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Ready to Achieve Financial Freedom? All You Need to Pay is Some Attention
No one gets much of anywhere without a plan. A football team can have superior athletes at every position, but without a competent game plan to attack the opposition on both sides of the ball (offense and defense), all that talent is wasted (I’ve been a fan of a few teams that fit this description).
It’s no different when it comes to getting out of debt (or your financial well-being in general). A healthy income is an excellent tool (and is totally helpful) – but without a competent game plan on both sides of the ball (maximizing income (offense) and minimizing expenses (defense)), all that money coming in will be wasted. Need proof? A 2009 Sports Illustrated article reported that (despite six, seven, and sometimes eight-figure annual incomes), 78% of former NFL players have gone bankrupt or are under financial stress by the time they have been retired for two years. Why? Because they never had a game plan for their money.
Probably the best-known and most widely used plan for financial freedom and peace is Dave Ramsey’s “Baby Steps.” Those steps are as follows:
Step One: Save a Starter Emergency Fund of $1,000.
Step Two: Pay Off All Debt (Except the House) Using the Debt Snowball.
Step Three: Save 3–6 Months of Expenses in a Fully Funded Emergency Fund.
Step Four: Invest 15% of Your Household Income in Retirement.
Step Five: Save for Your Children’s College Fund.
Step Six: Pay Off Your Home Early.
Step Seven: Build Wealth and Give.
However, when I meet with a client (or a friend or family member) who wants, or maybe just needs, to get their financial house in order. I don’t immediately jump into the Baby Steps or some other plan. Instead, I ask them: “Do you know the first thing you have to pay if you want to get out of debt?” When they shrug their shoulders or say “no,” I tell them, “freaking attention.”
The word that embodies “paying freaking attention” is “intentionality.” Being intentional means that you start doing things on purpose. I spent my entire adult life (over twenty years) not paying any freaking attention to my finances. Because I (like, literally) never made intentional, purpose-driven decisions in that area, I fell into trap after trap (credit cards, student loans, car loans, etc.). Consequently, I managed to “wander,” quite Unintentionally (and despite several consecutive years of six-figure incomes), into $221,000 of non-mortgage debt and a negative net worth at age 41.
How exactly do you go about becoming intentional when it comes to your finances? In my experience, there are two categories of things we all tend to be “intentional” about doing:
- Things we love. I love to play golf. I am intermittently pretty good and thoroughly mediocre at it – but I love it. I proactively make plans (and time) to do it. Once I have a tee time, I never forget about it. I never just space it and fail to show up. I am always on time. Whether hunting, working on cars, binging shows on Netflix, spending time with family, or whatever – we are all intentional about doing the things we love.
- Things that are important to us. I don’t love to work out. I played a ton of basketball through my early 20s, but that was my only source of voluntary exercise. Even though I stopped playing much basketball as a young man, I didn’t stop making poor eating choices. Consequently, I put on a fair amount of weight and took great pains to avoid stepping on a scale. At age 28, I finally hopped on one for the first time in about seven years and found that I was one Double Whopper shy of 300 lbs. That experience prompted me to make some significant changes in my life, including working out regularly. I feel better, and my annual checkups with my doctor are much less stressful when I make it a point to work out. Working out has become important to me. Because it is something I value, I make time for it. I wake up at 5 a.m. each day to make sure I get it done. Even though I don’t love it, I make room for it because it is important. I don’t miss many days, and I don’t make excuses when I do. That way, a missed day doesn’t become a missed week, which doesn’t become a missed month, which doesn’t become quitting entirely. Whether working out, giving our best at work, attending religious services, spending time with our family, or whatever, we are all intentional about doing what we believe is important.
In 2019, when I finally decided I made too much money to be so damn broke and refused to spend the next 14 years paying student loans, making intelligent financial decisions entered category two above (things that are important) for the first time in my life. So, I started making financial decisions on purpose. I broke through the imaginary barriers in my head and looked at our total debt for the first time in years. I sat down with my wife, and we listed our debts so we could wrap our heads around them. Most importantly, I attempted a monthly budget for the first time ever. If you took the time to click on this article, it is likely because making intelligent financial decisions has also become important to you (or maybe someone in your life thinks it should be), and you are ready to be intentional in your finances.
Nothing will force you to be intentional about your money like a budget. People always talk about “making your money work for you.” Well, your money can only go to work if you give it a job. It doesn’t know what to do on its own. A monthly budget is how you give every dollar you earn a job.
Before we dive into the nuts and bolts of how to do a budget, let’s address the elephant in the room. No one likes the word “budget.” I know that. It’s an inherently unattractive word with an overwhelmingly negative connotation – much like “diet.” I’ll admit that for most of my adult life, I felt like budgets were only for morons who couldn’t keep track of their money on the fly and/or pencil-pushing geeks who never met a spreadsheet they didn’t love.
Therefore, I am totally on board with you calling it something else that sounds more sophisticated and less guttural. Call it your “monthly financial plan” or that month’s “map to financial freedom.” I am in favor of any name that helps you actually get it done. Get as creative as you like! That said, I also want everyone (yes, including you) to get comfortable with the concept of budgeting. You can handle it – I promise.
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I understand that the idea of creating an actual budget may seem overwhelming. If it does, I have some advice from my good friend Phil Knight and his struggling little startup, Nike—just do it! Dive in and get messy (because it will be)! However, it will also absolutely, 100%, without question, be worth it.
You may be asking yourself, “Why is this a topic of an article on a law firm website?” And that is a great question. Most tax attorneys are concerned with how debt might affect the structure or taxation associated with the particular deal they are looking at. At KKOS Lawyers, we are a bit different. We take a holistic approach. We are concerned with the total financial health of our clients. We can help our clients create a tax-efficient investment structure that may have excellent returns. But if we ignore (or are unaware of) the fact that the client is staring at a mountain of consumer debt as they enter a potential investment, we are not doing the best job we can for them.
Making smart investments (in real estate, the stock market, cryptocurrency, etc.) is how we build wealth in this country. However, spending money to invest when carrying credit card, auto loan, and/or student loan balances can turn every tenant default, bank failure, or Sam Bankman-Fried into a personal financial crisis (especially if you also borrowed the money to invest). An investment made while mired in debt is not a wise investment. It may work out, but just like winning the lottery, if it happens, it’s because you were lucky – not because you were smart.
So, while we never give specific advice about what investments to purchase or sell, we absolutely counsel our clients on when it makes sense to invest, why eliminating consumer debt before investing is almost always the best policy, and how to get out of debt as quickly as possible.
My future articles in this space will explore topics such as how to create an effective budget and stick to it, tips for getting out of debt, how to decide between investing and paying off debt, how much to put away for retirement, options for paying for college, and more. These topics are covered in my book, Stop Choosing to Be Broke: A User’s Guide to Money, which is available on Amazon (https://a.co/d/3PyzYbX).
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