There is one thing I can guarantee you – no matter where you live, it is going to rain. Maybe just one day a year, but it will rain. When it rains on you, are you prepared with an umbrella or are you going to get soaked?
The same way it will rain on you literally at some point this year, it will also rain on you figuratively. Something unexpected is going to happen. An emergency is going to happen. Life is going to happen. Do you have an umbrella or are you going to get soaked?
Right now, many people in this country are wishing they had an umbrella – even a small one. It is raining on them right now. They are not getting paid because of a situation that they couldn’t control. Some were prepared, but many were not. Some will be able to continue to pay their bills and put food on the table, but many will not. This is just an example of what happens everyday in this country and in our lives. Life happens – some things we know might happen and some things we have no clue are going to happen. This is why an emergency fund (umbrella) is so important. If really should be the number one priority in your finances.
So how big should your umbrella be in order to not get soaked the next time it rains. Ideally, you want to have one year of expenses set aside. But start somewhere, even $50. And just keep building it. You want to get $1000 to $1500 as soon as you can. This way you can handle a sprinkle if it comes through. Next, set aside 3-6 months of expenses. This will cover a regular rainstorm. And then save up to one year of expenses. This size umbrella will cover any storm that comes your way – sprinkle to hurricane.
It is going to rain this year. Are you ready? Today is the day to start. Whether you are starting at the bottom, or building what you have into a bigger umbrella, today is the day. As people find out each and every day, you never know when a storm is coming. The best thing you can do is be prepared. Having an umbrella can be the difference in the rain being just a little nuisance and it being a drowning storm.
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In my last blog post, I spoke about planning to get out of debt and how to move forward toward the goal instead of just saying you are going to get out of debt. Part of moving forward and part of the planning stage is deciding which way of getting out of debt is best for you. It is important to note that either way works and whichever one you choose, if you keep going, will get you out of debt. But it is vital to your success that you pick the one that will work for you. And if you pick wrong, you can always switch later on. The most important thing is that you are getting rid of your debt and setting yourself up for building wealth and reaching financial freedom.
So let’s explore the two most popular methods:
Debt Snowball – This is by far the most popular way because you can see immediate progress and quicker progress in order to keep you motivated in the beginning. The snowball method has you listing all of your debts in order – the smallest one to the largest one – and paying them off in that order. This method doesn’t take any math into consideration – it’s all about emotion. You may pay a little more interest depending on your situation, but it won’t be enough to quibble over. And in most cases it will be less simply because you will stay motivated, finds ways to save and earn more and pay your debt off faster than you originally planned.
Debt Avalanche – This method helps all the math nerds out there. The avalanche method has you listing your debts in order by the interest percentage that you pay. The pro of this method is that you can save some money using this method. However, the con of this method is that many times your lowest interest debt can be a large one. Therefore, it may take months or even years to pay off just one debt. It can be a challenge to stay motivated in this scenario.
Let me repeat – the most important thing is that you pay off the debt. Getting rid of the debt is vital to your wealth building journey. It doesn’t matter which method you use – they both work. You want to pick the one that will work for you. I used the snowball method because it was extremely motivating to me when I paid off 4 debts in one month. This helped me to begin to feel freedom and kept me going when the debts got higher and higher and took longer to pay off.
So as you being to develop your plan to get out of debt, take the time to be honest about which plan will work for you. And if neither one suits you, make your own. You need a plan and you need to start taking steps immediately toward getting rid of your debt. Doing so begins your awesome journey to wealth and financial freedom.
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Anyone who has debt says this all the time. Nobody wants to stay in debt. However, getting out of debt takes more than just words and intentions. It takes action and a plan. In my podcast this week, I go in depth about how to take action and how to develop a plan yourself to get out of debt starting today. In my last blog post, we talked about how planning is something you can do immediately to begin the journey to wealth and financial freedom. So let’s look at how to plan to get out of debt successfully and as quickly as possible.
No one would ever build a house without a blueprint – a visual of every aspect of the house and a plan on how to build it successfully. And that’s what you need to get out of debt – the first step is to develop a blueprint. This is a visual of your finances – your real finances. This first step is actually what keeps most people from ever getting out of debt. They don’t want to walk in their truth, so they stay right where they are. If you are ever going to successfully get out of debt, you are going to need to be honest about your financial situation and be true to what you are willing to do to change it. You need a list of all of your income and all of your expenses – this includes accounts in collections. You need to know exactly what you owe in order to develop the best plan to pay it off.
Once you have your blueprint in place, you need to figure out the best plan for you to pay everything off. I want to caution you about paying for this. Most of the “debt consolidation” programs charge thousands of dollars and basically all they do is get you behind on every bill so they can get you a settlement offer. Doing this will make your credit score even worse than it probably already is. Once your score is damaged, it takes a long time to build it back up and even though you hopefully aren’t going into debt again, your score is your financial reputation and should be kept at a good number. We offer a coaching service and something like that is okay – getting advice from someone who’s been there to support you is one thing, but you don’t want to pay thousands to a company for something you can do yourself.
So now you know what you owe – next, you need to figure out how to pay it off. Using either the debt avalanche or the debt snowball method, you want to arrange your items in the order you want to pay them off. I always recommend the snowball method because of how quickly you can pay off items in full, but pick the method that will work best for you and keep you motivated. Once you start seeing debts being paid, you will continue to be motivated resulting in more sacrifice and more ideas on how to bring in more income. Developing a plan and actually starting the process are the keys to success when it comes to paying off debt.
I hope after today you will stop saying “I plan to get out of debt” and you will start getting out of debt by developing a plan and taking the actions required to finish the plan as quickly as possible. Even without any extra money, if you stop using debt and continue to make all of your debt payments, you will eventually be debt free. But your goal should be to take actions that get you there as quickly as possible so that you can truly begin your journey to wealth and financial freedom.