Let’s clarify a few things.
Always have a pile of cash. An emergency fund. In a banks savings account is fine. Just very liquid so if you need it you can get it very easily. It needs to be enough to cover a few weeks of living and most repairs on your car or house. $1,000 is usually a solid amount. That relieves most immediate and urgent problems and stress.
The emergency fund is one of the most comforting aspects of life. Having it makes life less scary, less stressful, and often gives you lots of options.
Once your budget is made and you are sticking to it and your debt free then we put more money in that emergency fund, meaning anything can happen and you are fine.
You have to replace your car. No worries.
Your roof needs replaced. No worries.
Lose your job. No worries.
6 months’ worth of expenses should do it but make the final number comfortable for you. This means you can lose your job and pay for everything with no changes for 6 months. Which in reality means if you lose you job you could probably go for a year because you could cut back on what you spend.
This gives you freedom and options. You don’t have to rush financial decisions. You can pick the right job instead of the first job. You can find the right car instead of the first car with 0 down and no payments for 90 days. You can pick the right roofer instead of the first one that offers payments.
Pay off all debt and stop getting payments. Payments kill you. Payments hold you back. Payments are stupid. No more payments.
A lot of Dads are getting into debt because they are panicking. They make a bad emotional decision in the heat of the moment and regret it later. The emergency fund prevents this. It gives you the level head to make sound decisions.
Another group of dads have payments simply because they genuinely think that is how life is supposed to be. You always use payments. Furniture, cars, bills, anything you buy you make payments. Payments make you broke. Payments steal your future. If someone offers you payment, accept that as an insult to you. They are stealing your future. Learn to hate when people offer payments. They are ripping you off. Charging you more than if you paid cash. Crushing you with interest. Stealing your future choices because they staked a claim on all of your paychecks in the future.
A budget will also help keep you from getting in debt. You can see your traction and understand it. You understand how long it takes you to pay for something. You see how it affects your net worth.
There is an argument to be made for using debt as leverage for investments. If you are debt-free with fantastic money management skills then by all means do what you want. You open yourself up for the risk. Sometimes it works really well. A lot of smart people go broke that way. Because you are susceptible to things outside your control. Legislation from the government has ruined many smart men. 2008 housing crisis ruined a lot of leveraged people. COVID-19 Ruined a lot of leveraged people. Buying everything with cash and saying no to opportunities you cant pay for keeps you safe. It’s 100% effective. It’s also a slower path to success so most people try and cheat and use leverage. In our family, we made the decision not to put our family at risk. I started my career in 2007 right before the crash of 08,09,10. I saw smart businessmen brought to their knees because of things outside their control. They had successful growing businesses so they bought new buildings, new trucks, equipment and it was working great until 08 happened. Then customers disappeared and they still had payments. They made smart decisions, sound leveraged investments, had good marketing, good business practices……but they still failed because of debt and bad luck.
So we grew slower. Paid cash as we could. And other people got bigger than us. We lost accounts because we couldn’t buy all the equipment. We missed opportunities because I wouldn’t borrow to make it happen. And I still retired at age 33. It sucks to grow slow. It sucks to watch other businesses borrow and explode in growth. On the backend of that…. it is nice. Those businesses are struggling to make their payments today in the COVID crisis. (another unexpected variable)
#3 (and probably the hardest) BUDGET FOR A PROFIT
Write down a budget. In the beginning, forget apps and programs. Just a piece of paper. It’s not fun. It’s not sexy. But it is important.
Write down how much you make.
Then in order of importance write down how much you spend on each aspect of life. Rent/Mortgage. Water. Electric. Food. Insurance. Car fuel. Etc Then you can write the less important things. Phone, tv, internet, clothes, eating out, gifts, fun things. Boring things, etc.
Now you can look at that paper and find ways to spend less. You know now how much you spend and how often. If you need to you can start cutting down on expenses.
Or start looking for ways to pick up more income. Overtime, 2nd job, side gig. There are always options. Mowing grass, shoveling snow, drawing logos, taking pictures, babysitting, fixing peoples stuff, car washes, writing social media posts., etc
Now the first few months are the hardest to write a budget. You forget categories. Things come up. That is normal. The important thing is you push through and try your best to end every single month with extra money. I call it profit you can call it savings. Just make sure every single month you are making more money than you are spending.
This is the key to winning with money. Knowing how much you are making, how much your spending, and finding ways to make sure every month has extra cash.
What you do with that extra cash is easy. At first, save it. Then, pay off debts. Then that huge cash emergency fund.
Once you have that big cash emergency fund then you can start to look to the future. Investing your extra money for retirement or college funds. That’s when the fun starts. But not until you have extra money every month and a big emergency fund and no debts!