فصل 06

6 Save $1,000 Fast: Walk Before You Run

In my first book, Financial Peace, there is a chapter entitled “Baby Steps,” the premise of which is that we can do anything financially if we do it one little step at a time. The term baby steps comes from the comedy What About Bob? starring Bill Murray. Bill plays a crazy guy who drives his psychiatrist crazy. The therapist has written a book called Baby Steps. The statement “You can get anywhere if you simply go one step at a time” is the framework for the movie. We will use the Baby Steps to walk through our Total Money Makeover. Why do the Baby Steps work? I thought you would never ask.

The way you eat an elephant is one bite at a time. Find something to do and do that with vigor until it is complete; then and only then do you move to the next step. If you try to do everything at once, you will fail. When I went on a quest for a better body and better health a few years ago, my wise trainer didn’t try to kill me the first day. We walked before we ran. Plus, if I had tried to do everything at once, I would have been overwhelmed and frustrated with my inability to do it all.

The power of focus is what causes our Baby Steps to work. When you try to do everything at once, progress can be very slow. When you put 3 percent in your 401k, $50 extra on the house payment, and $5 extra on the credit card, you dilute your efforts. Because you attack several areas at once, you don’t finish anything you start for a long time. That makes you feel that you aren’t accomplishing anything, which is very dangerous. If you feel that nothing is getting done, you will soon lose energy for the task of money management altogether. The power of focus is that it works. You check stuff off your list.

The power of priority also causes the Baby Steps to work. Each of these steps is part of the proven plan to financial fitness I promised you. They build on one another.

To start the Baby Steps, we will work on one important step to the exclusion of others. Patience! We will climb the whole mountain, but not until we first have a strong base camp. You will be tempted to short-circuit the process because you are more concerned about one certain area of your money, but don’t do it. These steps are the proven plan to financial fitness, and they are in the right order for everyone. For example, if you are fifty-five with no retirement, you may be tempted to jump to Step Four (Invest 15 Percent of Your Income in Retirement), because you are scared about not being able to retire with dignity. The paradox is that by shortcutting the process, you are much more likely to fail at retiring with dignity. If you have kids heading toward college, you may be panicking about saving for college, which is covered in Baby Step Five, but don’t do it out of order. Focus exclusively on the Baby Step you are on, even though it seems to be a temporary detriment to other areas of money. Things will be fine if you don’t focus on retirement for a few months, as long as you can kick retirement into the stratosphere when we get there.

YOU, Inc.

This chapter is about the first Baby Step, but before we discuss saving $1,000 fast, we need to look at some basic tools needed to win and some ongoing things you should be doing as you go. The dreaded B word enters the picture here. You must set up a budget, a written budget, every month. This is a book about a process that will enable you to win with your money and I assure you that virtually none of the thousands of winners I have seen did so without a written budget.

You have to tell money what to do or it leaves. A written budget for the month is your money goal. People who win at anything have written goals. Goals are what you are aiming at. Zig Ziglar says, “If you aim at nothing, you will hit it every time.” You wouldn’t build a house without a blueprint, so why do you spend your lifetime income of over $2 million without a blueprint? Jesus said, “Which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it . . .” (Luke 14:28 NKJV).

Brian Tracy, motivational speaker, says, “What does it take to succeed on a big scale? A tremendous God-given talent? Inherited wealth? A decade of postgraduate education? Connections? Fortunately for most of us, what it takes is something very simple and accessible: clear, written goals.” According to Brian Tracy, a study of Harvard graduates found that after two years, the 3 percent who had written goals achieved more financially than the other 97 percent combined!

This is not a textbook on mone, but let me give you a couple of guidelines to get started on budgeting.

Set up a new budget every month. Don’t try to have the perfect budget for the perfect month, because we never have those. Spend every dollar on paper before the month begins. Income minus outgo equals zero every month. Look at this month’s income and this month’s bills, savings, and debts, and match them up until you have given every income dollar an outgo name.

