Bouncing back from financial rock bottom isn’t easy and I know it from personal experience! In this podcast episode of Your Money, Your Wealth with Joe Anderson, CFP and Big Al Clopine, CPA, I tell others how they can rescue themselves from financial rock bottom! (My portion of the show starts at the 11 minute mark.)
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How to Rescue Yourself From Hitting Financial Rock Bottom
Alan Clopine: (laughs) Well let’s arrange that then. So tell me, Christine, so you were vice president of HR and accounting for a manufacturing company. Did that for about 13 years, and then you decided, “I’m going to be a Financial Lifeguard.” How how did that happen?
Christine Luken: (laughs) Yeah well, it didn’t happen just like a light switch. So, about four years after I graduated from college with an accounting degree, while I was working for this company, I hit financial rock bottom myself. And I’m talking bad. I had three different check cashing places’ money, I was behind on my car payment. I had collectors calling me, and it wasn’t because I didn’t know what I should be doing. It was because I had let my heart hijacked my wallet. And I was engaged to a guy, thankfully I didn’t marry him, but he was horrible with his money. And I’m talking in and out of jobs, in and out of jail. And I just was making irrational decisions with my money.
So by the time I decided, “OK, I’m done with this,” I couldn’t even afford to move out. I had to move back in with my parents, which as a young person, once you’ve been off on your own, and you have to move back in, it’s like the worst thing ever. But the interesting thing was, once I started to improve my finances, I decided that I wanted to help other people with this. And so it just started kind of as a volunteer thing, where I would just help other people who are maybe going through something similar to me, and eventually found out that, hey, I can get certified to do this.
AC: And so then you took the concepts that you learned from yourself and others and wrote a book, Money is Emotional. The tagline, “prevent your heart from hijacking your wallet.” So tell us, when did you write that?
CL: Well, I spent most of the last year writing it, and it was published in March of this year. And yeah, I jokingly tell people, “this is like the least boring money book you’ll ever read, because it’s like a half tabloid and half how-to,” because I tell all my crazy stories of all the stupid things I did with the money.
Joe Anderson: How did you get out of the mess that you got yourself into? “I got a fiancé that’s in jail, gotta bail him out.” You figured out you hit rock bottom. So how do you get out of it? Because I know a lot of people have been in your situation, but a lot of people are still in your situation that is still fighting to find a way to get the heck out of the hole.
CL: You know, the very first thing you have to do is put together a plan. Everybody hates the word budget. So I don’t even like to use that. I call it the spending plan. Put together a spending plan. Let’s look at our debt and put together a plan to pay off our debt. And figure out how we can free up some money to start putting money in our savings. We know these things, we know we shouldn’t spend more than we make. We know that we shouldn’t have excessive debt and that we should save money, but nobody does it. There are a ton of books out there about how to budget, saving tips and tricks. But if you’re not addressing the emotional side of it, and getting into the, “Why am I spending more? Why am I not saving?” And really digging down into those reasons behind it. You’re never really going to change your behavior. And I think that’s why my book is unique because it addresses both sides of things.
AC: Talk about mindful spending versus mindless spending, because I think that’s a good concept that you introduce.
CL: Absolutely. And I call my whole system Mindful Money Management and we throw the word mindful around a lot, but it really just means paying attention. And for so many of us, especially because we’re disconnected from our money, it’s so easy to spend money without really thinking about it. You just swipe your phone. You swipe a credit card. It’s so easy to spend money that you can do it so mindlessly. It’s almost like the technologies that the banks are rolling out are making it easier for us to spend money. Because that’s good for them. Sometimes we have to pull back and say, “OK, let’s really think about this.”
And sometimes I will tell people, “let’s put some of your categories on cash and get you reacquainted with your cash,” and you might have heard this before, but scientists have shown that when people spend money with cash, it actually registers as pain in their brain. And that doesn’t happen when you swipe a credit card. So it literally makes you think twice when you spend with cash. Now I know there’s a lot of people that feel nervous about carrying around a lot of cash, and that’s totally fine. I will have some of my clients put their spending money on a prepaid credit card. So let’s say they get $400 of fun money to spend every month. Well to make sure it doesn’t turn into $600 or $800, let’s put that on a credit card, and the only fun money we have gets put on that card.
AC: And once it’s gone, it’s gone.
JA: I got a quick question for you. So let’s just say that I’m already buried. I’m kind of at a point where it’s like, “man, I can’t afford my payments. I really don’t have a strategy or a plan.” If I’m head over heels in credit card debt, and I know that I have an issue now, and I’m getting emotionally stable to a sense of, I’m not going to be spending. But how do I get rid of this? How do I get this mountain of debt gone when I only have so much paycheck, I have so many bills, and I’m just buried in credit card debt or personal debt?
CL: The first thing that I do is look at all the inflows and the outflows, and see what’s going on here. Sometimes you might have to say to somebody, “you can’t afford this car payment. We have to take that to get you into a smaller car payment. Or into a smaller house payment.” Some of the things in our budget, they are negotiable, and a lot of times we view them as if they’re not. And so that’s one of the things that I can look at objectively with someone and say, “Your car payment is $700. That’s a pretty big car payment. I know you like your car, but there’s a good possibility we can get you into a different car with a much lower car payment that’s going to free up $200 or $300 worth of cash that we can start putting on the credit card and start paying them off.”
