Debt-Free Forever Read online

Now it’s your turn. Decide on your first goal and write it at the top of a piece of paper. Create a series of milestones for that goal.

  SIX QUESTIONS TO KEEP YOU ON TRACK

  All through the goal-setting process, you should ask yourself these questions:

  1. WHY do I want to achieve this goal?

  2. By WHEN do I want to achieve this goal?

  3. WHAT specific steps will I need to take in order to meet this goal?

  4. HOW will I do this?

  5. WHOM may I need help from to achieve this goal?

  6. WHERE in my priorities is this goal?

  You answer the WHY question because you want to create a clear picture in your own mind of what this goal is going to do for you. Maybe you want to go to school, and your WHY is to be able to make lots ‘n’ lotsa money.

  You answer the WHAT question to lay out the steps you must take to get to your goal. The more detailed those steps, the better your plan. A good test of your “steps” is to hand them to someone else and ask whether they make sense and are clear and complete. Sometimes getting another perspective helps us see the holes in our plans.

  WHEN is important because a goal without a deadline is just a dream. If you want to get into your program of choice “someday,” in all likelihood “someday” will never come. If you want in this September, then you’ve got to get your butt moving to make it so. Every single step in your WHAT should have a WHEN if you’re serious about getting to where you want to be.

  HOW is a reality check. If you say you want to go to school, but you don’t have two red cents to rub together, how will you support yourself, pay school fees, buy books, and eat! HOW isn’t meant to poop on your dream. HOW asks you to be real about what you want in light of where you are now.

  WHO helps you to identify the other people who will affect (or be affected by) your goal. If you want to go to school and your partner is prepared to help, (s)he’s your WHO. If your parents are willing to give you money for birthdays and other special occasions to help you achieve your goal, they are your WHO. If your kids are going to have to cook and do their own laundry so you have time to pursue your goal, they are your WHO.

  WHERE speaks to the fact that people often have multiple goals competing for limited resources and time. You want to go to school. You want to have a family. You want to buy a house. You want to travel. While the initial stages of the process have you prioritizing your goals as A, B, and C, with A being of greatest importance, once you get into the process you may find that your priorities are shifting. Taking the time to check back with WHERE is an important step.

  THE SIX QUESTIONS AT WORK

  Let’s look at an example to see the six questions at work and develop some familiarity with the process. Say you decide your first goal is to own a house. Start with the specifics of your goal so we can answer the WHY.

  • Why are you buying a house? As a long-term investment, as a quick-fix flipper, or as a home to live in with your family?

  • Describe the house. Is it a fully detached house, a condo, or a cabin in the woods? Is it a bungalow, a three-storey Monster Home, or something in between? Will you pay $75,000, $500,000, or $2.1 million?

  Next comes the timeline. WHEN do you want to buy your new house? Within six months, three years, five years?

  WHAT steps will you have to take to make the goal happen? This plan might include steps like these:

  • Figure out how much house you can afford.

  • Decide where you want to live.

  • Decide when you want to move into your new home.

  • Decide how much down payment you want to have.

  • Save the down payment.

  • Save the closing costs.

  • Shine up your credit history.

  • Get pre-approved for a mortgage.

  • Find an agent to help you find the right house.

  When you take these steps and add a timeline to each one, you begin the process of creating milestones, as in …

  • I will figure out how much house I can afford by the end of next week.

  • I will calculate how much of a down payment I’ll need to avoid mortgage insurance by the end of the month.

  • I will create a plan for accumulating the down payment by the end of the month.

  GAIL’S TIPS

  One milestone may lead to others. For example, if you decide you want to spend $200,000 on a house and have a 20% down payment, to avoid mortgage insurance you’ll need to accumulate $40,000 for the down payment. So you will likely have to come up with a series of steps you plan to take, and create milestones, to see you along your journey to that $40,000 down payment.

  Is your goal a pipe dream or something you can actually achieve? HOW rears its ugly head! If you’re making $40,000 a year, HOW are you going to come up with a down payment to get into the $300,000 fully detached house of your dreams in a year? HOW will you be able to afford to carry the house? HOW will you ever get pre-approved for a mortgage?

  All the way along the process of setting a goal and creating milestones, you need to be evaluating and adjusting the information you come up with. If you decide that a 20% down payment will take too long to accumulate and that you want to be in a home sooner, you might adjust your goal for how much down payment you’ll save or how much you’ll spend on a house. That, in turn, may affect where you choose to live. You might also decide to add a milestone like this: “I will work a part-time job on the weekend, earning a minimum of $100 a week, to go directly to my down payment fund. I will have this job in place by the end of next month.”

  WHO will help you with your house buying? You’ll likely need a lender, maybe a real estate agent, perhaps a home inspector, a lawyer to close the deal, your cousin Fred and his van to move, and your mom and your sister to clean the place before you move in. Coordinating multiple resources for any goal takes a plan. Wing it and you’ll be wheeling your furniture down the road from your rental to your new home all by yourself!

