Financial Decisions – Where to Start?

October 18, 2010

Did you ever feel like you had so many financial problems that it was no use?  There is no possible way to get out of them.  I had a caller like that yesterday and it was a tough call. She had a long list of financial issues similar to the following: a low credit score, unable to pay the minimum on credit cards, unpaid medical bills, past due utility payments and past due loans that her significant other was responsible to pay but are in her name.  She’s also living with relatives and wants to move out but can’t and does not have an emergency fund.  Where to start?

There are really two answers here.  One is practical and one having more to do with the psychological aspects.  I’ll address the practical this week and the behavioral one next week.  The practical answer is: you are in a hole so you need to stop digging.  No one said this would be easy.

Here is the get out of a hole jump start list we came up with:

1. Find out where your money is going and start tracking expenses and review it every week (on the same day).
2. Build an emergency fund starting with at least one month’s expenses.  Take a second job for the holidays, sell something, and/or cut back on spending to get some cash in a liquid account – whatever you need to do.
3. Start your debt pay back program by paying off the utility accounts that are past due.  (Then call us back to work on a plan for the rest of them.)
4. Ask yourself what am I doing to make this situation worse and what actions can I do to make it better?

Sometimes treading water is success especially when someone is drowning.  Treading water allows the swimmer to take a break, access the situation, and get ready to swim towards safety.