Episode 87 - Kick Starting a Plan, Scorched Earth, and Real Emergencies

I often get questions from people who are faced with a challenging situation, and they are unsure of their options and don't know where to start. In this episode, I give some direction and hopefully some encouragement. There is a way out!

Transcript

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Paul, Welcome to Catholic money talk, where we talk about all things money and finance, and we try to do it through a lens of being Catholic, where our ultimate goal is to one day be in Heaven with the Lord. I am your host. Paul Scarfone, thank you for being here today. So welcome back. Thank you for joining me. You know so many times I'll get people that will either give me a call, shoot me a text, Hey, Paul, do you have a minute? I wanted to talk, and they tell me about a situation that they find themselves in, and they're very limited at seeing what other options might exist and they might not have any real strong money behaviors in place, and that's what's kind of put them into this situation. And so a lot of people say, Well, where do we start? So that's what I want to talk about today. So I'm going to call this episode kick starting, a plan scorched earth and real emergencies. But before we get into that, let's say a prayer in the name of the Father and of the Son and of the Holy Spirit. Amen, Heavenly Father. We thank you for this day. We thank you for all the ways that you love and bless us, Lord. We know that you have an awesome plan for us and that you love us so much. Lord, give us peace for whatever situations we might find ourselves in, let us yield to you and your Holy Spirit. Lord, Lord. We find peace when we find ourselves in your will. Help us to understand your will for our lives and draw us close to you. We ask this all in Jesus name, amen, in name of the Father and of the Son and of the Holy Spirit, Amen. So everyone deals with challenges and what we'll mainly focus on financial ones today, right? But when we don't have a budget, we don't have a plan, we don't have an emergency fund. We don't really have a plan to handle emergencies. They can pile up and they can pile up quick. I remember this couple, they had felt plagued with home repairs and car issues and medical expenses, you name it. They they had it right now. They came to me telling me a few years prior, they had had a clean financial slate, and that was due to a small windfall of money that they got from a relative. Someone had gifted them some money, and they were able to kind of create a clean slate of their financial situation. Five years earlier, at that point, they had paid off all their debt, and they the debt that they had had had been accumulated medical expenses and some emergencies, and so when they received that money, they were able to wipe it all out, and they had established a$15,000 emergency fund. They had hoped never to have debt like that again. But then here they were five years later, they had found themselves in a tougher spot than they had been five years before that, and income had even gone up in the past five years. But they had not changed their behaviors towards budgeting and tackling emergencies, and they were once again with a pile of debt without an emergency fund. And the first question they gave to me was, do they need to increase their income? See, see in their minds, and many of us find ourselves there, I, I've been there. Right in their minds, they thought, if their income was greater, they would be better equipped to handle all these unexpected expenses. See, and most of us tend to think that, well, if like, more money would fix the problem. But that's actually not the problem. The money is not the problem. Our behaviors with the money is the problem. So even if we get more money, if we don't actually change our financial behaviors, the more money is not even going to help, right? In one sense, it might cause us to create bigger problems, and that's what we actually see. People get more income, and they think they can kind of let go a little bit and kind of expand some of the the little mental boundaries, or, you know, spending boundaries that they had thought, that they had established that were keeping them safe, they weren't, but they tend to expand, expand them, and then they start making bigger financial decisions. But without having a good plan and the good behaviors, they just tend to get bigger and bigger and snowball. So they were asking if they need to make more money. But see, five years ago, they had no debt, they had a well funded emergency fund, and their income slowly had gone up over those five years. So my question to them was, how will now be different from five years ago? They looked at each other then they. Asked me, Well, what do you think we need to tweak in our budget? Tweak? No, I didn't say that to them, but, but they said to me, there isn't much we can tighten. They said that with all the added debt, right this, they had built it up onto credit cards, all this debt they had. They needed more income to handle the payments, and that they were afraid all these problems, the unforeseen expenses, they were going to keep coming. So here was the solution that they had thought of, and they were coming to me to say, Hey, do you think this is a good idea? Take a loan for 20 years, pay off the credit card debt and borrow enough money on the 20 year loan to fund an emergency fund. Then they thought, with working more hours, they'd be able to pay off the loan more quickly than just 20 years. But here's the problem with that plan, right? Think back five years prior, they were in the 16 they were in the same exact spot, but now with a new loan, a 20 year loan, and unless they seriously change their money behaviors, namely, two things, how do we budget and manage our money well? And how do we handle emergencies, right? They had to do those to break a challenging cycle like this. They