You may think I am the only person alive who can’t manage debt! And it does no good to tell you you aren’t alone. You will still feel bad. It’s okay to feel bad and much better than thinking that debt is no big deal. After five decades of counseling families, perhaps one or more of the following perspectives will help you to implement a no-guilt strategy that will improve your financial life and put you on the path to financial security and, ultimately, financial independence for retirement.

1. Some media financial literacy gurus recommend cutting up credit cards, putting credit cards in the freezer, or never taking out a credit card. Thank goodness they are not giving advice on how to manage childcare expenses. These actions do not provide positive, practical guidance on how to manage debt. Credit and debt are a financial fact of life in our economic reality. Learning how to manage both will help you build skills that will help you select and manage positions in your investment portfolio. However, the knowledge will not be acquired overnight.

2. Make a Budget. A budget is a list of all of your bills and expenses, including required and discretionary expenses and wants and needs. Upon completion, you realize you do not have enough income to pay for all your needs. Recall that 1/3 of families with annual incomes greater than $150,000 are challenged with rising debts. So, is budgeting a waste of time? Absolutely not. Have fun making your lists, and after completing Item 3 below, prioritize your expenses.

3. What are your goals? Don’t think of goals for this weekend or this year. Time travel ten years into your future and write a vision essay of who you are and what you want. Seriously, take the time to spend an afternoon in a garden, beach, or park and visualize your future. You may not have thought about your goals since you were in high school or college. A time before the pressures of today or when reality set in. Future goals are essential for gaining perspective on the decisions you make today. This is logical but often forgotten as an adult when applied to the financial future. This is why adults believe they will be able to retire, although they have few dollars in their retirement accounts today.  Once you and the significant other members of your family have written ten-year goals, compare and discuss the goals and select the three most important priorities.

4. Return to your budget list and identify
a. The required expenses that align with your ten-year goals,
b. The discretionary expenses that align with your ten-year goals, and
c. The balance of expenses that do not align with your ten-year goals.

For example, the Roberts have agreed on the following ten-year goals – To have the home mortgage paid off so they will only have property tax, insurance, and repair and maintenance expenses; To have $500,000 in the financial independence fund so they can be on course for achieving independence by age 50, ten more years; to have funding for children to study abroad, paying for only room and board but not having to pay for college tuition and fees. If students attend college in the US, tuition expenses will negate the goal for achieving financial independence and require the couple to work to age 65 or 70; Have a job with excellent benefits, including medical, dental, retirement, disability, and severance plans so they will have sufficient 911 Emergency Fund.

Long-term, after the children complete education abroad and are employed, and the couple is financially independent, join children abroad, have medical coverage abroad and travel, returning to the U.S. after age 65 and hopefully have Medicare and social security benefits. Now looking at expenditures today they realize little alignment with their long-term goals. Eating out, lavish vacations twice a year, children school trips and activities, new cars for everyone, clothing, sports, jewelry, expensive Christmas and birthday gifts. Deduct the funds that could be allocated for the ten year goal.

After discussions, the Roberts realize that they are not making sacrifices. They don’t need to think, “We can’t afford X,Y or Z.” They can afford them. They are simply no longer spending priorities. Their future now means more than buying things that will not help them achieve their goals.

5. You agree as a family to eliminate all discretionary expenses that do not align with your ten-year goals. You will now stop the financial bleeding. You try to minimize all required expenses that do not align with your ten-year goals. You summarize your new monthly expenditures in four categories: Required Expenses Aligned, Discretionary Expenses Aligned, Required Expenses Not Aligned and Discretionary Expenses Not Aligned, and Total Expenses.

1. 
   6. Total Expenses from Take-Home Pay. Save your work.

   7. Regarding credit card debt. List your balances, line of credit, APR and Minimum Payment Due. Contact all credit cards in one day and ask them to lower the APR interest rate andask if they have a special program for transferring balances at a zero or low interest rate. You will want to transfer debt from the highest APR to the lowest APR card. Then your action should be paying the minimum on all cards and the exdess from #6 on the highes APR card. Track monthly your expenses on credit cards until you have zero balance due on all credit cards. You can use credit cards to gain rewards and bonus points if you pay off the card at the end of each month.
   
   8. Creating a 911 Emergency Fund. Ignore the financial gurus who recommend a fund of 6 months of take home pay. It will be more than what most families have in reserve, so you may feel secure, but the amount is an emotional response to fear of loss. The amount you need must be quantified, nit left to a riule of thumb. The amount is based on your employment and benefits. If you have no benefits, or adequate insurance, you can’t be financially secure. Take one risk, medical. If you lack medical insurance and are in an accident, or have a chronic illness, how could you fund the potential $500,000 in medical expenses? You couldn’t. That is why the number one cause of bankruptcy is lack of medical coverage.

2. Medical – You must have medical coverage and the amount that would be funded by the 911 Emergency Fund is the annual deductible and maximum out-of-pocket amount you would have to pay in a year.
   Deductibles – The second category of 911 Emergency Funding are deductibles. Add the deductibles you must pay on your auto collision insurance, and homeowners or renters insurance coverage.
   Loss of Income – The third category of 911 Emergency Funding is loss of income due to either loss of employment or a disability. You fund the greater loss due to these two events.
   Unemployment – How long could you be unemployed. Multiply you monthly take home income by the number of months unemployed. Subtract from the total need any severance payments and state unemployment benefits. The result is the amount you need to fund in the 911 Emergency Fund.
   Disability – Assume you are disabled for one year. It could be longer or a shorter period, but if greater than a yer, you will need to make more permanent adjustment to your finances and living accomodations. Multiple your take home pay by 12 and subtract any disabilitty benefits you would receive from your employer. The result is the amount you need to fund in the 911 Emergency Fund.

   Compare Unemployment and Disability expenses and fund the greater of the two. If disabled, you can’t be unemployed. Your would have a job, under Family Medical Leave Act, just not be paid.

4. 9. The last suggestion for managing debt is to have a defined goal for becoming financially independent. Once you have managed you debt and are in control of your goals and planning, contact [email protected] and I will help you analyze how to fund financial independence. You will then want to Pay Yourself First!

4. We hope this article has helped you set priorities, manage debt and plan for your future.  Sept 21, 2023.