Achieve Your Financial Goals Faster : Part 4
Your financial goals can be achieved even faster if you are intentional in optimizing your OUTGO. In this final part of this series: Achieve Your Financial Goals Faster, you will have several tactics you can use to Zero In on your financial target. No matter if it is Demolishing Debt, Strategically Saving, or Generously Giving, you will be able to focus your budget on that target with more intensity.
In order to understand the anatomy of a budget, go back, and read Part 1. The second part continued with a focus on increasing your INFLOW component of the budget. Part 3 gave you the beginning of the strategy you need to Optimize your OUTGO. And in this final part, I will finish with the last three areas of OUTGO you need in order to Zero In on your target.
Let’s do this!
Is it necessary?
When I begin walking with someone through their budget, I have them break up all the categories into 4 buckets. The top bucket is the one you don’t have a choice in. It contains: (a) Returning the first fruits to God (tithing), and (b) Paying whatever Caesar demands (taxes).
The second bucket is full of the necessary categories. When I say necessary, I mean you would not be able to live without them or you shouldn’t live without them. In this category, you do have control over how much you spend, but none of these can be totally alleviated from the plan.
This includes rent or mortgage, groceries, toiletries, household items, food, heat, electricity, phone, internet, transportation, insurance, hair, childcare, … You may have one or two other items, but these are the most common.
If you are in debt, your first task is to stop spending outside of necessities. The second task is to tighten up your spending in these necessary categories. These two go hand in hand, so I will discuss them both together throughout this chapter.
Need vs Want
Notice that in the list of necessary budget items you don’t see clothing, restaurants, cable or streaming services, gym membership, amusement park, massages, nails, yoga, … (this list could go on for pages). This is the third bucket and where the struggle really heats up.
Be honest, would you die if you did not spend money on any of these third bucket categories? The answer is “no”.
If you are debt-free and building wealth, there is nothing wrong with having some stuff and giving gifts. But, how much is too much? You should really think about what really matters and if it lines up with your financial goals. I am not a minimalist, but I have found that I don’t really need a lot to be content.
You want these things; you don’t need the items in the third bucket. Some of these, like clothing, you need to be real with yourself. Yes, go replace underwear that is unusable, and you are down to the bare minimum. But, do you need to buy the cute pumps that are on sale? You may have perfectly functional shoes and, as I mentioned in Part 2, you probably could sell some of the ones that are in the back of your closet.
Here is a powerful tactic I used to jumpstart our retirement savings. It is the same way we plowed through $100,000 of debt in 3 years. Start to really squeeze the nickels and dimes out of the budget (more like ten- and twenty-dollar bills).
Pause the gym membership and start running out on the public track. Get movies and entertainment media from the library; or better yet, watch YouTube and listen to Podcasts … they’re free! Invite over your best friend and learn how to do each other’s nails.
Remember, this is only for a short season. Demolition is not going to last forever. And that million-dollar net worth is just around the corner. Believe me, it goes fast! Furthermore, your financial goals should be something worth sacrificing for.
Demolish Debt or Strategically Save
The fourth bucket depends on if you are in debt or not. I follow Dave Ramsey’s Baby Steps, and if you have read The Total Money Makeover or have completed Financial Peace University, you know you need to pay off debt before building wealth. I never deviate from this process, not only because I am a Certified Ramsey Master Coach, but because it works every time.
Budget bucket 4a is where debt demolition lives. After this season you will switch over to the bucket where building wealth and giving lives, 4b.
If you are in debt, it’s time to focus all of your attention and energy on that task. My clients have been able to pay off debt fast by following this principle. You don’t want to “hang out” here for long or you will get tired and quit. Work your debt snowball with intensity. Get it done so you can move on.
Optimizing OUTGO While in Debt
If you would just stop having money taken out of your paycheck for the 401k, 403b, TSP, or any other retirement account, for this relatively short amount of time, you will see your time in debt shrink dramatically. I know every situation is different (that is why you need a coach to walk with you and be able to guide you at whatever age and stage you find yourself), but temporarily stopping these contributions will not hurt your future.
I did this and I have coached people to do this, and we all built our retirement after debt demolition at a speed we could not have done if we were trying to do both at the same time. Guess what, missing out on the employer match for a few months didn’t set us back after all.
