Money Makeover Series: Ready to Launch

When it comes to financial planning, goal setting is imperative. But what happens if your goals actually get in the way of each other? Or what if you aren’t able to realistically meet them all at the same time? Only one thing can be done in this situation – evaluate.

Evaluating is just what our second Money Makeover participant, Mimosa, just did. Mimosa is a relatively new college graduate who’s ready to  launch. She’s got the degree, the job, and now she wants her own apartment. But…there are a few other things she wants too, such as to pay off her student loan debt as soon as possible. So with all these goals in mind, what’s a girl to do?

Evaluate

The first thing I did when I studied Mimosa’s budget was tell her that we had to set some priorities. She lives in Toronto which has a high cost of living and makes her dreams of both paying off her student loan debt quickly and moving out on her own difficult to realistically accomplish. We needed to discuss what really matters most to her right now.

This is a common problem – deciding on your most important goals is more difficult than we usually imagine. How can you decide between several things which all seem equally important? In this case, Mimosa threw me for a loop. I really thought she’d want to pay less per month on her student loans so she could move out on her own – but I was wrong. When faced with a choice between her own apartment or paying off her debt faster, she chose to continue paying at her current rate. She wants those student loans outta here!

Move Forward

I was surprised by Mimosa’s priorities, but I shouldn’t have been. Anytime we sit down to face the cold, hard facts, we may end up making different choices than we thought we would. That’s okay. In fact, that means it’s a good thing you took the time time evaluate! We may think we are focusing on what’s most important, but an evaluation may quickly change our minds.

Once you’ve decided on your top priorities, the next most important thing to do is make a plan to move forward. The plan could involve even more difficult choices that you may not have seen coming, but just remember that you’re making these choices so you can meet your financial goals. You’ll be much more satisfied in the long run!

The Adjustments

Since Mimosa’s top priority is to pay off those student loans first, we had to make adjustments to her current budget. This meant changing the way she saved money, cutting her food and entertainment budget, and starting a temporary shopping freeze.

1. Decrease food/entertainment budget and use a cash envelope system
   In order to stick to the new, smaller food and entertainment budget, we decided Mimosa should withdraw cash in the amount she’s allowed each month. Then she’ll put the money in two envelopes: one for lunches (which she’s buying on Fridays only now) and one for food and drinks (meaning entertainment with her friends). It can be much easier to stick to a cash system because you literally see when you’re running low on funds, which makes it easier to say no to a purchase in the moment. Then, you can always look for some fun things to do for free on the weekends!
2. Temporary Shopping Freeze
   The next adjustment to stick to the new budget is a shopping freeze for the remainder of the series. Instead of buying lunch or shopping on her lunch breaks, she’ll grab a book from the library and sit with some tea at a local coffee shop. It’s still spending a little bit of money, but it is also a big improvement that will allow her to have a nice break without walking by all of the stores near her office.
3. Pay Savings First
   Finally, Mimosa needs to make sure she sticks to her savings goals so she can maintain her debt payoff plan. She’s currently paying enough each month to become student loan debt free in three years. But if she goes over on other areas of her budget, it might be tough to stick to that and still save money each month (which she’ll need to do if she ever wants to move out). Paying savings first means you literally treat your savings account like a bill. You get paid, then deposit your specified monthly amount to savings, then pay your bills, then withdraw what’s left in cash for the food and entertainment budget. By paying savings and bills first, it’s much easier to stay on track!

One Step Closer to Reaching Her Goals

Now that Mimosa knows what adjustments to make to her financial actions and philosophy, she knows she can stick to her accelerated student loan payments and stay on track for her hopes of becoming debt-free in three years. What do you think of Mimosa’s plan? Have you ever tried paying your savings first or using the cash envelope budget? We’re pretty excited to see how this helps Mimosa like it can do for many others. Don’t forget to leave her some words of encouragement in the comments below!