Debt-Free Forever (3 page)

You can go along pretending that everything is hunky-dory and keep on living in a dream world until your house of cards falls down. And it will eventually; it’s only a matter of time. Or you can take a deep breath and say to yourself, “Okay, this is a big mess. But today’s the day I start to do something about it so I don’t have to live with this crap forever.”

And so we have arrived at the big hole in most people’s thinking when it comes to using credit:
when do you plan on getting that debt paid off?

Most people don’t think about getting their debt paid off. They are more concerned about minimum payments and how they’ll work them into their budget. The result: as more credit is offered, people just look to see whether they can squeeze another minimum payment into their budget.

Hey, that new furniture is only going to cost us $84 a month. That’s easy. That swanky new car is only going to cost us $376 a month. That’s easy. And if I put this dinner on credit, that’ll cost a mere $6 a month. That’s easy.

If you’re determined that you’re done with “easy” and with “debt,” then you’ll want to get that debt paid off in 36 months or less. And I’m going to show you how when you get to Chapter 5. (No matter how excited you are, don’t skip ahead! But keep your list of consumer debt handy because you’ll need it.)

You’ve been working hard with the figures and it’s time to take a break and do something different. Part of being successful with your money involves knowing what you want from your life. Let’s figure that out next.

W
hat weighs most heavily on your mind when it comes to what you want from your life? There are probably lots of things competing for your limited resources. Want to buy a home? Pay off your mortgage? Buy a new car? How important is it that you have some money saved for when your kids head off to college? How about travel, is that the Big Wanna on your list? Want to be able to quit that nasty job and follow your bliss? Wish you could spend more time with your family? Want to spend less time running around and more time reading, painting, thinking?

Grab a piece of paper and a pencil and start writing. Jot down everything you can think of that’s important to you. Never mind how disorganized it is. And there are no right or wrong answers at this point. For now, you’re just noodling, coming up with ideas, creating dreams.

Often when we set goals for ourselves, they’re Big Goals. We want to be debt-free. We want to be able to quit the
mind-numbing, soul-sucking job that’s stealing our time. We want to have enough saved for retirement. We want to travel and show the world to our children. We want a big, fat emergency fund, just in case.

GAIL’S TIPS

While we’re gung-ho when we set the goals, because they are big they are also long-term. And long-term goals can seem like impossible dreams when that gung-ho turns to ho-hum. No matter how big a goal, it takes small steps to get there. And taking the time to set milestones so you know you’ve achieved those small steps is the best way to stay motivated and keep on truckin’ toward your goal.

In this chapter, we’re going to look at the process of setting goals. To do so, you’ll be clarifying your values and prioritizing what’s really important to you. Then you’ll work on creating a plan to get you from where you are now to where you really want to be using milestones that help to keep you motivated.

It may take several days, or even several weeks, for you to set the goals you want to achieve over the coming months and years. If you’ve never set a goal in your life, it won’t be easy the first time. But with practice you’ll get more fluent at defining what you want and the steps you must take to get there.

Start by finding a quiet place where you can think about what you want. If you’re planning to do this with your partner, it’s a good idea for you each to do it solo first, so you can get in touch with what YOU really want. Don’t worry about what’s happened in the past, the mistakes made, the errors that must be corrected. The place to start is with the NOW

Grab another piece of paper and label it My Core Values List. Begin by writing down the things that you consider to be the most important to you. Don’t do this strictly as an intellectual exercise, writing down only what you think will make a good list. Do it as an honest representation of what you want, writing down what really matters to you. I’m not even going to give you suggestions of what they could be because this is something you’re going to have to dig deep to come up with. You’re building a list of your core values.

I will, however, share with you my core values: the things I hold as really important and that I use to guide my decision making and my life. I’m all about family. And about truth. I work hard to create balance. And I think that happy is the richest you can ever be.

When I was offered the hosting job for
Til Debt Do Us Part,
I made it clear to the producers that my kids were the most important thing to me. While I was interested in doing the show, I would not do it if it meant being away from my children too many days a week. I thought I was very clear on that point. Two days. That was the max for me. If we could shoot the show in two days each week, we could work together.

We went through the auditioning process, and the production company made their pitch to the network. They won the contract and sent me a production schedule. The schedule had me shooting four days a week. Seems no one thought it was possible to do it in less time. If I wanted the job, I’d have to be ready to hit the road four days out of seven.

I declined. I reiterated that my children were young, that I was committed to being a mom first, wished them luck, and kissed them goodbye. While the idea of hosting a TV show was intriguing and the money was good, what I’d have to give up went against my core values. I wasn’t willing to take the job and then try to change the rules once we were into it since I don’t play games. And working to the exclusion of everything else that was important to me would put my life out of balance and make me unhappy. So I said no thanks.

Turns out you can shoot a TV show in just two days a week.

Whenever I’ve told the story, people have usually responded
with something like, “Good for you, sticking to your guns.” It wasn’t hard. Because I knew what was really, really important to me, it was easy to prioritize and choose.

This exercise is meant to help you figure out what’s really, really important to you so you, too, can prioritize and choose. Take your time and think about it. What matters? What do you want? What do you dream? What makes you happy? What is the thing you feel defines who you are? Who do you respect, and why? Where do you wish you were in your life? What do you think the future holds? You may have to come back a couple of times to your Core Values List before you move on because figuring out who we are and what we want is no small feat. But if we never start thinking about it, we’re never going to know. So start now. Think. Jot notes. Think some more.