Now, there are some people who come to me and I say, “Your cash flow is running so far in the red every month, that I’m going to either need to refer you to somebody who is a credit counselor, or a bankruptcy attorney.” And I think it comes back to that shame and that guilt, that people wait too long to say, “I need help.” Most of my coaching clients, they’re middle to high income, and it’s more than mindless spending.
JA: Al and I see that all the time, where someone’s making several hundred thousand dollars, don’t have a lot of money saved, they have credit card debts, they have 401(k) loans, they got plenty of cash flow, but the spending is just way out of control. And for them to maintain that type of lifestyle, just today, let alone in retirement… And I think that’s where your book comes into play so well because you do have to start with the emotional side of things. It’s like, “Well, why am I doing the things that I’m doing? What’s truly important to me in my life?” And then being able to prioritize things, and then getting educated then, on the overall finance side of things. I think it’s a great combination of what you put together.
CL: Well thank you. And when we throw the whole relationship and money into the mix, when we’re talking about – and I’m sure you guys see this all the time – parents who are financially supporting adult children, and some of those kinds of things, how do you deal? How do you deal with that stuff?
AC: Yeah it’s tricky. Me having two sons, college and some short stints back home, and Joe gets on me, I’ve still got them on the cell phone plan, and all kinds of stuff. (laughs) So mindless spending is not a good idea. Mindless savings, that’s a whole different story.
CL: Absolutely. I am all for mindless saving. And by that I basically mean, putting that discipline on autopilot. Have those 401(k) contributions coming out automatically, or IRA contributions. My husband and I, he gets paid every week, and we have an automatic transfer set up that, a day after paycheck goes in, a certain amount gets kicked over into our savings account. And when you put that on autopilot, because we just have a tendency to be lazy, it just keeps piling up. And unless you have a kind of crisis or an emergency, you’re going to let that keep piling up.
AC: It’s kind of like out of sight out of mind, and that is a great way to save because you don’t miss it. Because of our tendency, unless we’re really disciplined with a good budget, is whatever’s in our checking account this month, I guess we can spend it. Oh, I guess we can buy this item of clothing, or go out to dinner, or whatever it may be.
CL: Absolutely. Yes. That is so true.
AC: So let me ask you. So going back to love and money: should couples have individual accounts? Should they have joint accounts? What’s your guidance there?
CL: Oh, I get this question so often, and it’s so funny because people have really strong opinions about this. It’s interesting because I have seen, with the millennial generation, they have a tendency to keep things separate. And I’ve had couples come to me who have been married for 5, 6, 7 years, and their money is still separate. And they’re like, “We think we should have our money together, we’re just not sure how to do this.” And my suggestion is actually both. That you should have some of your money – or actually the majority of your money – together. But I think that each partner should have some money, their spending money, separate so that they can do whatever they want with it.
For example, my husband and I have a checking account where we pay all of our bills out of, and we both put a certain amount in there every couple of weeks to pay the bills. But I’ve got some money in a checking account, and he’s got some money in a checking account, and that’s our spending money. So he doesn’t criticize me when I buy clothes or get my nails done, or whatever. And if he’s going to go and buy the latest electronic gadget, I don’t get upset about that either, because we’ve already decided that each of us has this certain amount every month that we can do whatever we want to with. That allows people to feel like they’re not being controlled. That they have some autonomy.
AC: Let me ask another question because I think a lot of this is common sense. We don’t always do it, but we know we need to get on some kind of a budget or at least some kind of spending plan, and we know we want to get rid of our debt, and we want to be able to save more and try to increase our income. But I would say an awful lot of people have irregular income, whether they’re self-employed, or their commission-based salespeople – how do you how should they do it?
CL: There are a couple extra steps to budgeting that way. And I actually talked about it in the book, but just the Cliff Notes version of it is you want to base your monthly spending plan on your worst-case scenario, or what you know you can count on. So if you fluctuate between bringing in $3,000 and $6,000, and then you’ve got a spouse that’s also contributing money, do the monthly budget with the lower amount. But, then you have a standalone list that says, if we make a dollar more than what our budget is, let’s plan in advance where that money’s going to go. So if we say our base budget is based on $6,000. Well, what happens when we make $7000? Well, we already have this list going off, the first $300 is going to be right to the savings, the next $200 is going to be paid extra on the Visa, the next $200 is, we’re going to have some fun with that money. But by planning that out in advance, so that you already know, if I have my worst case scenario month, or I have my best case scenario month, I already know where the money is going.
JA: What final piece of advice would you give our listeners, and where can they find the book?
CL: They can find the book on Amazon, and they can also find it at my website, which is MoneyIsEmotional.com. My advice to people is, keep learning about money. It’s not just a one and done thing. I teach about this stuff, and I read probably 10 money books a year because I want to get better. And I know that I can come up higher, and most people don’t decide they want to get healthy, and then they read one magazine on men’s health, and then they never read anything again. Educate yourself, and raise your money IQ. Listen to more podcasts like yours. (laughs)
AC: Well there you go, there’s a plug. (laughs)
CL: (laughs) I do what I can.
AC: Christine, thanks so much for joining us today. It’s good wisdom, and I think a lot a lot of people of all ages can use this kind of advice. You might think it’s more for 20 and 30-year-olds, but really what we see is there are many people of all ages that need a little bit more discipline.
JA: The book is called Money is Emotional. Check it out.