Stop Saving for a Season
Savings is essential but the time for having large savings will come … but patient. After pausing the retirement savings, it’s time to reduce all other savings to $1000. Delete this OUTGO category for now; you will add it back in bucket 4b. Remember your reason for Optimizing OUTGO.
This is a tremendously difficult step for many of my clients. Some of them find it difficult to move all funds in their savings accounts to the INFLOW side of their budget. Yes, not only are you going to stop adding money to your savings, you are going to focus every available dollar above the $1000 towards the task at hand.
If you have a sizable amount of funds in savings, this one task could knock out an exceptionally large chunk of debt alone.
Don’t worry. After demolition is done, you are going to build the most beautiful financial structure imaginable … and it includes a fully-funded 6-month emergency fund. Let’s get this raggedy dilapidated debt dump out of the way first.
Give a Lot without Spending a Penny
Lastly, giving. This one hurts because I am a huge giver. I did not give a single birthday gift, wedding gift, Mother’s Day gift, Christmas gift, or Anniversary gift for three years while we demolished debt and built our fully-funded emergency fund. It sucked, but it was so worth committing to.
You must be transparent with your loved ones. Let them know you have a mess to clean up. Let them know that you don’t love them less just because you have decided not to give them a bunch of stuff.
Furthermore, they should know that the size of a gift does not indicate the amount of love someone has for them, I hope.
During this time, you need to decide that you are on a mission to demolish debt and you are not turning back. I keep repeating myself because I must continually remind you: this is only for a short season. Demolition is not going to last forever.
Your Financial Goals Faster Than Ever!
Your housing cost lives in the second bucket: Necessary spending. This is many times the largest amount you have on the OUTGO side of the budget. Is there any way you could mitigate this amount?
Moving may be an option for you. If you own a house you know you can’t afford, you should certainly move. If you are renting an apartment you can’t afford, you should absolutely move. This is an emotional decision that could make or break the journey.
The rule of thumb is, if the monthly payment is larger than a quarter of your take-home pay, it is causing serious strain on your budget. If you have a mortgage, this payment amount includes the principal, interest, insurance, and taxes. If you are renting, this includes the monthly rent, HOA, and other mandatory fees (storage, pet, etc.)
Go slow and be intentional with this decision. Have several conversations with your spouse or accountability partner about your financial goals. Make sure to have positive communication with others that this move would affect. And remember to count the cost of moving in the outcome.
I’ve seen situations where this was an easy and simple decision. The person didn’t have a bunch of stuff, they were single, and they were not in a lease. They found a place that was well below 25% of their income and freed up a ton of INFLOW by decreasing this huge OUTGO item.
Others may have to downsize, ask the landlord to be released from a lease, or even have to move many miles away to find a more affordable abode. If you have drawn up your plan and pictured your dream, knowing that this is a temporary move, you know you can do this for a couple of years. It will be worth it.
Cut the Corners
Tightening up your spending requires you to be candid with yourself. The following list is only to jog your thinking and you should come up with as many potential areas to cut as you can. The main goal is OUTGO optimization, but sometimes this means alleviation.
Here are some questions you need to ask and honestly answer with your accountability partner:
- Do I need to spend $1000+ on food every month?
- Am I turning off the lights when I leave a room?
- Do I turn down the heat at night and set it one degree lower than I normally do during the day?
- Can I just use fans instead of air conditioning this year?
- Do I have the least expensive phone plan that I could find?
- Can I take public transportation and sell the car?
- Have I shopped around for less expensive insurance?
- Can I get my hair done for a fraction of my usual bill by going to someone in training?
There are so many more questions you could add to this list. I know these questions are hard to ask, but your honest answers could yield hundreds of dollars if not thousands.
I keep mentioning that this is only for a season and your days of sacrifice will not last forever. And the ironic part is that the more you press in, and further you sacrifice, the shorter the season is, and the faster you achieve your financial goals.
Look for the Double Whammy
Did you notice, there was one question I mentioned above that was a double whammy: use public transportation and sell the car. Yes, you just Increased INFLOW by selling the car and Optimize OUTGO by not having to pay for gas, oil changes, registration renewal, maintenance, etc. Oh, and if you had a car note, you just blow up a whole floor in the debt structure.
Look for these double whammies in your journey. They are powerful and motivating. When I sold my car, I felt so free, and when I saw the decrease in my necessary budget bucket, I realized the power of Optimizing Outgo to achieve my financial goals fast!