is how we get along course. Step one, you have to have an emergency fund, $1,500 to $2,000. Step two, we're going to pay down our debt.

Now, if you have a mortgage, we're going to put that to the side. But, all other debt, what do I mean by that?

So, I mean your auto loan, your student loan, credit card debt, consumer debt, anything apart from your mortgage that you owe that has been financed, that is what we're looking to pay down.

What I will say here is the reason we're keeping our mortgage aside and paying down the other debt first and making a big priority about that, that debt is bad debt. Student loans, auto loans, credit cards, consumer debt, that's bad debt.

And your mortgage is generally considered good debt. Now, these are big buckets, and there are exceptions to every rule. But on the whole, that's the way this is divided out.

Why is it divided out that way? Because if you have a mortgage, generally speaking, once again, broad brush, not every... There are always exceptions to the rule, not every time.

But most of the time, when you have a mortgage, that home that you own, the value has increased. And so the value of that house is worth more than what you owe on it on the mortgage, right? Because it's an appreciating asset, okay?

That asset appreciates and gains money over time. Other hand, your car. Your car, as soon as you drive it off the lot, loses money if you buy a brand new car, right?

It is what we call a depreciating asset. Yes, I know there are exceptions to this rule. There are cool collector's cars and all that.

You're right. But the average person, the average car you drive falls into this category, where you owe more on it than you could turn around and sell the vehicle for. The value of the vehicle is less than what you owe on it.

It is a depreciating asset. So even your student loan is considered bad debt because you have nothing that you could turn around and sell and get the value out of that to pay off that loan.

If you had to sell your house, you could get the value out of it and pay off that mortgage. But what are you going to do with a student loan? There's nothing to sell, right?

Except yourself for a good job, and hopefully, you've gotten a good job if you have student loan. But that's how we divide these two sets of debt.

And sometimes when you understand what the difference between good debt and bad debt, appreciating asset, depreciating asset helps you understand why we're focusing on what we're focusing on.

So any consumer debt, sometimes you go to the bank and get a loan, and it's like consumer debt, or you go to one of these loan places, and maybe you've got enough money to buy a golf cart or exercise equipment, right?

Once again, those probably things that you bought with that money are depreciating assets. They probably are worth less today than what you owe on them, right? And same thing for the things you buy on a credit card.

The value of what you have in your hand that you could turn around and sell for money is generally less than what you owe. So our first thing that we're going to do is get rid of this consumer debt. Now, step one was to save up some savings, right?

So we have a savings account, like a little baby savings account. Do you put that $2,000 to your debt? Absolutely not.

You have to have that emergency fund for emergencies. Emergencies will come up in the middle of you paying down debt. Emergencies can come up anytime.

They do not give us any warning. They just pop up unexpectedly. So you have to keep that money set aside for emergencies.

You cannot use that to pay down your debt. Now, I did an episode a while back where I talked about a debt snowball and how to start paying down debt.

So I'm going to recap that really briefly, but if this is where you are, if you've already done step one and now you're working on step two, I would encourage you to scroll back and listen to that podcast about a debt snowball and how to pay off

debt. But what I'm going to say now is if you owe four different things, let's say you have two credit cards, an auto loan, and a student loan, you pick the debt that you can pay off the quickest.

So it's probably one of the credit cards, it's probably the smaller one. You work on paying that down.

You take all your extra money, and I did do a podcast, I believe it was in January, it was a two-part series, and the first one was how to save money.

So every little bit you save throughout the month, you can put that money that you've saved into paying down that debt, okay?

So if you didn't get your fancy drink, if you saved a little extra on groceries, if you have $200 budgeted for groceries, and you spend $175, maybe you take that extra $25 and put it towards this debt, okay? So in that, that was part one.

Part two, I talked about ways to earn extra money. Little things you can do to earn just a little bit of extra money.

Not full-on side hustles, but little things here and there to just bring in a little bit of extra cash in the event that you need to pay down that or build up a savings account, okay?

So I'd encourage you to listen to those, but the idea of the debt snowball, getting back, I got sidetracked. The idea of a debt snowball is you take the extra and you pay off that smallest debt, okay?

