Problem #49: I Feel like My Money is Spread too Thin Across too Many Goals.
You know the advice. It’s on all the financial blogs, and it’s all over social media. You have to save for an emergency fund. You also need to save for retirement. Oh, and by the way, if you’re a nice person, you should save for your kids’ college. And that’s only three things you have to save for. Then there’s anything that you want to save for, like re-modeling your house, buying a new-er car, or going on vacation.
Don’t forget, another thing you should do is pay down your debt – all your debt. Your credit card debt, student loans, mortgage, car loan(s), 401k loans, and home equity loans. Are you overwhelmed yet?
So how do you know where to start? Which one of those things is the most important? Can you say . . . PROBLEM?
You do want to take care of all those things, just not all at once. It’s hard to make any progress when your money gap is spread across so many different important goals. Let me show you what I mean. Then let’s prioritize.
Do You Unload the Groceries in One Trip or Many?
In the spirit of efficiency (in my mind), I usually try to unload all the groceries in one trip. How many times have you guys done this? You load up each arm with at least 8-10 plastic grocery bags trying to grab them all. Then you stagger slowly into the house with what seems like a hundred pounds of groceries threatening to dislocate each shoulder. You look like Godzilla lumbering in shaking the floor with each step. With a red face and fatiguing arms you finally reach the kitchen where you can plop the bags on the floor.
My Wife’s Response
It never fails. My wife always asks, “Why don’t you just take more trips to the car? It will be easier for you.”
I always answer, “It’s more efficient this way.” as my shoulders and arms ache from the ordeal I just put them through. And there’s always the satisfaction of being able to unload the entire trunk in only one trip.
But is it really more efficient?
It always takes a few minutes to try to slip your hands through all the loops of all the bags. You know if you miss one, and drop the bag, you’ll never hear the end of it.
Then there’s the actual trip into the house. You can’t bound through the door and into the kitchen while you’re loaded down with all those bags. And if you have a baby gate to climb over, you can forget it.
If I were to unload the groceries in say . . . 4 trips, I’m sure it would take the same amount of time, but with a lot less struggle. I can certainly go faster with 3 or 4 bags than I can with 20. And my arms will thank me too. So . . . I admit it, it would be better to take several trips to the car for the groceries instead of one epic journey.
Stop Doing it All At Once – Prioritize Your Financial Goals
So for your finances, how many of the things in the list above are you working towards all at the same time? Are you trying to save for retirement and your kid’s college while pay off debt? How’s that working for you? Are you staggering through life loaded down with all these things you have to pay for? If you don’t feel like you’re making any progress, try to prioritize your goals and work through them one at a time, starting with . . .
Start with an Emergency Fund
The highest priority should be an emergency fund. Or some amount of savings set aside for unexpected expenses. If you don’t, it will be too easy to accumulate more debt when something comes up. And more debt will set you back even further. This step should take 1-3 months. If you already have emergency savings – great – move on.
Once you have an emergency fund, even if it’s only a thousand dollars to start, start on the next goal. Which in my opinion, should be paying down all debt except for your mortgage. Use the snowball method, or use the avalanche method. Either one will work because you will end up concentrating on one debt at a time until it’s gone. Then you move on to the next debt.
This is the hardest step, and the one that causes most people to quit. Why? Because it’s hard and it usually takes more than a few months – depending the amount of debt you have. It could take 6 months or a few years. Just know that the interest you’re paying is killing you. You have to get rid of that debt.
But, if it’s going to take more than 2 years to pay off your debt, you will want to also save something for retirement at the same time – especially if you can take advantage of an employer match. You can’t afford to lose that time. Only do this if it will take more than two years to pay off your consumer debt. Otherwise, just buckle down and get rid of your debt.
Check out undebt.it for a timeline and schedule based on your specific debts.
Then Start Saving for Retirement, Kid’s College, and Paying off the Mortgage
Once you have no debt (except your mortgage), then you can use your extra money to make measurable headway. Just think what you could do right now if you had no car payments, student loan payments, or credit card payments. How much more would you be able to save for retirement? Or how quickly could you pay off your house? You can’t even have the debate of investing vs paying off the mortgage until you get here.
This is the real wealth building step. This is where my wife and I are, and let me tell you – it’s fun. We have our necessary-to-live expenses (food, transportation, utilities, mortgage, etc.), and THAT’S IT. No other debt, and it feels great! We can decide how we want to spend or save the rest of our money. We do have some goals that we are working towards. How about you?
Those of you who are familiar with Dave Ramsey will notice that these steps are similar to his “Baby Steps”. Uncle Dave has done very well getting people out of debt, and on the path to building wealth. I’m a fan, and I do follow his advice. But this advice is not his alone. He didn’t invent it. He just re-packaged it in an easy to understand way. Most of this is common sense. But as most of us know: common sense is not always common.
Perhaps hearing it from me will help it to sink in more. You can do it. Prioritize, prioritize, prioritize, and don’t try to do it all at once.
Where are you in these steps? Are you paying off debt or saving? Let me know in the comments.