Financial Control: Your First Steps Out of Paralysis

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Audio Financial Control First Steps

First I got a panicked email.  Shelley had been out of college for well over ten years and was still carrying school debt.  She had run out of extensions and was being pressured to start paying again.  She said she needed my help to get her money under control. 

Once on the phone, I discovered she also had car payments, credit card debt, an “ex” who wasn’t making child-support payments, a mortgage and a maxed-out home equity line, just for starters.

The best news was that her “solopreneur” business was generating some steady income, although seemingly not enough.

Shelley had been reading my articles about financial control for awhile, but couldn’t seem to get herself to do anything I recommended, even though it made all the sense in the world.  And now, here she was:  she had unbearable pressure, no safety net, no retirement savings … and a lot of fear.
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All the information in the world will do no good if it’s not followed by action.  And inaction has a way of adding guilt to the already stressful fear.  So why do people not take action?

Paralysis often comes from not knowing where to start.  Despite good intentions, given too many options … as they say, “a confused mind does nothing.”

In this case, Shelley’s laundry list of financial priorities includes:

  • Pay down credit card debt.
  • Pay off school loans.
  • Build an emergency fund.
  • Save for children’s college.
  • Save for retirement.

The truth is, before Shelley can tackle any of those issues, there is some basic work she needs to do.  It has to do with getting connected with her money.  As long as money is a distant element that is most often ignored, wishful thinking has real fertile ground on which to take hold and grow.  And, at least in my experience, wishful thinking has never been a successful form of money management.

Making Money Real

In order to make money real, and develop an intimate relationship with it, I will work with Shelley to pin down exactly what she is spending, both in her personal life and in her business.  It doesn’t matter how we do this, as long as it gets done.  And we can only do it if there isn’t a single hint of judgment in the process.

Getting clarity is the key here; you can’t control something you can’t pin down.

The Path to Financial Control

It does no good to tackle everything at once at this stage.  One thing at a time.  And, in my experience, we should move in the following order:

* Step One:  Reduce Expenses

Our next step together will be to identify “leakers,” or ways she is spending money without awareness—and often without much pleasure—so they can be stopped.  Then we’ll identify expenses that can be cut, even if just temporarily, so she can get her outflow equal to her inflow.

The target is to get to a place where the head chatter stops, where Shelley knows she can close out the month, even if there is little money left over.  In that quiet space, it will be far easier to find ways to increase the income from her business, ways that seemed overwhelming while she was also worrying about how she’d pay one bill or another.

* Step Two:  Start Saving

No matter how small the amount saved, it’s critical to start saving just as soon as possible.  There are two reasons for this:

  • Without a cushion of some sort, any unexpected expense will throw the inflow and outflow out of balance again and recreate the old stress.
  • Something magical happens when we start putting money aside in an account.  The feeling of control and of being proactive reinforces all other efforts at money management.

Once started, saving money is one of the habits we never want to break.  And it should remain our singular focus until we have around $1,000 set aside.

* Step Three:  Pay Down Debt

Once expenses are under control and a safety cushion is growing gently in a separate account somewhere, it’s time for Shelley to tackle her debt.  There are several schools of thought on the order in which we should pay down our debts.

In my mentoring experience, the psychological high that comes from paying off individual debts quickly (by paying off the smallest ones first) is more important than the few dollars that would be saved overall by paying off the one with the highest interest rate first.

That’s why I recommend Dave Ramsey’s Debt Snowball method.  J.D. Roth of Get Rich Slowly clearly explains Ramsey’s concept in an article called In Praise of the Debt Snowball.

Getting Help

Once these three steps are underway, Shelley will have the empowering feeling of financial control.  No longer will she be spending without thinking, as if in response to triggers outside of herself.  She’ll be on her way to working through her laundry list of financial priorities, until she’s debt-free with savings for emergencies, college and retirement.

I know what a difference it can make to have someone guide you, hold your hand and act as your cheerleader.  (I’ve been doing that for years.)  For the next month or so, I want to get as many people “launched” on that path as possible.

I’m offering individual one-hour sessions, at just $97, to move you through the initial steps as fast as possible.  Two or three sessions should be enough.  If you or someone you know could use that kickstart, just email me at sharonoday at gmail dot com.

That way, you can follow right behind Shelley on the path to financial control!

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Bio: Sharon O’Day fixes financial lives. She is a tell-it-like-it-is money expert with a successful career in global finance, plus an MBA from the Wharton School. Today she specializes in getting entrepreneurial women over 50 back on their game so they can have more money, less stress and more joy. With her “Over Fifty and Financially Free” strategies, they take actions that lead to their ultimate goal: financial  peace of mind.

