Recipe #1 – Financial Security


Financial Security

This is the first and most important step you will make on the road to financial security. It is also the hardest, because it means breaking the habit(s) of a lifetime and start to manage and take control of your finances.

What is financial security. Other than your house mortgage, or monthly rent payment – you have no other debts. If you do have other debts, then Recipe #1 is for you.

Typical debt that the average individual/family has include:

  • Credit card
  • Student loan
  • Car loan
  • 2nd mortgage (equity line of credit)
  • Other loans

Recipe #1

  1. Take out your pay stub, look at the final take home pay amount and make a note of that amount. This is your monthly “Money In”. If you get paid bi-weekly then multiply by 26 and then divide by 12. If you get paid weekly then multiply by 52 and then divide by 12.
  2. If you have deductions for 401k, or other retirement accounts, go to your company administrator tomorrow and put the retirement payments on hold (until we get to a later recipe)
  3. Download my free budget worksheet and input your “Money In” sources of income (include your partner and any other sources of income that you may have).
  4. Work out a detailed budget for “Money Out” each month. This is a very difficult task to complete and will take many days/weeks/months to get it accurate. Be honest with all the costs, and work closely with your partner/family to make sure you agree on the numbers.
  5. Calculate “Money In” – “Money Out”. This is your shovel – or $hovel and needs to be a positive number. If not, please read over the digging a hole blog.
  6. Now you have a number for your $hovel, or how much money you have to tackle the job of reducing and then eliminating your debt. Remember that you can increase the size of your $hovel by taking on additional work, or reducing some of your monthly payments.
    • Work overtime, ask for a raise, get a side job in the evening (pizza or Uber).
    • Go/eat out less, use food coupons, cook healthy low cost meals at home.
    • Sell the car and buy a very cheap one.
  7. List all of your debts in order from smallest to largest, including the minimum payment needed.
  8. Pay the minimum on all the debts you have except the smallest debt. Use your $hovel to pay of that debt in as few months as possible. For example, a $2,500 debt with a $250 $hovel will be paid off in 10 months.
  9. As each debt is paid off, continue working your way through the list of debts until they are all cleared.
  10. Congratulations! At this point you are debt free and financially secure. You owe nobody nothing – doesn’t that feel good.
  11. Do you realize that your $hovel has increased simply by the fact you are not paying interest every month on all those loans – Powerful stuff!

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