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As I’m writing this, I’m looking through the window of our vintage Airstream trailer and onto the beautiful black sandy beaches of the Lost Coast in Northern California. The foggy mountains provide an incredible backdrop as the waves continually pound the coast. I keep thinking we never could’ve done all of this if not for the sacrifices and hard work over the last ten years. This is how I went from $50,000 in debt, to us having enough money to do this. I’ll share these steps with you, so you can do the same.

Here are the six basic steps:

  1. Complete a current assessment
  2. Track your spending
  3. Create a spending plan
  4. Monitor plan and adjust as necessary
  5. Save some money
  6. Attack your debt

1. Complete a current assessment

The first thing you need to do is complete a current assessment, which is nothing more than a quick balance sheet to see where you stand with your assets and liabilities. To do this, gather all financial documents relating to debt (mortgage statements, credit card, student loan, personal loans, etc.) which should include amount owed, interest rates, and minimum payments. Take a look at my example current assessment and begin filling it in with your information.

1.  Fill out the liabilities section of your current assessment with all debts including short term and long term (mortgage)
2.  Fill out the assets section.  List out the money in bank accounts, stock accounts, and retirement accounts

Update the spreadsheet to include all of your short term assets and liabilities for now, so you can see where you stand. After you do this, you can also read how to track your net worth and fill out the long term section as well.

2.  Track your spending

Can you tell me how much you spent on groceries last week? How much did you spend on going out to eat or little luxuries like Starbucks? If you’re anything like me, this step will be incredibly enlightening because you’ll be surprised to see where the dollars are going.

There are a few different ways to track your spending. When I went through this step, I downloaded credit cards statements from the previous two years, categorized each item in a spreadsheet and totaled them up. This gave me a good idea of what was happening with my money, and it wasn’t pretty.

The scary part was that in 2005 which was the first year I went back and calculated my spending, I was making $45,000 a year, which equals $2,561 per month. However,I was spending $2,588 per month which meant I was in the hole by $17 every month… but actually it was much larger than that when accounting for all of the taxes, insurance, etc taken out of my check! I was obviously financing a lot of my living with debt.

There are a few ways to track your spending:

1. Old School: write down every expense on a notebook and carry it around with you each day. You can then add these up manually or into a spreadsheet. Keep each item under a general “category” and try to limit to 6-8 categories total. 

2. Automate: use a site like which links all of your credit cards and will create a nice history for you

Most credit card websites will also have information categorized, but it’s a little harder as you can’t get them all in once place. Here’s an easy spreadsheet to use a tracker, you can print it off or use it in Excel/Google Sheets Spending Tracker.

If you’re serious about getting your financial act together, don’t skip this step. Most people will think they have a good handle on their spending, but after this step they’ll realize they’re spending like a drunk on Bourbon Street*.

3.  Create a spending plan (Budget)

Now, you must tell your money where to go (like you might already want to tell me where to go). You have to control where your money is spent and this happens through a budget, and not one of those “I’ll do it in my head” budgets.

The key is to keep it simple and not try to have a 100 line item budget, that’s doomed to fail. Take your biggest categories of spending that can fluctuate (clothes, groceries, going out to eat, etc) and create a goal for the amount you want to spend each month. Use your previous month totals from step 2 as a guide to set your total monthly amounts. Here are some sweet examples of budgets:

If you’re really serious about doing this, here’s a pro tip: cash budget, baby. This is the most effective way to stick to your spending plan because there’s nothing that makes your spending more real than pulling out a $100 bill every time you got to Wal-mart or go out to eat. You’ll experience the psychological impact as you see Benjamin leaving your pocket and paying for Chili’s two for two with too many margaritas, and it will start to change how you spend your money.

Check out the full details here on how to use the cash budget, but we literally went to the bank each month, pulled out $1,200 in cash, stuffed four envelopes, and then spent from them. If you weren’t watching your spending closely before, I can almost guarantee by doing this, you’ll quickly find an extra 20% of your dollars back in your wallet. These were our envelopes:

  1. Entertainment ($400)
  2. Food ($600)
  3. Clothes ($100)
  4. Lucy/pet spending ($100)

As you can see, it doesn’t include all of our expenses because some are too convenient (who wants to pay for gas with cash) and others aren’t as easy to constrain (utilities). This was also a few years old and our numbers have changed since then… based on our latest monthly spending report while traveling, we’re over $800/month for food.

