Your Income Is Your Rifle
Your best weapon to fight financial disaster is your income. Focus first on getting your income up. If that means finding every benefit you can, then so be it. WIC, unemployment, disability, and Medicaid are fine options especially if you’re in tough times. After that: hustle. Don’t give up. Find a job at a grocery store, find a job as a truck driver, learn to code, or deliver pizza on the side. Keep going. Always be on the lookout for the next rung up the ladder. The more skills you build mean more value you can provide; which means more compensation for you. Even though it’s tempting to quit and concede that fate or fortune has written you off, don’t stop. Ever.
Four Walls First
Focus on “The Four Walls”. I learned the four walls concept from Dave Ramsey and it’s pretty simple. In hard times, spend your money on these categories first and in this order: Food, Utilities, Shelter, Transportation. Your family needs to eat, have the lights and water on, have a roof over their heads, and you need a way to get to work before you can take care of anything else. That includes car payments, cable bills, Netflix, Amazon shopping, late medical bills, and other extraneous stuff.
Get an emergency fund. Everyone should have an emergency fund of 3-6 months of their expenses saved somewhere safe and liquid (e.g. a safe, savings account, or money market account). If you’re in a tight financial spot and are aggressively moving out of debt then that is the only time your emergency fund should be less than 3-6 months. The only time your emergency fund could be greater than 3-6 months is if you’re retired. Emergencies happen and can ruin plans. Unexpected deaths, repairs, accidents, and other stuff will come up at times. You need to be prepared.
Save For Retirement
Target 15% of your gross income for retirement savings and invest those savings for the long-term. The 15% number is just a rule of thumb, and working with a financial planner can help you make the right decisions to maximize your chances of accomplishing your retirement goals. However, the heavy lifting for retirement saving is done by you. You are the one that needs to prioritize saving. The more you can save, the better off you’ll be. You may not be able to save anything right now but remember this goal so that when your 4 walls are taken care of and your income is cooking and your emergency fund is full you can start saving for the future.
Debt Is Dumb
Limit your debt. Having any debt at all increases your risk and decreases your available cash, but sometimes the risk/reward trade off justifies it. There are two types of debt: bad debt and justifiable debt. Credit card debt is always bad. Debt on automobiles is always bad. Student loan debt is always bad. A mortgage has been called “good debt” but I think that’s a misnomer. “Justifiable debt” is probably a better way to describe it. Especially when the mortgage is on your primary residence, it can be justifiable so long as there is equity building in the property and the total of principal, interest, taxes, and property maintenance don’t exceed ~28% of your income. Some forms of business/commercial debt may be justifiable too, but that’s a slippery slope and for most people the correct answer is that it too, is bad.
Be generous. Generosity is vital to enjoying life. Enjoying life is the whole point. If you’re not generous when you’re struggling to keep your 4 walls intact, you’re probably not going to be generous when you’ve got millions saved for retirement and you’re debt free. At every point in your financial life it’s important to practice generosity, hospitality, and general love for your neighbor out of a spirit of gratitude! We should be grateful that we have the means to provide for ourselves and others.I’m a Reformed Christian so I often read the Heidelberg Catechism. Question 4 asks: “What does the law of God require of us?” The answer: “Christ teaches us in summary in Matthew 22:
Love the Lord your God with all your heart, and with all your soul, and with all your mind. This is the first and greatest commandment. And the second is like it: Love your neighbor as yourself. On these two commandments hang all the Law and the Prophets.
Our lives should be marked by gratitude and a way to show our gratitude is radical generosity. Give to your church. Buy gifts for your loved ones. Donate to charities. Volunteer your time at non-profits. This is how to use your gifts to enjoy life, and enjoying life is the whole point.