have to push themselves to implement new behaviors. They need a big perspective change. They fundamentally need to completely change their process towards handling money. And the first step we all face is to admit that what we've been doing is not working. That's the first step, right? We got to face that person in the mirror to realize that there we right the person in the mirror, we're the biggest culprit in this money stuff not working, and they absolutely need to have this reality hit them, and then to experience that humility. Yeah, I am a problem. I have been doing this wrong, and that will lead them to change. Right? If we think it's all external stuff, well, I just because I don't make enough, or because all these emergencies just happened to me, like we're some type of victim. No, when we look at the person in the mirror and say, you've got to change, I've got to change. I'm the one that's not doing this right, when we can do that, then it will lead to change. If that can happen, then they have a chance, and we can move on to the next step. So once they're ready to change, and that's what I told them, once you're ready to change, you need to create a budget. And when we do a budget, we start only with the needs, right? What are our top four needs that we need to spend money on, right? We can earn money, we can give money, we can save money, and we can spend money. Most of us the problem is spending. What are the four? There's only four needs that we have that we actually need to spend money on every month. The only ones we need absolutely need. They're critical to our survival. Those four needs, and I've talked about these in other episodes, food, shelter, utilities and transportation, that's it, right? So, so you earn your money, you list your income, you set aside your tithe, and then, and when you're listing your income, just do your take home pay, right? Let the tax withholdings and your you know, if you've got insurance at your company, your health insurance and stuff, let all that stuff come out. So you look at your take home pay, you set aside your tithe, and then you have those first four expenses. That's it. Everything needs to go towards the debt. Until the debt is gone. There's no room for vacations, right? This is, this is the scorched earth part. When there's a problem, let's just go drastically to change what we're doing, and then we'll start to experience it, our body, our mind, our body, our emotions. Everything's gonna be like, Whoa. Something's different, right? Scorched Earth. What does that mean? There's no vacations, there's no dining out, there's no kids activities, there's no fun money. And this can seem a bit harsh it did when Taryn and I changed the way we handled money. We went scorched earth for a couple years. But this is what is needed to change the behavior. You can't just kind of slowly wander out of debt. You will never get out, because expenses and other things keep coming, right? And the second big thing they need to do is to tackle. The second big thing they need to tackle is to create a plan for handling emergencies right for their whole life, their process for tackling emergencies. It was the same. We'll just put it on the credit card. Credit cards that's for an emergency. So let's just put them on the credit card, right? And they had, they had that behavior pretty well established, right? They had been to it the last five years. They had done it prior to that, right? When they had gotten in the mess the first time. And I think it's a quote, it gets credited to Einstein, right? Albert, Einstein, you. Insanity is just doing the same thing over and over and expecting a different outcome, right? And many of us can find ourselves in that spot. So in order to handle emergencies, the top thing just take borrowing off the table for emergencies, right? You think back to like when you're a kid in school, just an academic problem. Hey, so and so runs, it's emergency borrowing doesn't exist. What is their what are their options? Right? We'd be able to come up with some, but it's harder when we're the person in the story. And then I might add, are these expenses truly emergencies? Right? Let's take a minute and define an emergency. And I've got a whole episode on this, right? On emergencies, an emergency needs to be three things. There's three things for something to be considered an emergency. First, it needs to be unexpected. Second, it actually needs to be something necessary, right? And three, it needs to be urgent, right? So I, you know, when I'm talking to the kids in high school, in their class, I like to give them the the example of, what if one of your friends surprised you and said, Hey, our favorite artist has concert in Europe, and we can go, but we have to leave tomorrow. It costs this much, but we got the tickets free. We just need to pay airfare. It's like, well, that's unexpected, right? We gotta leave tomorrow. So it sounds urgent, right? But is it necessary? No, no. So that's not an emergency. You can't use your emergency fund for it, right? But let's look at some examples that a family might face, right? Is a home repair an emergency, right? These folks, they had had home repairs, car repairs and medical expenses. So is a home repair an emergency? Well, I think it depends on what it is, right? Let's say it's a leaky roof, right? There's, there's water dripping into the kitchen. Well, is that unexpected? Yeah, yeah. Most likely. Is it necessary to fix? I think it is. You know, if you don't fix a leaky roof, it's going to turn into a much larger problem. Is it urgent? Yeah, probably. I mean, you can't control when the next rain storm is coming, right? But here's the thing, if you're going to tackle a leaky roof, does that mean you need to replace the entire roof? Right? That could be 15,000 20,000 that could be higher or or, can you actually just fix the leak? Right? If you, if you call, like your local roofing