If you’re married, agree on the budget with your spouse. This one sentence requires a stand-alone book to describe how, but the bottom line is this: if you aren’t working together, it is almost impossible to win. Once the budget is agreed on and is in writing, pinky-swear and spit-shake that you will never do anything with money that is not on that paper. The paper is the boss of the money, and you are the boss of what goes on the paper, but you have to stick to the budget, or it’s just an elaborate theory.

If something comes up in the middle of the month that causes the budget to need changing, call an emergency budget committee meeting. You can change the budget (and what you do with money) only if you do two things. One, both spouses agree to the change. Two, you must still balance your budget. If you increase what you are spending on car repairs by $50, you must lower what you are spending somewhere else by $50 so that your income minus your outgo still equals zero.

Before we get to Baby Step One, you will have to do one other thing. You will have to be current with all your creditors. If you are behind on payments, the first goal will be to become current. If you are far behind, do necessities first, which are basic food, shelter, utilities, clothing, and transportation. Only when you’re current with the necessities can you catch up on credit cards and student loans. If you need more help with this level of financial crisis, check our Web site for how to contact one of our counselors or order the book Financial Peace.

Focused intensity is required to win. I can’t stress enough that people who have had a Total Money Makeover, got mad. They got sick and tired of being sick and tired! They said, “We’ve had it!” and went ballistic to change their lives. There is no intellectual exercise where you can academically work your way into wealth; you have to get fired up. Play the music from Rocky in the background and listen for Rocky’s cry; “Adriennnne!” Go get ‘em, champ! There is no energy in logic; this is behavior and motivation modification, and it works!

After you are current, have a written, agreed-on plan, have the obstacle course behind you, and are focused and intense, you are ready to follow the right priorities. Here we go.

Baby Step One: Save $1,000 Cash as a Starter Emergency Fund

It is going to rain. You need a rainy-day fund. You need an umbrella. Money magazine says that 78 percent of us will have a major negative event in a given ten-year period of time. The job is downsized, right-sized, reorganized, or you just plain get fired. There’s an unexpected pregnancy: “We weren’t going to have kids yet/another one.” Car blows up. Transmission goes out. You bury a loved one. Grown kids move home again. Life happens, so be ready. This is not a surprise. You need an emergency fund, an old-fashioned Grandma’s rainy-day fund. Sometimes people tell me I should be more positive. Well, I am positive; it is going to rain, so you need a rainy-day fund. Now, obviously, $1,000 isn’t going to catch all these big things, but it will catch the little ones until the emergency fund is fully funded.

This emergency fund is not for buying things or for vacation; it is for emergencies only. No cheating. Do you know who Murphy is? Murphy is that guy with all those negative laws, such as, “If it can go wrong, it will.” For years I have worked with people who felt that Murphy was a member of their families. A Total Money Makeover is no guarantee of a trouble-free life, but my observation has been that trouble, Murphy, is not as welcome in homes that have an emergency fund. Saving money for emergencies is Murphy-repellent! Being broke all the time seems to attract ol’ Murphy to set up residence.

Most of America uses credit cards to catch all of life’s “emergencies.” Some of these so-called emergencies are events like Christmas. Christmas is not an emergency; it doesn’t sneak up on you. Christmas is always in December, they don’t move it; therefore it is not an emergency. Your car will need repairs, and your kids will outgrow their clothes. These are not emergencies; they are items that belong in your budget. If you don’t budget for them, they will feel like emergencies.

Whether the emergency is real or just poor planning, the cycle of dependence on credit cards has to be broken. A well-planned budget for anticipated things and an emergency fund for the truly unexpected can end dependence on credit cards.

The first major Baby Step to your Total Money Makeover is to begin the emergency fund. A small start is to save $1,000 in cash fast! If you have a household income under $20,000 per year, use $500 for your beginner fund. Stop everything and focus.