  • Susan Schiller

    Shelley is fortunate to have sought your counsel, Sharon, as you have a gentle, yet firm, way of coaching us through the paralysis and how to get up onto our financial feet. Your action steps are easy enough for us to learn to feel confident, if we follow through. Thank you for sharing your wisdom – you are a true “mother” to us here!

    • Needless to say, Sue, names and some details were changed, for the sake of privacy, but she agreed that the process she was undertaking really needed to be shared. And I’ve already had a couple of others follow in her footsteps just today! Getting this basic work done really allows people to continue on their own … feeling empowered! Thanks for your kind words, Sue … 😉

  • Robin Maria Pedrero

    You do have some really greattips

  • Veronica Solomon

    Shelley had a secret weapon the whole time! At least she sought your help before worse came to worse. You provide such valuable tips and information

    • Thanks, Veronica. (I’ve been called “secret weapon” before and find it fun that you used the term here!) Obviously, the sooner someone starts taking control of finances, the better. But the important point is that, no matter how bad things get, there are ALWAYS ways out. They just get tougher and tougher the longer one waits.

  • Terri Lind Davis

    These are some great guidelines! I have made much progress on all the steps you have laid out! It is an ongoing process.

    • It IS an ongoing process, Terri, especially if we’re catching up. I started back up at 53, after losing everything. And, as I’ve heard you mention before, part of rebuilding had to do with redefining what’s important. So much of what I thought was important really isn’t. And a simpler life makes each individual thing that much more precious!

  • Roz

    Getting clarity is the key here; you can’t control something you can’t pin down.
    Such great advice. You make such a difference for people.

  • Wingate Wyndham Sulphur

    You are so right! I am proud to say that your posts have inspired me to start saving and with this last paycheck I made my first donation to savings. Thank you so much and keep up the amazing work and guidance.

    • Brava, Heather!!! Wait until the saving habit worms its way into your psyche and you start looking for other bits and pieces you can throw into that pot! Ha! 😉 I love it!

      • Wingate Wyndham Sulphur

        It feels great already! I cannot thank you enough for your continued encouragement and awareness =)

  • Kung Phoo

    So you would save before you pay down the debt? I would think once the debt is gone, you can save?

    • Those are the two schools of thought, Rob, and individual situations DO come into play. Normally I find that people function best when their stress levels are lowest. And having a small emergency fund set aside lowers stress; that’s the saving I’m talking about. (Besides, if there isn’t a fund, any unexpected expenditure will knock their inflow and outflow balance back out of whack.) So I suggest people keep paying the minimums on debts until they have a reserve of at least $1,000. After that, I have them define what dollar amount goes to debt pay-down each month. I find that people have greatest success by paying minimums on everything but the debt with the lowest balance. All extra money goes there until that debt is paid off. Going forward, the amount allocated to debt pay-down remains the same, but the debt with the next lowest balance is targeted to receive all that’s left over after the new “minimum payment” total. Removing a creditor from the list has a huge emotional/psychological impact. Progress! This “snowball” effect continues until everything (but the mortgage) is paid off … although somewhere along the line some people choose to start contributing to 401k and other retirement savings vehicles. It’s real individual and that customization is the plan I work out for each person so it keeps them as motivated as possible. Hope that helps!

      • Kung Phoo

        it sure does clear it up.. those are pretty much my school of thought as well..I thought maybe i was doing something wrong..

  • Marilyn Arriaga

    Shelly sounds like alot of us. it is important to get connected with our money. Thanks

    • You’re right, Marilyn. Shelley is not unique! Since most of us did not get the financial literacy we needed and deserved as we grew up, many of us have done the best we could with what we knew … but could do so much better if we knew more. That’s why I blog … 😉

  • These are excellent tips for everyone not just for those who are struggling to pay the bills.

    • I agree, Christy, these are the rules we all need to integrate into our financial lives. They’re particularly powerful when people are trying to get their financial feet under themselves … and then can go on to build their financial futures on a solid foundation!

  • Alexandra McAllister

    These are such helpful tips, Sharon. I’m following your posts and slowly starting to save some money, not a lot, it’s a start though. Thanks for being such an inspiration.

    • I’m thrilled to hear you’re saving something, Alexandra. I know you’ve been hit with challenge after challenge, especially in 2013. But no matter what you start with, it resonates with your soul that you’re taking care of yourself, for your future. Here’s to 2014 being a far more generous year for all!

  • Scott Glaze

    Very helpful breakdown of the process to gaining financial control. Thank you for these straight forward steps!

  • Love your approach to lowering the stress level, sound advice as always!