  WHERE gets you to think, once again, about where in your priorities house-buying fits. There’s a ton of stuff involved in buying a house, and right now you’re stretched thin by your work schedule combined with that extra course you’re taking two nights a week. How do you dovetail what you want with your limited resources and time? Will extending some of the deadlines help? Will bringing in more WHOs make the process easier? In the big scheme of things, how badly do you really want to achieve this goal and what are you prepared to give up to get it?

  VISUAL AIDS

  Once you’ve set your goal, it’s a good idea to create a visual reminder of what you’re working toward. Cut out a picture of the home you hope to own and stick it on your fridge. Or tape a small picture of a house to the back of your credit card so you remind yourself of what you’re delaying when you go shopping. Make a chart with all the steps. Buy a wall calendar and lay out what you’re going to do and why so you can see the plan. Get yourself a notebook and label it My Book of Goals, or open up a file on your computer to keep track of what you’re trying to achieve. Use charts, diagrams, and posters to help keep you on track. There are dozens of ways to incorporate goal setting into your life.

  Once you know what you want, all that’s left is to execute your well-laid-out plan. So DO IT!

  FIND FRIENDS FOR YOUR GOALS

  Sometimes it doesn’t matter how much we say we want something, stuff just keeps getting in the way. We decide we want to be debt-free. Yet we go out and charge up a storm, buying expensive stuff for our homes, our friends and family, ourselves, ignoring the fact that when the bill comes in, we won’t be able to pay it in full. If it’s such common sense to only spend what you can afford, why do so many people spend money they don’t have?

  Think about it for a minute. Why did you whip out your credit card and pay for that meal in a restaurant, pair of new shoes, or groceries? Why did you buy that big-screen TV, that couch, that surround-sound system on a buy-now-pay-later program? Why did you use your lin
e of credit to pay off your credit card? Be honest. Why?

  Social pressure to conform isn’t in your imagination. It’s real. But if you submit, if you’re willing to live a life of smoke and mirrors, if you want it all right now, then you need to accept that you’re creating a miserable life for yourself. It’s only a matter of time before the piper comes a’knocking.

  Peer pressure is something we associate with teenagers and their inability to distinguish between a sensible course of action and a dumb one. We know peer pressure can lead to bad decisions, and we want our kids to be able to think for themselves. But have you given any thought to how you may be affected by the peer pressure from your friends, particularly when it comes to how you spend your money?

  If you’re a chick, I’ll bet dollars to doughnuts you’ve experienced something like this: you’re out shopping and see a lovely (fill in the blank). You stop and have a look. Your girlfriend says, “Nice!” You nod at each other. But you’re not sure. It isn’t really something you need, and you are trying to save for that vacation you’re planning with your best buddy. Hmm. What to do, what to do? She says, “It’s fabulous, and what a great price. You can’t pass it up.” You nod again. It is fabulous. And it is a great price. So out comes the credit card and into a shopping bag it goes. You’re now the proud owner, and she gives you a wee pat on the back. You’re a team!

  Where was your goal? Where was your self-control? Oops!

  One of the hardest things to deal with once you decide to live on a budget, change how you’re using your money, and modify your life is finding people who are friendly to your new goals. Some of them won’t mind a bit. Some will congratulate you. And some will think you’re nuts to pass up on today’s pleasures for something in which they have no stake or to which they cannot relate.

  Peer pressure is a particularly hard issue to deal with when one person in a partnership is committed to meeting the goals set while the other is swayed by chums who love to have it all now.

  Carlie and Doug are both hard-working parents of a young son, Mathew. Doug has been carefully managing his money since Moses was a lad, but Carlie has been more of a free spirit. She works as an interior designer so shopping is part of what she does for a living. Carlie has a difficult time separating “work” shopping from “home” shopping, and the debt is driving Doug bonkers. When Mathew came along, Carlie had a whole new reason to shop.

  To make matters worse, Carlie hangs out with a couple of “rich chicks,” as Doug calls them. These girls earn considerably more than Carlie, can buy whatever they want, and love to travel. And they always ask their friend Carlie to go along with them. Carlie is resentful that she can’t do all the things her girlfriends are doing. She feels trapped. She wishes Doug earned more money. Doug is resentful that he goes without things so Carlie can have what she wants, and then she still bitches at him because he’s not bringing home more money.

  They fight. They fight about Carlie’s shopping. They fight about how much stuff Mathew should have. And they fight about the next trip Carlie is planning with her posse.

  Doug doesn’t want to tell Carlie that she’s going to have to find new friends because her old ones are bankrupting them. But that’s what’s happening. Carlie’s last trip is still on her credit card at 18.9%. And the gorgeous mirror she found when shopping for a client is hanging in the front hall but hasn’t been paid for either. And now Carlie wants to put Mathew into private school. When Doug asks her where the money is going to come from, she yells at him, accusing him of not wanting the best for his son. Doug is hurt, frustrated, and angry.

  Any of this sound familiar? Do you have a partner who seems to be from a different planet when it comes to how you manage your family coffers? If you and your partner are at odds, if one of you is allowing peer pressure to throw the family budget out of whack, you better sit down and figure it out fast before you end up divorced and broke.

