Step 1: Build up $1000 in savings for emergency (something that threatens life, limb, or ability to work)
Step 2: Increase your net worth
a. Do not do anything that increases your debt. No loans, credit cards, etc…
b. Sell off or donate things you don’t need
c. Exchange high payment items for lower payment items
d. Choose free or low cost activities instead of high price excursions
e. Do it yourself instead of hiring contractors
f. Do crafts for gifts instead of high price presents that end up in the trash, storage, or garage sale for 10cents. It’ll mean more anyway.
g. Look for ways to cut expenses and save money. Get rid of leeches. Do you really need 500 cable channels? Getting rid of extra gadgets will also lower utility bills.
Step 3: Pay your food and utility bills; then, minimums on each debt bill, and anything left over send to pay extra on the lowest debt first.
Step 4: Once the lowest debt is payed off, then add what you were paying to pay off the next lowest. Repeat 3 & 4 until all debt is paid off. This gets results fast, and snowballs quickly.
Step 5: If you’re not already, work up to giving at least 10% of what you make (before taxes) to God. Put the next 10% into savings and investments. Give to God first, and ‘pay yourself’ next.
Step 6: Pay bills, then put anything else toward building a secure, non-volatile but accessible nest egg of enough money to meet your living expenses for at least 3-6 months.
Step 7: You’re there! You have security and no debt. Now you can breath easier, formulate a new budget and set immediate (within this year), near term (within 5 years), and long term (college, retirement, etc) goals.
a. Continue giving at least the first 10% to God.
b. Budget around 45% into savings and investments (at least 10% to long term savings and the rest for immediate and near-term goals — buying a house, saving for college, vacations, car, etc).
c. You can now use the remainder for living expenses and anything left over is short term goals, gift giving, activities, and “mad-money”.
Implement some self discipline:
1. If you can’t buy it with cash, you don’t need it. If there is something you want, it is far more satisfying to set goals and save up for it.
2. There is no ‘good’ debt, and you don’t need a credit rating if you have the cash to pay for it.
3. A house is not an investment, it is a home. Don’t commit to more house than you need. If you feel you ‘have’ to carry a debt, your mortgage should be the only one and you should work to pay it off early. Do not get a second mortgage or equity loan, and do not refinance.
4. Do not loan money to friends or family. If you can’t afford to give it to them to keep, then don’t.