I’ve been there. After a messy expensive divorce in which I made a few costly emotional decisions, the financial implosion of 2008, a layoff, and a huge rent increase all in the same year (and I thought 2020 is bad!), I hit my financial bottom. My bank account was perilously low, my credit cards had high balances, I had no job, and my expenses had increased dramatically. I couldn’t sleep at night, and was consumed with worry and shame. With the help of some great advice and a lot of faith that everything would work out, I was able, over time, to generate income with meaningful work, pay my debts, and start an aggressive savings plan for my retirement. It was hard work, and required focus and determination. And today I am proud of how I turned my financial life around.
Some things I learned along the way:
First of all, forgive yourself. Let go of any shame you may feel. Life happens, and everyone makes mistakes. You can’t move forward if you stay in shame. There are a lot of resources out there to help you develop a healthier mindset when it comes to your personal finances. And many of them are free! Dave Ramsey, Nerd Wallet, and HerMoney are just a few of many good resources.
Talk to people you trust about your situation; seek emotional support. I shared with my CPA that I was struggling and she had a terrific suggestion that had nothing to do with taxes, but a way for me to fund the small business I was trying to start. I never would have known about this idea if she hadn’t mentioned it. And she would never have mentioned it if I hadn’t been humble enough to tell her about my situation. I had to let go of my shame to be able to speak honestly with her.
I knew I had to get real close to my numbers. I had to develop a budget. And it had to be based on one simple rule: Spend less than I earn. This was particularly tough as a newly single mom with two kids. We entered what I call our “austerity phase.” I involved the kids as much as I could by talking to them and sharing my budget with them. I didn’t want to frighten them (even though that’s how I felt some of the time!), but felt it was important for them to understand that although we’re ok, we aren’t indulging in expensive toys or outings anymore. We ate a lot of rice and beans, went to the library for books and movies, biked and hiked, and found much less expensive ways to live our lives. Check out Making a Budget at Consumer.gov.
Not surprisingly, I read a lot of personal finance books. The best one was All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren and Amelia Warren Tyagi. Written in 2005, it’s a little dated now, but the overall advice in it is solid. This book explains the 50-20-30 budget which I find particularly useful in that it’s somewhat flexible and not punitive.
Probably one of the most important things I learned through this experience is that it’s not the material things that are important. Spending quality time with my kids and socializing with friends did not have to mean spending money. I also came to realize what my “needs” really are, and that I’ve always had enough. It may have felt like it wasn’t enough at times because I would have liked living in a nicer house or better neighborhood, but my kids and I were always safe and well sheltered. Or I would have liked to have been able to have a larger and newer car, but my little sedan got me everywhere I needed to go, and was reliable right up until it wasn’t anymore 15 years later. And with all the money I had saved from driving that reliable little car, I was able to purchase a reliable larger replacement that will probably last me another 15 years or so.
It is some years later now, and while my financial situation is nothing like it was in 2008, many of the habits I developed in the “austerity phase” are still with me. I continue to live well within my means, don’t carry any credit card debt and have saved effectively for my retirement. I still watch my numbers closely and I am comfortable knowing that I have enough to live an enjoyable life.
If I can help you mend your budget or manage your money mindset, schedule a free 30-minute consultation. Email me at Alison@fiscallyfit.us or call (650) 965-4090.