Financial Freedom is just an Envelope Away

When I first began working in the finance industry prior to becoming an acupuncturist, I worked with a financial planner whose approach to money management was rooted in the principles of Debtors Anonymous.  Its precepts espouse mindfulness, living on a disciplined budget, incurring no further debt.  Pretty typical for most folks who follow Dave Ramsey or Suzy Ormand's philosophy.  What perhaps separates the DA program from others is the insistence that pleasure and savings must be included in your spending plan, and that as you pay down debt, you don't just roll over the additional cash flow to paying down your next vendor, you in fact spread the wealth to your other categories like vacation, hobbies, savings, educational goals, with an eye to never incurring more debt.  In short, it focuses much more on creating a LIFE as opposed to eliminating debt.  

I have fundamental issues with many of the financial pundits because their focus is on eliminating debt as fast as possible, with not enough attention being given to creating a meaningful budget that can be sustained LONG TERM.  It is almost as if the fact that we have incurred the debt means that we have to wear the proverbial hair shirt and live a Spartan existence devoid of pleasure and beauty until we are debt free and earn the right to have joy in our lives again.  

All work and no play makes Jack a dull boy.
(Remember what happened to Jack Nicholson in The Shining?  Exactly.)

But all work and debt repayment ALSO makes Jack a whim based crazed shopper, leading to impulse purchases and buyer's remorse.  An emergency fund of only $1000 (another Ormand/Ramsey rule) even for a single person is ridiculously small.  (4 tires, a canine UTI, and an unexpected new windshield last year took care of mine last year).  

As a small business owner (firmly steeped in the principles of DA) I didn't know that to begin a business requires capital and that in fact 5 years into my practice I would have over $30K in business start up debt.  Stuff happens, clinics fail or move, cash flow is dicey the first 5-10 years, economic down turns happen.  In fact, I was my own worst enemy in terms of self-flagellation with regard to carrying business debt.  But being steeped in mindfulness in spending, once cash flow was established, those balances were put on automatic payments and basically forgotten about.  I turned my attention to cash flow and creating wealth and in order to do that, I had to include a basic principle that is overlooked by most of financial planners: PAY YOURSELF FIRST.

You are more important than your credit card (or other kinds) of debt.  You, your family, your life.  And in my experience, an eye to wealth creating brings in more wealth.  I had to take my mental focus OFF the debt repayment, and I keep those payments low enough to PAY MYSELF FIRST so that by the time I paid off all my start up debt, I also had a decent amount in savings (which then got used during the downturn in 2009 and 2010, so grateful I had it). 

I didn't start this practice until I had been in practice at least 6 years, and I wish I had done it sooner.  Things are often sporadic in terms of cash flow in a new business, and I tended to squirrel money away in fits and starts rather than in a systematic payment. Things really changed when I started paying myself on the first with an automatic draw into my savings account.  And while it may sound crazy, somehow there was always money remaining at the end of the month even though I took out a chunk for myself and the IRS. This was my first step toward wealth accumulation.

Somewhere in this process, I had the great good fortune to read a book by 
Dr. John Di Martini, noted author and new-age philosopher of sorts, which lifted the emotional charge I had to my business debt years ago and changed everything.  Instead of castigating myself for the CC debt I had engendered starting my business, I needed to reframe how I saw the credit card companies.   These companies (namely Citibank, Chase and MasterCard) were in fact my investors:  they believed in me enough to supply me with the capital I needed to grow my business at a time where no one else would. 

Now you can be cynical about these companies and complain about interest payments, etc. but the fact of the matter is that new business owners do not qualify for business financing through the SBA unless they have been successfully turning a profit for two years and have at least 50K in capitol reserves.  Sorry, but if I had that kind of operating capitol back in the early days, I WOULD NOT NEED THE CREDIT CARDS.

The fact is that Citibank and Chase loaned me that money, and this simple change in perspective allowed me to stop blaming myself and feeling guilt.  I shifted my focus to gratitude that I had been able to have that capitol when I needed it, and gratitude is an incredibly powerful tool in terms of attracting more abundance.   I took advantage of teaser rates and balance transfers as I paid down the balances, but I took my focus OFF the interest I was paying and looked more to creating a sustaining and meaningful budget which supported my life.  Even now that all that is long since paid off, my budget hasn't really changed much in the last 5 years, since my basic needs are being met (I added opera lessons).  Now my attention has turned to long term savings and repayment of student loans.  

