1.) Be real… be real real
In order to be fiscally healthy (and by proxy mentally healthy), you have to be honest with yourself about your financial situation. I think a lot of people my age just keep their head in the sand about money. Women in the South aren’t brought up to talk about money. Credit card companies start targeting vulnerable and uninformed college students as soon as the leave the nest. By the time they graduate, they are up to their eyeballs in credit card debt with astronomical APRs. Do these kids even know what an APR is?!? Sit down with your calculator and put all of your bills on the table. Literally. If you are paying online, print an invoice. One can never take control of their financial futures if they don’t know where the starting line is. Is this a difficult thing to do? YES, which is why people don’t do it. I do this every single month. Yes, I still write checks for all of my bills, but doing this forces me to look closely at each statement, see how much progress I’m making.
2.) Get your game face ready
Once you’ve got a good grip on where you stand financially, its time to formulate a plan. Goal setting will keep you going even when you are discouraged, but be realistic. If you are $50,000.00 in debt, you might not want to shoot for being debt free by the end of this year. Setting unrealistic goals is the quickest way to failure. Start small and start from the top down. If you are carrying a credit card balance over from month to month where you are paying 27% interest, pay that off before you start making principal reduction payments to your mortgage, which is only charging 5.5% (the going rate these days for credit worthy borrowers). Even if you are only able to pay an additional $20 or $30 dollars a month, they will add up to big savings in the long run. Depending on your financial situation, it may be a long journey, but making small steps will make being debt free much more attainable.
3.) Think about returns
I’ve read lots of information on the early payoff of student loans being a mistake. While I’m not an expert in the field, I completely disagree. When I graduated from law school, I made a decision not to adjust my lifestyle from my “grad school” budget and take the “real money” I was making and have my student loans paid off in 10 years. Now it’s true, my student loan interest rate is fairly low, but for whatever I pay ahead on my loans (going towards my principal reduction), I am getting an automatic return on average of 6%. Now if you can find an investment these days paying that, call me. Its either the best deal in town, or I’ll have some beachfront property in Kansas that I’m sure you can’t live without.
So tonight I’ll be making out all of my bills on the kitchen table with my calculator, check book, and student loan amortization schedule, which I prepared on my computer. And you know how I’ll feel? Stressed, well maybe a little, but also accomplished as I look at the steady gains I’m making each month on becoming debt free.