First published by Bett Harris on Medium May 20, 2019
Change is in the air
I grew up in poverty. I lived with a mentality of scarcity for most of my adult life. However, a dramatic turn-of-events happened a few years ago that challenged and changed all that for me. Since then I’ve applied what I learned and shifted my financial horizon. I share with you here what I learned years ago.
Financial freedom is attainable for everyone.
My turning point
It was about 15 years ago. I was at my financial low point. I had racked-up tens-of-thousands of dollars in consumer debt with credit cards and lines-of-credit. I leased my vehicle and didn’t own a home. I had school loans from my years of post-secondary education.
I had huge debt and nothing other than a few letters behind my name to show for it.
I looked into bankruptcy twice that year but each time I decided against it
I’m not against bankruptcy, don’t get me wrong. When used as intended bankruptcy helps people who experience unrecoverable financial failure. People just like me. It’s a legal, effective, and often necessary choice for some.
However, I had another option available to me and I took it.
As an alternative to bankruptcy, I was offered free credit counseling through my local Community Resource Center
You see, my financial dilemma started many years ago. I never learned the basics of money management growing up. I grew up in poverty so my parents probably never learned to manage money either. My fear of never having enough stemmed from my childhood and overshadowed my relationship with money.
I’ve always earned a pretty good living so lack of money wasn’t my problem, but I was always broke.
Fact №1 — It’s how well we manage our resources that determines our level of financial acumen.
I lived paycheque to paycheque with no wiggle room
I paid my bills on time every month and I had good credit. However, I was never able to get ahead. That meant I was never prepared for emergencies. Because emergencies happen, when they came I was forced to dip into my available credit to pay for them.
That’s how the vicious cycle began
My debt gradually accumulated year after year. Now in my early 40’s my financial landscape was a mess and things were beginning to fall apart.
Credit counseling helped me gain a financial foothold
Credit counseling helped me understand my financial predicament and gave me the needed tools to turn my financial life around.
Someone once told me “In five years you could either have thousands of dollars in the bank or you could not. The choice is up to you.” I didn’t fully understand the statement at the time however today it makes total sense.
Over the years using the tools I was given I became master of my money
My consumer debt was paid off within the first three years. Today, I have two credit cards I use but I pay them off each month. I never run a balance on them. I refuse to pay that type and rate of interest ever again.
I learned to use credit to my advantage
The two credit cards I have actually pay me to use them. Neither card charges an annual fee and both offer me rewards. That means more money in my pocket. The rewards can be substantial in some cases.
I made the final payment on my school loans only a few months ago.
I began saving early on
This meant I could afford to buy my own house after 7 years. I’ve owned my home now for six years. In the last 3 years, my house has more than doubled in value due to the rise in real estate prices in my area.
Today my net worth is worthy, enough anyway.
I have both short-term and long-term savings, not millions but enough.
My financial landscape is level and my financial horizon continues to improve each year.
Let me share with you the steps that took me from scarcity to abundance.
Below are guideposts to financial mastery using the tools I learned
#1 The budget — This was a list of my monthly income and expenses. I learned early on it’s important to write down and review these numbers regularly. Everything else depends on these numbers. I recorded my income on one side of the page and my expenses on the other. I totaled up each side and compared the totals. Yikes!
Rule №1 — Income must be equal to or greater than expenses.
Initially, my budget looked pretty scary. Once everything was down on paper it made sense why I wasn’t able to get ahead and kept accumulating debt. My income didn’t come close to covering my expenses.
I was hundreds of dollars short every month.
The facts were right there in front of my eyes and I couldn’t deny them any longer.
Budgeting required much commitment and patience. It was the toughest part of my financial recovery but also the most necessary.
What needed to change
I had to look at either increasing my income or lowering my expenses to get my budget balanced.
In my case, I did both.
I took in a room-mate to make an extra few hundred dollars each month.
I also needed to reduce my spending so I chose to sacrifice in a few areas where I had the discretion to do so. I gave up some non-essentials like eating out and drive-thru coffee.
I opted to brown-bag my lunch to work and I purchased a coffee press and made my own coffee.
These few changes brought my budget into balance
With the changes, I was able to divert enough money each month toward debt reduction, which was my next big hurdle.
The Government of Canada offers this awesome tool for Making a budget.
#2 Debt reduction — My debt appeared on my budget (see above) as a monthly expense and also as part of my net worth (see below) as the total debt I owed. My goal was to arrange my budget so I could pay as much as possible each month towards paying my debt down.
Rule №2 — Pay down debt and make your money work for you.
The more I could pay each month the faster my debt would be paid off. I chose an amount I could afford and that formed my debt expense on my monthly budget.
Month after month after month I made payments on my debt.