Once you’ve made your Core Values List, it’s time to come up with some goals you want to achieve over the coming week, month, year, two years, five years, ten years, and so on.

The world is filled with people who themselves are filled with good intentions. The gap between intentions and outcomes can sometimes seem like the Grand Canyon. Part of the problem is that people store their desires, their dreams, their Big Wannas inside their heads. But your brain is prone to respond to immediate needs, and so every emergency, every To Do, takes precedence over the big dreams you may have. People forget what they really want because they’re so busy dealing with what life is throwing at them. Then another year rolls by and they’re no closer to their dreams. The only way anyone
can stay on track to their goals—be they short-, medium-, or long-term in nature—is to write them down.

Grab another piece of paper to write a Master List of all the things you want to accomplish. Include everything you think you want or need to do in the next few years. Look back at the messy page42ou created at the beginning of this chapter and incorporate those ideas. You’re not trying to organize anything yet, just emptying out your brain. Note everything you can think of that you would identify as a goal—everything you have been planning to do, promising to do, wishing you had done.

Now it’s time to prioritize the information on your Master List. For all the goals that are The Most Important, put an
A
beside them. The next most important goals get a
B
designation. The rest get a
C
designation. Rewrite your Master List grouping all the
A
’s,
B
’s, and
C
’s together.

The next step is very important, so don’t skip it. Compare your prioritized
A
list with your Core Values List to make sure the things you consider most important are supported by your core values. If there are things on your
A
list that don’t mesh with your core values, drop them off your list or move them to your
B
or
C
list. If there are things on your
B
or
C
list that need to be moved to your
A
list, do it now.

Here’s an example of what I mean.

When Maryann made her Core Values List, she noted that spending time with her family was of utmost importance, as was her family’s security. Debt repayment was near the top of her list since as long as there was outstanding consumer debt,
the family’s future was not stable. But when it came time to prioritize her Master List, Maryann labelled annual vacations as an
A
item. She and her husband both work very hard, and she was determined that her family should get away together at least once a year to share a family vacation. The problem: either she would have to reroute money that should be going to debt repayment to a vacation fund or she would have to put the vacation on her credit card, racking her just-paid-off-debt back up. She had a conflict between her core values and her
A
list.

If Maryann were honest about the importance of her family’s security, she would recognize that anything she does that results in her not paying down her consumer debt or, worse, increasing it goes against her core values. And while a vacation with the family may be one way to share family time, it’s not the only way. Maryann might then decide to prioritize debt repayment, focusing her financial efforts on that goal, while coming up with creative ways for the family to spend time together having fun without spending the $4,500 the vacation would have cost.

If you’re in a relationship, it is at this point that you would share your goals. It can be pretty tough to achieve something significant if you don’t have the support of your best buddy. And since you may be coming to the table with different priorities, you may have to negotiate which goal(s) you start with.

It’s all very well to wish you owned your own home, but what are you doing to make your dream come true? Have you started saving for a down payment? Do you even know how
much of a down payment you’ll need? What kind of housing constitutes “a dream home” for you?

Owning your own home is a big idea. But if you’re going to need $30,000 for a down payment on a home, accumulating that kind of cash can seem like a daunting task. And every year that you haven’t come up with the $30,000 is a year you’ve failed to achieve your dream, right? Or is it? After all, if today you have nothing, and next year you have $8,000 saved, that’s a big step in the right direction. And you should celebrate that success.

Milestones work because they let you create small, achievable steps that can be realized more quickly. They also let you celebrate your incremental successes along the way. And that helps to keep you motivated to make wise financial decisions day to day.

Let’s say you want to be debt-free. Broken down, that means you may want to be free of all your consumer debt within three years, your student loans within five, and your mortgage by the time you retire. If you’re snowballing your consumer debt repayment (we’ll talk about this in Chapter 5), then you have made a list of your individual debts, so all you have to do to create your milestones is write in the date by which you want to banish each individual debt. As you vanquish each amount, you’re going to reward yourself by taking a hot bubble bath with candles and music, making yourself a big batch of brownies, or giving yourself a day off to do whatever you feel like. Your reward can be whatever turns your crank that doesn’t cost tons but makes you feel great.

A longer-term goal such as having your mortgage paid off at
retirement may not seem to have many milestones. And if all you do is keep paying your mortgage on the schedule you’ve chosen, then this goal is a no-brainer. But you might decide that you’re going to put a principal prepayment of $6,000 against your mortgage every year. That means you’ll have to set aside $500 a month in your budget. Have that money auto-debited to your Mortgage Prepayment Savings Account and you’re on your way. Make the annual prepayment and you owe yourself a treat!

When it comes to saving, there may be several pools that you’re trying to build at once: the Travel pool, the Essential Emergency Expenses pool, the Blow Off the Job pool, the Educational Savings pool. Setting milestones for each of your objectives lets you feel a sense of accomplishment as you progress toward your goals. While having $12,600 saved for an emergency may seem like an unattainable goal, having $400 saved by the end of the summer may feel much more doable. Once you hit your first milestone, you set another, aiming to have $1,000 by the end of the year. And so you go, hitting your mark and moving toward the final goal step by step.

When it comes to setting milestones for your long-term savings, you can do it either based on an actual dollar amount—as in, this year I’ll save $100 a month, next year I’ll save $200—or you can base your savings on a percentage of your income—this year I’ll save 10%, next year 12%, and so on. Your ultimate goal should be to contribute the maximum amount to your retirement plan that you are allowed by law. It may take several years to work up to the limit, so setting milestones along the way will help keep you motivated toward your goal.