Warren Buffet famously stated that you find out who is swimming naked when the tide goes out. Although he was originally referring to business taking on high debt levels that can’t be serviced when the economy goes downhill, this same idea of “swimming naked” can happen with us as individuals as well. We live in a consumerist society, with purchases made even easier with the availability of cheap credit. During good times, it’s easy to splurge on things when we know we probably shouldn’t. Unfortunately, the tide sometimes does go out (such as what happened recently with the onset of a global pandemic) resulting in many quickly becoming unable to keep living beyond their means.
The Bible provides a lot of great advice about how we are to handle our money. Proverbs 21:20 says “The wise store up choice food and olive oil, but fools gulp theirs down.” We never know what storms may be around the corner, so it is important that we prepare ahead of time for the unexpected.
So how can we follow this important piece of Biblical wisdom? Dave Ramsey created “7 Baby Steps to Financial Freedom”1 that provide straightforward, step-by-step guidance for anyone looking to establish positive financial habits. Steps two and three are key ones that make up the foundation of his plan and, once fully implemented, will set you up to manage most unexpected situations that could arise:
- Step 2: Pay off all debt (except the house) using the debt snowball method: this will help to reduce your monthly expenses; and
- Step 3: Save 3-6 months worth of expenses in an emergency fund: this gives you a large cash pile to draw from due to an emergency bill or loss of income.
Thankfully, these steps are achievable, eventually – you’ll just have to “eat the elephant one bite at a time”. I encourage you to dig deeper into more of Dave Ramsey’s resources, but for now I’ve put together some simple tips that can help you with eliminating debt and building up that financial cushion:
- Pull out your bank and credit card statements and make a list everything you have spent money on over the past 3 months. This will help give you an idea of where your money goes, specifically any “waste” areas.
- Write a budget, then follow it. You need to have a plan to achieve these challenging financial goals, so this means you need a written budget. First you list all your sources of income, then you list all your expenses. The expenses include all the “must haves” (food, gas, rent, etc.) and the amount needed each month towards your specific financial goals. At this point, anything leftover can be used to cover the “nice to haves”. Remember: you sacrifice a little now to have more financial freedom later! This is not going to be easy, but it’s worth it as it is key for long term success. Many will find writing a detailed budget to be a big challenge, but I have a solution coming up in tip #4! If you find it difficult to stick to your budget, I encourage you to get an accountability partner who can work with you to help stay on track.
- If you receive some extra income, put it all towards your debt repayment or emergency fund. If you are paid bi-weekly, it could be that extra paycheque from those two months of the year where you get paid three times in a month; your annual tax rebate; quarterly GST cheques; or, selling items you don’t need on Kijiji or Marketplace (you can buy them back later).
- Finally, find someone you know who has been successful with money and ask for guidance. Proverbs 15:22 says, “Without counsel plans fail, but with many advisers they succeed.” How do I know how much I should be putting towards these goals? How do I find efficiencies in my budget to free up money to achieve these important goals? Find someone who exhibits positive financial behaviours such as saving, living debt-free, investing and being generous, and ask them for help. If you’re not sure who this should be, feel free talk to one of the members of the mosaicHouse benevolence team. They can probably assist you with your questions or point you to someone else who can.
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