Attaining Financial Discipline

As I mentioned on my post last Sunday, I am working on becoming more disciplined. Part of this journey includes becoming more disciplined financially. I’ve never had issues with paying my bills on-time, but in the past I’ve felt like I wasn’t handling my money as well as I should. I have never been much of a saver, and I didn’t use a written budget to keep track of my spending. Without a budget, cash tends to go out as fast as it comes in. The paycheck-to-paycheck lifestyle is stressful, and, unfortunately, very common; 78% of full-time workers in the US currently live paycheck-to-paycheck.

Lack of financial discipline is both a personal and cultural problem.

So how do we break the cycle of being constantly on the edge of financial ruin? I’ve been listening to the Dave Ramsey Show Podcast, and I am currently reading his book, The Total Money Makeover. The advice he gives can be broken down into a few short steps:

  1. Get on a written budget. Write out all your monthly expenses & income at the beginning of the month. Allocate spending for every dollar of your income BEFORE you spend it.
  2. Save $1000 ASAP. This is for your starter “Emergency Fund.” It’s a small buffer between you and any unforeseen expenses. (Later, after paying off all consumer debt, you expand your Emergency Fund to equal three-to-six months of expenses.)
  3. Pay off your debt. He recommends using the “Snowball method” wherein you pay off your smallest debt first (making minimum payments to service your larger debts), then moving on to the next larger one, and so on. Your payments will compound as you eliminate smaller debts, which will give you a sense of progress as you pay off your debt.

There is additional advice on investing for retirement in the book, as well as other tips for eliminating debt and improving your financial health (ex. if your car is worth more than half of your annual income, you can’t afford it). The book is a little cheesy, and filled with a lot of cliches, but the advice is sound. It’s an easy read, and there are forms at the back of the book for help with creating a written budget. If you have little knowledge about personal finance, it’s a good place to start. I would encourage seeking out additional books and information on investing after getting rid of debt ad building a solid emergency fund.

I feel a lot more in control since establishing a budget. I’ve already paid off a credit card, and I have a solid plan to make quick progress on my other debt (including my student loans). I’ll feel better when all of this debt is gone, but it’s nice to see it beginning to shrink in the meantime.

I hope sharing this advice helps those seeking to gain more control over their money. Look for another post here on Saturday.