Since I hate debt so much, people often ask why we don’t start with the debt. I used to do that when I first started teaching and counseling, but I discovered that people would stop their whole Total Money Makeover because of an emergency. The alternator on the car would go out, and that $300 repair ruined the whole plan because the purchase had to go on a credit card since there was no emergency fund. If you use debt after swearing off it, you lose the momentum to keep going. It is like eating seven pounds of ice cream on Friday after losing two pounds that week. You feel sick, like a failure.

So start with a little fund to catch the little things before beginning to dump the debt. The beginner fund will keep life’s little Murphies from turning into new debt while you work off the old debt. If a real emergency happens, you have to handle it with your emergency fund. No more borrowing! You have to break the cycle.

Twist and wring out the budget, work extra hours, sell something, or have a garage sale, but quickly get your $1,000. Most of you should hit this step in less than a month. If it looks as though it is going to take longer, do something radical. Work part-time, or sell something else. Get crazy. You are way too close to the edge of falling over a major money cliff here.

When you get the $1,000, hide it. You can’t keep the money handy, because it will get spent. You can put it in the bank savings account, but don’t attach the savings account to your checking to protect you from overdrafting, because then your emergency fund will get spent on impulse. I have had to learn to protect myself from me. We are not putting the money in the bank to earn money, but rather to make it hard to get. Since $1,000 at 4 percent earns only $40 per year, you aren’t getting rich here, just finding a safe place to park money.

What if you already have more than $1,000? Wow, that was easy, wasn’t it? If you already have the $1,000 in anything other than retirement plans, get it out. If it is in a Certificate of Deposit with penalties, take the penalty for early withdrawal and get it out. If it is in stocks or bonds, get it out. Your emergency fund, limited to $1,000 in liquid, available cash, is all that is acceptable. If you have tried to get fancy with the emergency fund, you are likely to borrow to keep from “cashing it (the cool investment) out.”

What if you are at Baby Step Two in the next chapter, and you use $300 from your emergency fund to fix the alternator? If this happens, stop Step Two and return to Step One until the full $1,000 is replenished. Once your beginner emergency fund is funded again, you can return to Step Two.

I know some of you think this step is very simplistic. For others, this is the step that will be the spiritual and emotional basis for the entire Total Money Makeover.

Lilly was such a case. A single mom with two kids, she has been divorced for eight years; struggle has been a way of life for some time. Lilly had survival debt, not stupid, spoiled-brat debt. She had been ripped off with a super-high-interest car loan, check-advance debt, and lots of credit-card debt. She had a take-home pay of only $1,200 per month with two baby birds to feed, along with a host of greedy rip-off lenders. Saving seemed like such a fairy tale to her that she had long ago lost hope of ever being able to save money. When I met her she had already begun her Total Money Makeover. After hearing me teach the Baby Steps at a live event, weeks later she dropped by a book signing to give me an unsolicited report.

As she moved through the book line, I looked up and saw a huge grin. She asked if she could give me a big hug to say thanks. How could I turn that down? As I looked at her, tears began to run down her cheeks as she gleefully told of fighting through a budget, her first ever. She told me of years of struggle. Then she laughed, and everyone in line (now fully engaged) cheered when she said she now has $500 in cash saved. This is the first $500 in her adult life that is earmarked for her emergency fund. This is the first time she has had money between her and Murphy. Her friend, Amy, who was with Lilly that day, told me that Lilly is a different person already. Amy said, “Even her face has changed, now that she has peace.” Don’t be confused; it wasn’t $500 that did all that. What caused Lilly’s liberation was her newfound hope. She has hope that she never had before. She has hope because she has a sense of power and control over money. Money has been an enemy her whole life, and now that she has tamed it, money is going to be Lilly’s new lifelong companion.

How about you? Now is the time to decide. Is this theory, or is it real? Am I a simpleton kook, or have I found something that works? Keep reading, and we will decide together.