So if you have two credit cards, an auto loan and a student loan, you focus on that one credit card, the first one, that's the smallest amount, and you pay that off as soon as you can. And maybe you're putting $50 a month on that credit card.

So once that's paid off, you take that $50 a month that you were putting on that first credit card payment, and now that you've paid that off, you take that and you add it to your second credit card payment, debt number two.

And so now you're paying what you were paying on debt number two and have an additional amount of money to put to it from what you were paying on debt number one, now that debt number one is paid off.

That's why it's called a debt snowball, because as you can see, as it goes and you pay off debt number two, then you put what you were paying on debt number one and debt number two and you add it to debt number three, and it quickly snowballs.

And by the time you get to your last debt, you've actually kind of got a good chunk of money that you can put towards it and pay it down, okay? Now, I will say that if you do have a lot of debt, paying off debt can get tedious.

If you have a short term, if you just have one credit card, hey, knock on that hard, get it knocked out, hit it hard. However, if you have big loans, auto loans, student loans, really big loans, paying them off can become tedious.

I'm not going to lie to you. It's going to require focus. So what I'm going to tell you to do is figure out your why.

Why are you wanting to be debt free? And get really clear on why you want to be debt free. For me, this was my children.

I remember when I got divorced and I became a single mom, providing for my children felt like an overwhelming responsibility. I was suddenly alone in this process, and it just felt so like, what if I were to lose my job? What if this?

What if that? How would I take care of my kids? And so I got really focused on getting debt free.

So I would not have any encumbrances, anything to weigh me down in this mission of taking care of them. I also wanted to teach them sound financial principles.

It was really important to me to show them that this could be done, that this was achievable, it was possible to win with money. So for so many reasons, it was my kids.

So when I got weary, when I got a little bit aggravated with always telling myself no, because I was putting my extra money towards paying down debt, I would remember my why, and my why was my kids.

And that helped give me the energy to keep on keeping on when it got weary. Because if you do have a lot of debt, it can get weary to pay it down and stick to it and tell yourself no, for all the things you want that are extras.

No, that is a want, not a need. No, no, no. That gets tiresome.

So you have to have your why. And that is going to help keep you focused on the whole goal, the overarching plan.

I am doing this because, and your why could be totally different, but it's got to be a big enough and strong enough why to keep you motivated to stick it out even when it gets weary, even when it gets hard, even when it gets tiresome. Okay?

So that's step two. So step one, baby savings account, emergency fund, $1,500 to $2,000. All right?

That's step one. Step two, we're paying down all of our debt, except our mortgage. If we have a mortgage, we can set that one aside, okay?

But we are paying down all of our bad debt or our depreciating debt, right? So, those are the two things.

Number three, the third thing I want you to do after you've paid down debt, so you have your small emergency fund, you've paid down all of your debt, excluding a mortgage if you have one.

Now, I want you to focus on getting a fully funded emergency fund. What is that? For me, that is six months up to a year of living expenses.

Some people say three to six months. I just think you need more than that. What if your company were to shut down?

What if you were to get laid off? It's hard to find a job. So I think six to 12 months of living expenses is really what you need in this economy.

If something were to happen, you have to have that money to fall back on, especially if you have children that you're looking out for, okay? So you start socking money away in a savings account.

Now, this is where I'm gonna give you a little bit of advice. So once you've gotten 5,000, 6,000, 7,000 saved back, I want you to start looking at the possibility of opening a money market account.

So your bank or your credit union should have a money market account. It may not be named that, just so you're aware. Most banks and credit unions now call all their accounts something different.

It's a marketing thing. They like to all have different names for these accounts. But read through the different accounts that you can open at your bank, and one of them will be a money market account.

Look at the terms and the details of it.

The reason why I'm telling you to think about a money market account, if you have a savings account, and that's what you've been putting your money in for your emergency fund, your rate of return on that is very, very small.

You may notice you get a few pennies, maybe a dollar. You're not getting a lot of money on that money. However, if you open a money market account, you're going to get more.