I have counseled dozens of students, friends, and colleagues in what I call the "Come-to-Jesus-talk-about-money-and-finance,"  and professionally lecture on these principles at the graduate level.  What I have discovered is that almost no one is taught sound principles about how to handle money in a powerful and confident manner.  The biggest mistakes I see in working with individuals and families is under-budgeting in areas such as food, household or lack of emergency fund, and many times trying to pay down debt too fast.

When starting a mindfulness approach to budgeting, I have found the following tools helpful:

1. BUDGET BUDGET BUDGET:   Create a savings and spending plan for yourself which includes categories for every aspect of your life.  Jerry Mundis' book "How to Get out of Debt, Stay out of Debt and Live Prosperously" is one of the best books I have ever read on the principles of DA and creating a spending plan, and you can buy a copy used for $1 at Amazon here. He demonstrates how to create a working savings and spending plan which includes both paying yourself first and disciplined debt repayment.  I include categories like vacation savings, gift savings, beauty products, clothing, emergency, pet, entertainment.
2. Keep a spending journal.  Yes, until you have this down, write down every single purchase for one month. It can be illuminating.  One of my former students was lucky enough that her parents covered her tuition and rent while she was in school. She had basically no financial aide.  She took out some student loan money near the end of school to help cushion the cost of board exams and licensing, and actually ran out of money before the end of term.  I had her go through three prior months of bank statements and list every single purchase.  She came back shocked that she had spent over $6000 going out and drinking beer, a new surf board, impulse road trips, etc.  A spending journal is essential if you don't know where your money has gone.
3. CUT UP or freeze your cards in a block of ice. (really) I rarely make impulse purchases with cash.
4. If you don't have 2-3 months of expenses in savings, PAY YOURSELF FIRST until you do.   Keep your debt payments smaller, and create a cushion.  Once that is established, THEN you can focus on paying down the remainder of the debt.  Sitting in the discomfort of carrying debt is also a crucible of sorts, a means of transformation in itself.  "But what about the interest," you ask.  Fugedaboutit!  At least until you have some savings.  Paying yourself first is more important and sets the stage to avoid future debt. (An exception is if you are over your limit and incurring overance charges.)
5. LIVE on CASH:  If you have trouble with impulse purchases or going over your budget, consider moving to the envelope method in terms of your personal budget.  On the 1st (or the 15th or whatever your pay period is), consider putting cash in envelopes for each of your categories.  I have used this meethod for years and rarely have issues with it.  If there is a month where I splurged on a pedicure, or dinner out, then it may been to come out of another envelope.  If I don't use the money, I carry it over to the next month.   Folks who have big families with kids and pets  also know that unexpected expenses come up with greater frequency so need to allow for that in their budgets.  
6. When it all become too much, and paying down that bill looks never ending, like my student loans do at times, I have to remind myself to stay in the moment.  The truth is I have enough to last me until I go to bed tonight;  I have a warm bed to sleep in and a roof over my head, running water.  It's a good day, better than for many people in the world.  I am one of the lucky ones.  

I had to be careful not to let the budget become a tool for rigidity or deprivation.  This is a plan, not a sacred tomb found in a burning bush. I have made big financial mistakes (especially in business, yikes!), and if I learn from them then so much the better.  My financial mistakes ironically are sources of unbridled mirth when my former students do the same thing, and I like to think that the fact that I can laugh about it now (when I wept about this 10 years ago) is healing of a different sort.  We all make these mistakes.  We are ALLOWED TO.  

Perhaps the biggest difference that I learned in the DA program (as opposed to other types of financial approaches) was that miracles happen when we become clear in our approach to money,  regardless of our spiritual path.  But the miracles I experienced were not rooted in the airy-fairy  "I created my vision board and now it will all manifest effortlessly."  No, these miracles were borne out of hard work, sacrifice, and not a little nail biting.   They say courage is just fear that has said its prayers, well I say AMEN brothers and sisters.  Unexpected windfalls and cash flow happened sometimes in the nick of time, and sometimes things got paid off even sooner than I had budgeted.

For me, moving to a minimalist lifestyle includes an exploration of what is meaningful to me and creating a life that supports that.  It seems that financial clarity was part of that journey even before I started giving stuff away, so I am curious to see how this may change in the future as I strive to simplify further.