I paid the highest interest debt first which for me was my two credit cards. I spread my full debt expense payment between the two cards. When I received extra money (there’s another amazing twist to the story so please read on) I would make lump sum payments on my highest-interest credit card.
Once each credit card was paid off I canceled it and cut it up.
I went without using credit cards for almost 5 years. I paid for everything with whatever money I had available or I didn’t buy it.
Once my credit cards were paid off I tackled my lines-of-credit. I left my school loans for last as the interest rate was low.
The Bank of America offers great steps to debt reduction here.
#3 Net Worth — This was the sum total of my assets (what I owned, remember this was zero) minus my liabilities (what I owed, remember this was tens-of-thousands of dollars). This showed my financial worth at that particular point in time. I put my assets on one side of the page and my liabilities on the other. I totaled up each side and compared totals.
Needless to say, my net worth was worthless.
Rule №3 — Assets should outweigh liabilities.
Net worth works like a thermometer
It represents our business acumen (financial management ability) and also shows how creditworthy we are (how much risk we pose to a lender). Net worth can also be a contributing factor in determining the interest and insurance rates we qualify for.
Thankfully, my net worth changed over time as I paid down my debt, bought a home, and built equity in my home. My long-term savings also added to my net worth.
Sun Life offers the following free and easy Net Worth Calculator.
#4 Forecasting — This was simply planning for the future by saving. Savings keep us flexible in a constantly changing and challenging world. We need savings to be able to manage the inherent financial ups and downs of life.
My budget included savings right from the start, both short-term and long-term.
Rule №4 — Saving for short-term and long-term goals is how we drive the financial engine.
Being financially prepared keeps us in control of our financial trajectory
My goals were debt reduction and savings. I aimed to save 10% of each paycheque. I diverted 5% to my short-term savings and 5% to my long-term savings.
The easiest way for me to save was to have the funds taken right off the top of my paycheque, preferably before I even see it.
My employer offered savings bonds which I took advantage of
My employer took the funds off my paycheque and put them directly into savings bonds for me. I never saw the money so I never missed it. This was my short-term savings and took care of emergencies and other large purchases.
RSP’s or other long-term investments
I arranged with my bank for automatic monthly contributions to RSP’s. This was my long-term savings and what I eventually used for the down payment when I bought my house.
I also had a personal savings account where I shuffled money to on occasion. This was for me to spend on whatever frivolous thing I wanted to spend it on.
Rule №5 — Leave a little wiggle room, just for fun.
Now Here is the Rest of the Story
Right around the time I began my financial recovery through credit counseling, I also started going to church.
The church is where I learned about charity.
Charity is known by most as the voluntary giving of money or time to those in need. However, there’s much more to the concept of charity than just giving to the needy.
Fact №2 — Charity begets a mindset of abundance which leads to true financial freedom
What I learned through charity made a dramatic impact on my life
One morning during church my pastor put out a challenge to the congregation. He quoted Malachi 3:10. In this verse, God guarantees when we tithe He will pour out tremendous blessings on us.
I’m always up for a challenge.
I had heard of tithing before and had always been a giver. I gave a few bucks to random charities here and there. I volunteered at events and participated in walk-a-thons where proceeds were donated. I gave but it never amounted to anything substantial.
I accepted the challenge
As I was building my financial acumen through credit counseling already I decided to take on my pastors’ challenge as well.
Back to the drawing board
Going back to my budget I discussed earlier. My list of expenses expanded to included my tithe and my savings, as well as all the other normal monthly expenses like rent, insurance, transportation, and so on.
It was tight but somehow I made it work.
My initial commitment was to tithe for 3 months. I thought that would be long enough for God to prove Himself faithful to His word.
Boy was I in for a huge surprise.
Well, 3 months turned into 15 years and tithing is still the #1 item on my budget every month
The explanation for my financial abundance can, in part, be a result of my disciplined application of the sound financial guideposts I outlined earlier, but only in part.
The financial miracles I have experienced on a regular basis can only be a result of my respect for and commitment to the tithe.
I’ve learned a few things over the years about charity
- Abundance starts with giving and flows from there. It does not and cannot go the other way.
- Giving stretches me. It moves me into areas that require me to have faith. My focus broadens to include others before myself.
- When I can relax my grip on money, tightness and constriction decrease everywhere. It’s contagious. I worry less and have much more peace overall. That’s what I consider true financial freedom.
- God is faithful to His promises. Take the challenge!
This type of giving does not come with instructions. You will need to do your own research into how much to tithe. It’s a personal decision that only you can make.
In review, the guideposts to financial mastery
- Establish a balanced budget that includes your tithe and savings.
- Make debt reduction your main priority and pay off debt as soon as possible. Start making your money work for you.
- Know your net worth and work to better it each year.
- Plan for the unexpected by making savings part of your financial goals.
- Leave a little wiggle room, just for fun!
May God bless you with abundance.