From Pot Bellies to Pocketbooks (Part 2)

Last week we looked at some similarities between too much weight in your pocketbook (debt), and too much weight in your waistband (fat). Both can drag you down, and if you're not careful, both can be disastrous.

This week, we're going to look at a way to fix the first problem. For cutting down our debt, I'm a big fan of Dave Ramsey's "The Total Money Makeover" and "Financial Peace University." According to Dave, you need to take personal responsibility for our money and so it "quits happening to you." Instead, we need to start "happening to it." You do this by using a step by step approach called Baby Steps."

Baby Step One is to build a starter emergency fund of $1,000 as quickly as possible. With that, comes getting on an actual budget where you "give every dollar a name and tell it where to go." This will give you some breathing room, and keep you from getting further into debt for those little "emergencies" that seem to happen all the time.

Now you start Baby Step Two, with what Dave calls the "Debt Snowball." List all debts except your mortgage, smallest to largest. Then make no more than the minimum payments on everything except your smallest debt. For that one, you're going to throw everything at it that you can.

Every available extra dollar goes toward that smallest debt until you pay it off. Then you bring all your resources to bear on the next one in line, and so on. As you start paying a few off, you start to gain confidence. You also gain momentum, because now you've freed up more resources to throw at the next one and so on. Hence, the term "Debt Snowball."

Once you have all your personal debts cleared away, (except your mortgage), you start on Baby Step Three. This is where you start building a fully funded emergency fund of 3-6 months of expenses. Now you have even more resources to throw at it, because you're not having to make minimum payments on credit cards, car loans and other debt.

Once this is done, there are additional Baby Steps that cover investing for retirement, paying off the house, funding the kids' college, and then "Living and giving like no one else." But for our purposes, we'll stop with the first three Baby Steps outlined above.

Just getting that far would seriously change our lives, right? A huge burden would be lifted. We could move through life a lot easier. It would almost be like losing 100 lbs!

Now if you need to lose 100 lbs, it's going to take the same effort it takes to lose the debt. But you're going to feel like a million bucks! Next week, we'll look at the baby steps you can use to gain and build momentum in the battle for your belly.