4.  Monitor plan and adjust as necessary

Now that you’ve created your spending plan, you need to track against it as the month goes on. As I mentioned in step #3, you may be surprised about how much you are spending on certain areas, so see what happens now that you’re tracking it. Feel free to move your numbers up or down in certain areas as the months progress. Use the same tracking methods mentioned in step 2.

Now, for one of the most important parts… don’t give up! If you do, you’ll be in the same position that you were in before. Use the knowledge you have gained from analyzing your spending and spending plan and keep the momentum going. This needs to be a change in the way you live, not a temporary diet in your spending.

5.  Save some money

At this point, you should have a good idea of where your money is going and how much you have to save. You’ll inevitably have some crazy thing happen right as you start making progress, so you’ll want to quickly build up an emergency fund so you don’t have to use your credit cards. Let’s see… some of my fun ones over the years have included a towed car, minor wreck, sick dog, ruptured achillles tendon and lots of fun house repairs.

Let’s start with two main savings tips:

A.  Create an emergency fund

The minimum amount you need to save is $1,000 to cover unexpected expense like the ones I mentioned above. If you already have this money in savings or you’ve now saved it, it’s time to move on to the big savings fund. You need to build up your emergency fund to 3-6 months of expenses so you can cover major issues like the loss of a job or a major injury. You should keep this money in liquid assets like savings accounts where you can quickly access the money. Now that you know your complete budget from step three, you should know the amount you need to save.

There are two main obstacles for most people on this step. The first, is you’d rather pay off debt. I agree that’s important, so you can always do both simultaneously, but I’d try for at least three months of spending saved before you go full on debt. The other obstacle is for nerds like me who’d rather invest it. This money is your security blanket or your “tell your boss off” fund. Keep it in a place where a major market correction won’t hurt it…. because your boss could become unbearable at any minute!

B.  Pay yourself first

Another important part of building your savings is to pay yourself first. It’s tempting to “save what you have at the end of the month”, but more times than not, you’ll find not a lot of money at the end of the month. If instead, you put money into savings before the month starts, you’ll be amazed at how you get by without it.

Setup an automatic withdrawal through your bank and time it so it happens a few days after you get your paycheck. Just like you’re hopefully doing with your retirement accounts, the money will get pulled before you even had your spendy little Donald Trump hands on it.

6.  Attack your debt

Debt is one of our biggest obstacles to freedom, and there’s a lot of people who profit off of you being in debt. It’s time to cut that, time to kill all of your debt so you’re working for you and not for GM auto financing. I hate debt – especially short term debt. The only debt I plan to ever have in my life is a mortgage debt, but I’d like to even get that knocked out soon. My distaste for debt came from back when graduated college and within a year of working, I was already $50k in debt and had a stupid car loan** which I’ve since vowed to never have again.

Now that you’ve followed the previous five steps, you know where your money is going, how much you have to spend, you’ve saved up some emergency funds and now it’s time to kill the debt.

There are many plans that give you the steps to pay off your debts but my favorite is Dave Ramsey’s Total Money Makeover, and it’s the plan I used to pay off my debt. He has a method called the “debt snowball” where you list all of your debts from smallest to largest on a piece of paper. You can even right this on a poster board you attach to your refrigerator so you know every day what you’re fighting.

Start with the smallest debt on the top of the list and pay only your minimums on the rest of the of the debts. Attack that smallest debt with the rest of your money until it’s paid off. Mark it off the list and do a happy dance. Now, it’s time to attack debt number two – this time using the extra money you were paying off the first debt with — thus, creating the snowball! This really does work and there’s a lot of psychological benefits for doing it this way versus going after the highest interest accounts first. Check out this great template from Kyle to track your debt snowball.

This is how you start to take control of your life, so you can call the shots. You need to have complete control of your money, and you need to be on the same page with your spouse if you’re married. If both of you aren’t bought in on this plan, there’s a high likelihood that it won’t work.

Next, we’ll talk about working smart to maximize your income and also get into investing. If you’ve made it this far, you must be serious about taking control of your money! Seriously, I think I was going for a record long post!!


*Incidentally, I had that problem on Bourbon street once and only realized the next few days how much I spent as the credit card charges kept coming

**One of my controversial and popular posts is the 20% rule for buying a car, if you have about three days, you should read through the comments as they’re quite entertaining.