The BASICS of a Healthy Money Situation

My Story

For years, I did it my way. It wasn’t intentional, but it worked out that way. No one had a conversation with me about money, so I figured it out on my own. I knew the basics. For example, if I made $2000 a month, my bills couldn’t be $2200 a month. Every month and every pay day, I would write down how much I was going to bring home and how much my bills were for the month. And if I ended with a surplus, I was satisfied. I felt like I was being responsible.

The math never worked though. For some reason, I would always be a position of trying to figure things out at the end of the month and borrowing from the next month’s money to handle some bill from this month.

Yeah, I overspent on frivolous things, but for a long time, I just failed to recognize expenses that didn’t come in the form of a bill. I’m talking about groceries, gas, restaurants, entertainment, clothes, and shoes. When I started off, I wore my shoes until they were run down, had a hole in them, or broke.  I wore my pants until I wore them out or outgrew them size-wise.

Those things cost hundreds of a dollars a month, but I never thought about it. Whatever was left after paying bills, I assumed would cover whatever came up.

The BASICS

I wish someone had shared the BASICS concerning money, so I’m going to share them with you in very general terms.

Basic Protection

You need basic protection in place. You won’t be able to get everything all at one time, but you need to start with the most basic and create a strategy to have the others in place within a reasonable time. That could be a matter of 6 months, 12 months, or 18 months.

The most basic protections and most immediate needs are life insurance and a will. Everyone should have a trust, too- but if you have minor children, you need one.

Life insurance can cover long term disability benefits for you as well as death benefits for your survivors in order that they may be able to maintain their home and/or standard of living after your death. It can do a lot more than that, too; but if you are just starting out and don’t have much of a surplus, focus on basic protection for now.

A will dictates what happens with your assets when you die; so that the government isn’t left to figure it out when they get around to it. A trust comes with designation of a trustee who is responsible for carrying out your wishes concerning your minor children, assets, and money- over time. Use a trust so that your minor children have access to life insurance money immediately- not just when they turn 18 and to mitigate them turning 18 and blowing all the money you left them, the same year.  

Allocation of Money

Allocate percentages to the major areas of your budget. One of my mentors, Dr. Lynn Richardson, recommends the 10-10-30-50 allocation and I subscribe to that. It may not work for you, but essentially, 10% goes to tithes, 10% goes to savings, 30% goes to incidentals like food and gas, and 50% goes to bills like mortgage, rent, and insurance. I think it’s a good balance, but you can tweak it based on your financial situation right now and then still work towards the 10-10-30-50, if you want.

Save (Short-term and Long-term)

Saving is at the top of every financial professional’s list that I have ever come across. Short-term savings is an emergency fund. Emergencies come up and with no emergency fund, either you end up taking bill money you can’t afford; borrowing from family, friends, your pastor, or the church; using credit cards and or signature loans. Dave Ramsey suggested $1,000, it worked for me, and that’s what I recommend too. That was a lot of money to me, but once I started a plan to fix my finances I found creative ways to get it fast. You can, too. Eventually, your emergency fund should be 3-6 months of your expenses.

Long-term savings involves investing. There are lots of investment vehicles and you should start with one and then add as time moves forward. One of the top ones to take advantage of, immediately is your employer matching program. Some people say hold off on this if you have debt or other priorities. I think it should be at the top of your list. If you get your emergency fund in place really fast, it’s not reason not to keep your match going or sign up for it right away.

Ice Debt

Pay those you owe. Use the snowball method and pay the smallest debt and then when that is paid off, roll that money into the next smallest debt. The whole while pay the minimum balances on all other debt. If you are behind on any bills, you have to catch up on them first. Once you are caught up, start the debt snowball.

The major benefit of the snowball method is that it allows you to get those wins early on. When you see one credit card paid off, and then another, and another, it’s empowering. It make you believe you can do it- because you are (smile). So, don’t worry about interest rates right now, get rolling and build your momentum.

Credit Preservation and/or Restoration

Credit can be very dangerous and is likely one of the main contributors to us getting in such bad situations. At the same time, until you are in a position to buy major purchases with cash, you will likely need to use credit. There are ways around it, but you’ll have to learn how. In the meanwhile, creditors look for a good credit score. It says, you are a person who pays what you owe when you owe it.

If you already have credit, focus on no new charges and paying down all your credit cards. Dave Ramsey said to cut them all up and I did. I was supposed to close the accounts, but I did not- mostly because I didn’t think about it. Closing your oldest cards has an impact on your credit score. Prioritize paying down your debt will naturally help preserve your credit score or restore a bad credit score.  

If you have no credit card, then you likely don’t have consumer debt. You may want one credit card that you can put one bill on and pay on auto-pay monthly. That will help when just starting off. If you can’t handle that right now, I advise against any credit, until you are further in your journey.

Step it Up

Step-by-step get the basics discussed above in place and once you do, step it up. There are still a lot of things you can do and some things you should do. Things like start a homebased business, find out how to hire your children, mitigate taxes you pay, create a estate plan, build a legacy for your family, etc.

But start with getting the basics in place; life insurance a will and/or trust, creating a budget built on some form of the 10-10-30-50, getting your $1,000 emergency fund in place, and paying who you owe.

Figure out where you can cut expenses to create more surplus or how to make more money. Use that to ramp up your savings from $1,000 to 3-6 months of expenses and to pay down your debt. Some experts recommend you prioritize one over the other. I paid off all the consumer debt except one -my student loan. I attacked that until the pandemic hit. The pandemic made me see that I needed more than $1,000 so I decided to bulk up my emergency fund to 3-months and then re-attack my student loan debt.

Conclusion

You will hear lots of advice and much of it is good. I didn’t do it exactly like anybody said. I took what felt right for me and applied it. I took somethings from one and some things from another, but ultimately did what I felt God was leading me to do for my situation. You do the same. Lean on others to learn and grow and get better. Ultimately, do what feels right to you. If you don’t make progress, keep learning and growing and tweaking.

This information is for educational purposes only and does not serve as financial advice for your specific situation.