Congratulations on making yourself a priority and making it a point to tackle your finances. As I broke down in my last post, the first thing to do is to know where it is you actually stand with your finances. It was time to sit down and get your financial information organized. This is the biggest step. Everything that follows is just the course of action that your situation leads you towards in your debt free journey.
In my last post, I gave you a step by step breakdown on organizing your your income and expenses. Once the organization is complete, you now know where you stand. I will keep referring to these samples in this post as the example.
Just as a reminder:
The next step is actually a two step process. The first is to now ensure that you are 100% current on all of your bills and accounts. Once you have become current or if you already are, the first of this two step process is to maintain your current status by paying ONLY the MINIMUM amount due for your debt accounts as stated on your bill statements.
While, you are maintaining this status, it’s now time to build your starter emergency fund. This goal is $1,000. You may ask, what is a emergency fund and why do I need one? A starter emergency fund, once established, is just extra insurance for when a true emergency is to happen. As we all know, they do happen and they happen at the lease expected times. Even though the starter emergency fund may not seem like enough to cover a serious emergency, it is still there as peace of mind and just the beginning to a fully funded emergency fund (I will tackle this step in a later post).
Now for this example, the person above has enough money left over for the month to add an additional amount towards his/her beginner emergency fund. By adding the additional amount, it will help fund the beginning emergency fund that much quicker. Now this may not be your situation, but whatever the amount of money you have left over, put it towards the starter emergency fund. As the sooner you fund your beginner emergency fund, the quicker you can begin to tackle your actual debt. However, I am going to save that for the next post as to begin the actual debt free journey.
So for now, I will just stick to the beginner emergency fund and getting that funded. Remember to deposit this money into a liquid money market account or a checking account that IS NOT directly associated with your current banking situation. You want to keep this account available 24 hours a day, but to not have easy and direct access to it. This will prevent you from overspending your main account(s) and then just simply tapping in to the emergency fund.
If you do not have the money left over at the end of the month, like in this example, then just keep at it and pay into the fund what is available up to the $1,000 goal. If you are finding yourself beyond tight, then it is wise to really look at where your money is going. You may be paying for unnecessary items or services for which those allocated funds would be better off going towards your emergency fund.
For example, it is best cut ties with your streaming music and video services. For right now, those are LUXURIES and are not NECESSITIES. Say goodbye to Spotify or Apple Music. Say goodbye to Hulu or Netflix. These companies along with others do not care for your financial situation and your effort to becoming debt free. All they care about is the money that they are currently receiving. You will obviously find this out as you begin cancelling these accounts. They will try to entice you with a offer at the cancel page of their app(s) or web site. Plus, do not for get to remove your stored credit/debit card on file prior to cancelling. Now that you are saving an extra $9.99 per month that was going towards streaming music and $14.99 for streaming videos ($24.98); you can take that amount and deposit it into your emergency fund. Cutting unnecessary services will help you achieve your emergency fund and become debt free that much faster. So, let’s cut it ALL out. These companies will survive without you and you will survive without them.