  Once you set goals for yourself and decide that shopping isn’t on your list anymore, you may have to rethink who you’re hanging with. People who aren’t friendly to your new goals won’t consider for a minute how their own spending patterns may be difficult for you to deal with. They’ll say, “C’mon, we haven’t been out for dinner in weeks” or “We’ll just go for a couple of drinks” or “You need to spoil yourself once in a while.”

  People who are friendly to your goals, and are working to achieve their own dreams, will help you to stick to your plan. They will know that you’re working hard to make changes and they’ll support you.

  Just because you’re watching the money now doesn’t mean you can’t have fun. Having a fun night out doesn’t have to cost a fortune. While people who are not friendly to your goals may want to blow $100 on baseball tickets, your goal-friendly friends will be quite happy with a night of Scrabble and a pot-luck dinner. Yes, you’d have a great time at the game. And your pals may even offer to spring for your ticket cuz they love you. Then you’ll feel you have to go, spending gobs for parking, food at the stadium, treating them to drinks after as a thank you, and paying a babysitter.

  Goal-friendly friends will be willing to point you in the direction of the best deal, along with ways to cut costs and have fun for free. They’ll remind you of just how rich life can be without constant consumption.

  I’m not suggesting that you have to get yourself a whole new set of friends; I’m just trying to point out how peer pressure can mess up even the best-laid plans. If you’re committed to achieving the goals you’ve set for yourself, you’re going to have some ‘splaining to do if you want people to understand your new headspace. And if the pressure to spend is more than you can bear, then you’ll have to choose carefully where you see those friends so you don’t do yourself too much damage!

  GOAL SETTING GETS EASIER

  If your initial stabs at setting goals feel strained and uncomfortable, that’s normal. The first time you drove a car, your braking was jagged and your steering left a lot to be desired. The first meal you cooked probably didn’t rate four stars. And who among us hasn’t turned someone’s socks and underwear pink because we were less than perfect at sorting our laundry? Goal setting is a skill and it takes time to get good at it. It also takes practice.

  It’s worth it. Learning to set goals will help you focus and concentrate your time, energy, and resources on what it is you really want to achieve. It will help you deal with obstacles, struggles, and failures because you have a clear picture of what you want. And instead of going with the flow and letting the whim of the moment or someone else’s interests determine where you end up, you will be consciously deciding which way to go to get to where you want to be.

  Learning to set goals is a life skill, like learning to budget and learning to create a debt repayment plan. It may not be the thing you looove to do, but it is one of the things that will help you create the life you want to have. So do it!

  4

  CREATE A BUDGET THAT BALANCES

  In Chapter 1 you figured out where your money has been going. Now it’s time to make a budget that will work for you.

  There are three rules for your budget:

  1. You can’t have a negative number at the bottom. It has to be positive or zero; the budget has to balance.

  2. You must save something. Money has to go into your emergency fund and your long-term savings every month for you to have a balanced financial plan.

  3. You must be making more than the minimum payment on your debt to get out of debt.

  Use the Budget Worksheet on page6291–93 for your calculations. If you want to use the Interactive Budget Worksheet at www.gailvazoxlade.com, it’ll also help you figure out what ends up going in the Magic Jars, if you decide to use them. If you want to create your own budget, feel free to do so. Use the categories from the Budget Worksheet as a guide.

  If you choose to make your own budget, don’t make one with so many categories that you drive yourself crazy trying to actually use it. Detail was very important when it came
to doing the spending analysis. Ease of use is paramount when it comes to actually using a budget. If there are too many categories, you’ll get tired of entering in the detail and stop using the budget. You have to strike the balance between detail and ease of use that works for you. And remember, a budget is a changing thing, not a plan cast in concrete. Just as your life changes, so must your budget.

  THE LIFE PIE

  One of the features of the Interactive Budget Worksheet on my website is that it calculates the percentages for each category in which you’re spending your money. I call this the Life Pie. This is useful for seeing how well balanced your budget is and where you may be overcommitting your resources.

  According to the Life Pie, 35% of your money should be spent on Housing, 15% on Transportation, 25% on Life, 15% on Debt Repayment, and 10% on Savings.

  Housing consists of your rent or mortgage payment and taxes, utilities, maintenance, and home insurance. If you add up the amount you’re spending on these categories, divide it by your net income and multiply by 100, you’ll get a percentage. If the percentage is more than 35%, you’re house poor. Either you have to make more money or you have to spend less in another category to have the extra available for housing. Ultimately, when you add up all the pieces of the pie, the total can’t be more than 100% of your income.

  Transportation consists of your car payments, whether a loan or a lease, insurance, licence, gas, repairs, public transit, cabs, highway tolls, and whatever else you may pay to get from here to there.

  THE LIFE PIE

  The category people have the most difficulty getting their heads around is Life. I’m always being stopped and asked about how much a body should be spending on food, clothing, and all the other stuff that goes into the Life category. I don’t have a definitive answer since it depends on what you can afford. If you make a little, you spend a little. If you make a lot, you can spend a lot. You have to prioritize. You have to make choices.