    I have identified my leakers and I am practically debt-free, the upcoming tax bill does not count, does it? And yet I felt your words making a huge impact, I think it is the collision of the saving issue and the date of retirement showing up on the horizon …

    • While our minds are in that crazy-making chatter that comes with stress, Barbara, it’s hard to be very productive. And in order to make as much as we can (in order to SAVE as much as we can), we have to be at full productivity!

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  • As usual a wonderful easy to understand beautiful post on Finances Thank You Sharon

    • Thanks for all your support, Carly! I know you understand what I’m trying to do …

  • fredmcmurray

    a very timely post as we get ready to start a new year.

    • Thanks, Fred. It’s also”timely” considering this month is when some people do huge damage to their finances, with the holidays. Hopefully one or two readers will be helped.

  • Ana Maria Verrusio

    Save before you pay off your debt, makes so much sense; and most would not even choose to save. I think of the old adage “save for a rainy day.” I love that you advise folks to pay off a small debt first; it’s great positive reinforcement.

    One thing you wrote that hits home with me during the holidays(and it applies to more than just $$) is the following: Paralysis often comes from not knowing where to start. Despite good intentions, given too many options … as they say, “a confused mind does nothing.” This really hits home with me, because whenever I have a million things to do(like during Christmas or before vacation) I waste so much time just trying to figure out what to do first. The “confused mind” comes into play when one is doing something out of the ordinary(for me it’s cooking).

    • Ana Maria, as I answered to Tina (above), that “save before you pay off your debt” is just until you have an emergency fund set aside. Then I suggest starting on debt drawdown. And you’re right about the paralysis: it does apply to everything in our lives. (Including cooking!)

  • Tina Ashburn

    I read recently it’s so important to save, that if you are paying more than the minimum payment on your credit card, take that money and put it into savings instead. Sure, that will mean it takes longer to pay off the credit card, but putting the money into savings is more important these days.

    • The biggest problem with the saving-vs-debt-drawdown discussion, Tina, is that savings accounts are paying almost nothing these days, because the Federal Reserve is holding the interest rates so artificially low. But the credit card companies have not lowered THEIR rates at all. (They just take the difference as excess profit, thank you very much!) So to save everything at 1-2% interest, while paying 18% interest on your debt, doesn’t make sense either. So I suggest saving as much as you can to get to your target for your emergency fund quickly. That reduces stress a bit. Then focus on getting your debt paid down. If you start earning more and have money left over, then put THAT in savings, especially if you put it in a tax-deferred 401K, for example.

  • Kelly

    Its amazing how so many people are in the exact situation. Alot of the times they just have no idea how to budget. So they spend money recklessly. Not all the times though. These kind of things happen to good people..

    • Kelly, financial illiteracy–combined with unhealthy money beliefs left over from upbringing–account for virtually every one of these situations. Neither of those makes someone bad. And the relief I see on women’s faces when they finally get honest with their money and their behaviors is palpable! That’s where the joy comes in …

  • robindavidman

    As daunting as it may seem, taking that first step will help put you on the path you need to move forward. This brings to mind an anonymous quote, “The best way to get started is to begin.” You hit the nail on the head here, Sharon. Very motivating and informative!

    • Thanks, Robin. Not knowing where to start–and being afraid that ANY change will cause a greater loss of control–are all part of the resistance. Yet, as you say, that first step opens up whole new (healthy) worlds!

  • Simona R.

    Reduce expenses – definitely! It was a great shock for me to learn how many monthly bills people here have, and how many are not that necessary, but luxury things they can live without. If I’d have to pick between eating right and having my nails done by someone else, I’ll eat right and learn to do my nails.

    • I’ve lived in (and connected to) Europe for decades, Simona, and agree that our sense of materialism in the U.S. has grown to extremes. Fortunately, some people are learning the “wealth” that comes with simplifying their lives. Unfortunately other countries, that are in the midst of development, are learning what an economic engine consumerism can be … and are adopting that model.

  • Gillian ~ Gilly

    This is great information, especially tackling the smaller debts first for that psychological high.

    • Gill, that concept is a little controversial, as I mentioned. But if that loss of a little extra interest paid results in someone staying on track (versus losing interest and quitting), it makes sense to me!

  • Meryl Beck

    Sharon–I like the way you told us the problem and then listed steps. Great tips.

    • Meryl, that’s how you write as well: Problem — solution. Problem — solution. Problem — solution. Great model, isn’t it? 😉

      • Meryl Beck

        Yes! Did you learn it from Lisa Sasevich?

        • I know who she is, but have never followed any of her work. I’ve just been a business consultant all my life, and know it’s all about “Problem — solution. Problem — solution. Problem — solution.” 😉