It's not going to be a ton more. It's not going to be like you're rolling in it. It's not going to be like an investment, but you're going to get two, maybe three times the rate of return that you are getting in your savings account.

Okay? But you've got to read the terms. You've got to see what the rate of return that you will be getting is.

That's really important, right? And generally, it's tiered. So, you have this amount, you get this rate of return, and as you add more into the money market account, you get a higher rate of return.

Also, look at the terms when it comes to how many withdrawals you can make in a month. So, the money market account I have says, I can make six withdrawals in a month. But that's any type of withdrawal.

If an ACH, that means like an automatic withdrawal, like, if I set up my Netflix payment to come out of my account automatically, if it came out from that particular account, if I had it set up to come from that account, that's kind of like, it's

called ACH, it's an automatic withdrawal. That would count as a withdrawal from that account. If I were to go into my banking app and transfer the money from one account to another, that would count as a withdrawal.

If I moved money from that account to my checking account. If I go into the bank and withdraw cash, right? Any time you take money out of that account, that is considered a withdrawal, and I can only do that six times in a month.

So if you go into your savings account frequently and take money out, you need to understand that may not be the best option for you.

It's worth looking into because you do get a higher rate of return, and once you get a bigger chunk of money in your savings account, at least sitting there, it can work for you better than just a regular savings account, a money market fund.

Now, once you get beyond 12 months living expenses, I really think you need to work on investing, paying off your mortgage, things like that, okay?

Once you have a fully funded emergency fund, whatever happens, you're going to be able to roll with it, financially speaking, then you work towards the other things. I feel like the bulk of the people, though, are in one of these first three steps.

So we can talk about investing, and we can talk about paying down your mortgage. But I feel like the majority of people are either just starting out and working on getting that first emergency fund put together.

Or they're still working on paying down debt, or they're still working on getting that fully funded six to 12 month emergency fund. Now, once you've done all that, like I said, there's more to do, and we can talk about that.

But today, I just wanted to hit those three, okay? I feel like the majority of the people fall in those three categories, working on one of those steps, and you have to do them in order. You have to always have an emergency fund.

You need to have money to fall back on to because things happen. They just do. That's just life, right?

And then paying down debt and not getting back into that is super, super important. And then that fully funded emergency fund, step one, step two, step three. And once again, there's more beyond this, yes.

But if you get step one, step two, step three down, you are doing so good. You are on a strong financial footing. You have righted your ship, financially speaking.

You're doing well, and you're on a good path. If you can get these first three things down, then we can get into details about investing and paying off a mortgage and how to save in different areas.

But if you are doing these three things, you are winning with money. You're not stressed about living paycheck to paycheck. You know the money is there, if the rug is pulled out from under your feet, if you lose a job, if your company goes bankrupt.

Whatever happens, you know you've at least financially are going to be okay, because you have the money there. And that is a peace of mind that I can't describe. That feels really, really good.

If you have step one, step two, and step three down, you are winning with money. You are doing so, so good, okay? I did these, you can do these.

I paid off my mortgage, I paid off my cars, I paid off everything, and I fully owned my house. If I can do this, I don't have special smarts. I'm not some whatever.

If I can do this, you can do this. This is doable, you can do it. It just takes focus, and it takes determination.

And I know you can do it. So if you have any questions, if you're looking at the accounts at your bank and going, which one's the right one? What was she talking about?

If you're struggling on one of the three steps, please reach out to me and ask me about it. I would love to talk to you about it. This is something I really enjoy talking about.

So reach out to me. You can find me online, www.workingonamazing.com. There's a comment box, and you can send me, shoot me a line, shoot me an email, I'll respond.

You can also find me on social media. I'm on almost all the social media platforms, but I do hang out on Facebook the most. So that's just the page, Working on Amazing.

And you can shoot me a line there. You can send me a message, a messenger, whatever you want to do, I'll respond. I would love to hear from you.

I'd love to hear your questions. Even if I don't have the answer, we can figure it out together. You are not alone.

You really aren't alone. We're gonna tackle this. You are gonna win with money.

I know it. I believe in you. I have faith in you.

Thank you so much for joining me today. I look forward to talking to you next time. Bye.