This year has been one of great economic upheaval and uncertainty due to the COVID-19 crisis. With uncertainty comes the reality that we have so little control over things. But one thing we do have control over is ourselves, our mindset, and our course of action. This is a good time to take a hard look at your financial life, create a game plan, and get excited about what’s ahead.
The other thing to keep in mind is that those of us in recovery often have many areas of our lives that we need to work on improving after we’ve worked on getting sober. Finances are definitely one of those areas. Thankfully, you can use the skills from your recovery journey to improve your financial health. Here’s how.
1. Recognition: Decide you want to improve your relationship with money.
To quote an expression I love: “You are not a tree — move.”
If you don’t like where you are, you — and only you — have the power to change it. It’s easy to feel stuck when it comes to finances, especially if you have a lot of debt and see no way out. But there is a way out, and you are capable of achieving financial freedom, and ongoing financial wellness.
2. Commit to Change: Commit to taking healthy financial steps.
Don’t dwell in the past; what’s done is done. That extravagant purchase that’s now sitting unused in the back of your closet? Oh well! What matters now is what you’re going to do moving forward.
Commit to improving your overall financial health, and you will see a change when your new mindset of financial wellness is in alignment with your daily actions and decisions. Progress comes from small steps. Take the first step today and just keep going.
3. Take a Personal Inventory: Get your financial picture in clear view.
You can’t get to where you want to go if you first don’t understand where you are now and how you got there. You need a map of how to get there after you’ve identified what is happening with your finances today. Build your financial road map by creating your starting point: Where you are right now.
Get clear about where you are, and let go of any feelings of shame that may accompany your current financial status. Recognize that it’s where you are currently but not where you’ll be forever. Take a thorough inventory so you can build your roadmap.
Kristen Euretig, CFP, is the founder of Brooklyn Plans, a financial planning organization for women. When taking an inventory, she advises:
- Identify Cash Flow: “Figure out what’s coming in and what’s going out.”
- Identify Fixed Expenses and Discretionary Expenses: “What do you know has to go out every month? Not just bills, but things like your dog walker or Netflix.”
- Address Negative Balances: “If you’re spending more than you earn, that needs to be addressed.”
4. Decisive Action: Automate savings, debt payments, and bills.
Build your Emergency Fund
Your first priority should be building an emergency fund if you don’t already have one. Personal finance expert Suze Orman recommends an 8-month emergency fund (here’s how she breaks it down into small steps). Some advisors recommend 3-6 months. Do what feels most right to you.
Your emergency fund should ideally reflect at least three month’s worth of fixed expenses. Fixed expenses are your necessities; they are expenses that would not disappear if you were looking to cut costs. Fixed expenses include rent/mortgage, health insurance, car payment, phone bill, utilities, etc.
When it comes to an Emergency Fund, Euretig says: “Start with small goals like one month of rent, or $500.00. That is an awesome achievement; celebrate that milestone. Aim for progress, not perfection.”
Pay off debt, starting with high-interest debt
After building your Emergency Fund, then zero in on debts owed.
If you have high-interest debt like credit card debt, this should be a top priority for you to pay it off. Credit card interest rates are high and add up quickly. Next, you can move on to student loans, car payments, or other outstanding loans.
Automation — savings, payments, and more
A relatively seamless way to get out of debt and build wealth and pay your bills on time is to automate. Most financial institutions offer automated deposits or payments. Even if you’re starting out with saving $5.00 per month, automate it to get into the habit of saving, then increase that saving number when you’re able.
Euretig says, “I’m a big fan of automation in terms of saving. There are many savings accounts where you can set it up to automatically take out $25.00 or $100.00 every time you get paid. Start small, and automate, so you don’t have to think about it. In the beginning, I don’t even care what the dollar number is; I care that you establish a habit and a routine and are committing to it and sticking to it.”
5. Make Amends: Let it go, and don’t beat yourself up.
It is frighteningly easy to beat yourself up for financial missteps like overspending or general mismanagement. But what good does that do? It’s over and done with. Let it go. You lose momentum every time you look back.
Keep your focus forward; keep your eye on where you’re heading, and the future you’re building for yourself.
6. Create a New Vision: Dream up your Rich Life.
Once you’re able to master your mindset around money — and make it work for you rather than hustling for it — you’ll be in a better position to live your life to the fullest.
If money management seems tedious to you (which is totally understandable), make it fun! Motivate yourself by getting excited about this new and more financially secure you. Think about all the great things that could come from improving your relationship with money:
- Sleeping more soundly knowing you have your financial life in order.
- Enjoying a more empowered, confident sense of self.
- Traveling to a dream destination.
- Buying a meaningful gift for a family member or friend.
- Making a donation to your favorite non-profit.
- Splurging on a spa day to honor and celebrate your beautiful body.
7. Spread the Message: Help others, and pay it forward.
One of the greatest gifts of financial wellness is the ability to uplift others and enact positive change.
When you understand your finances and manage them well, you’re better positioned to help others who may be struggling. With your money and your financial independence, you can enact incredible change for the good as well, like helping fund non-profits or organizations whose work resonates with you.
Money is simply a conduit for, among other things, becoming more of yourself: Traveling to where you want to go, educating yourself on subjects that interest you, wearing what you want to wear, feeding your mind with art — books, films, music, etc. — that moves you, and so much more.
When you better yourself — and become a happier, more complete version of yourself — you, your loved ones, and the world at large all benefit and profit. And this time, we don’t just mean financial profit.