company, they're probably most likely going to come and try to sell you a new roof, right? Tell you how old it is, and everything you got to be doing with it. But if you don't have money for that? Right? Is the whole new roof and emergency. Now let's say it was due because a tree just fell on the house, right? And you got half your roof is caved in. Well, insurance is going to cover that, and your cost will be your homeowners deductible, right? So is it truly an emergency? Are there other solutions to solve the immediate problem that would be less expensive. What about a dishwasher breaking? Is that an emergency? I would say, No, you can easily hand wash dishes for a very long period of time, right? I think for the you know, history of the world, dishwashers are rather recent invention, right? You can want both. So you can wash dishes for a long time, while you save the money to repair or if need be replaced, the dishwasher, and even if you replace it. Can you get a used one? Can you get a, you know, a scratching dent from your appliance store that's got a significant discount on it, right? What are the cheaper ways to solve these problems? So our car repairs emergencies, our medical expenses are emergencies. Well, it's all going to depend on what it is. And I would even argue that if you own a home or a car, you can expect that they're going to need repairs. I mean, I hate car repairs, and you can count on them, they're gonna happen. Some of them are surprises, right? A deer jumps out in front of you, and you hit deer, especially if you're in New Jersey. I think there's more deer than people, right? You hit a deer, yeah. I mean, that's that's unfortunate. If you've got comprehensive on your car insurance, maybe they'll help you with it, right? But, but you got your your brakes are warning you to replace tires. I mean, those are all very, very expected, right? They shouldn't all be completely unexpected. And then medical expenses, I mean, they're going to happen. If you live long enough, you will get sick, you will need some medicine or maybe a procedure at some point. But that's why we have medical insurance right to handle those big items. But in the meantime, we should be somewhat prepared to handle our health insurance deductible like that. Shouldn't be a surprise, so in their need to cover emergencies, I'm doing my little air quote. Is how many of them are truly emergencies. When I work with couples on their finances and they find themselves in tough situations, it can be very challenging to admit that they have a problem or to see a new solution that they hadn't considered before. And I said this earlier, I often like them to view the situation kind of like a word problem from grade school, right? So something like this, Joe and Sally, they found themselves in $20,000 in debt, right? 7000 was from five years of car repairs, and 13,000 was from five years of medical expenses, right? So that was your 20,000 7000 from car repairs, 13,000 from medical expenses, not always accumulated over five years. How can they pay off their debt and plan for future emergencies? They can't borrow the money. What solutions do they have? And go right, it's a word problem. Joe and Sally,$20,000 in debt they can't borrow. So how do they pay off their debt and plan for future emergencies? Go Well, if we step back and we do some simple math, it seems like Joe and Sally have have spent $1,400 a year in car repairs, right? That's 7000 divided by five years, and we can break that down even further to about $120 a month. That doesn't seem very significant, right? We can also do the math on the medical expenses, 13,000 for the five years. So we divide 13,000 by five. That's 2600 per year, or about $220 a month, right? These, these numbers don't seem to be crazy, but when Joe and Sally don't have a plan, oh, man, these things can add up so quickly. So what's the plan for these folks? Well, we've got to pay 20,000 loans and establish, say, a$15,000 emergency fund. I'd also argue that we need to start to plan to save for some of these car and medical expenses on a monthly basis, to create some savings to handle these types of expenses, because we can count on them showing up in our lives. They shouldn't be completely unexpected. $120 a month for car repairs and $220 per month for medical expenses. Well, why can't those just become budget line items, right where we have a sinking fund and we just slowly accumulate that money, so when those expenses pop up. We have the money saved to handle them, but how do we clear up the debt and establish an emergency fund? Right? Joe and Sally, they can work more hours, they can earn more money, but they need to have a tight budget, a clean, intentional spending plan to make sure that these extra funds that they're earning, they go right towards these two goals, right? These two goals of paying off the debt and establishing an emergency fund. They earn money, they tithe, they pay those basic four needs, right? Food, shelter, utilities and transportation. Food, that's groceries, not eating out. Shelter, let's that's their home, right? Their mortgage, their home insurance and their property taxes, right? Or maybe it's your rent and renter's insurance if you don't own a home, if you're renting utilities, well, that's heat, water, electric, right, gas, oil, whatever you have to to heat your home. And I might also add into utilities, especially now, like if someone's working from home or something, you know, phone and internet, those can be included in utilities, but, but you don't need video subscriptions and new cell phones and all that. And transportation, that's basic transportation to get to and from work, right or to and from the grocery store or getting your kids to school, right? So transportation, what's that look like? That looks like gas, parking, maybe tolls, car insurance, right? Because you got to be able to get to work, right? That's the place where you go to earn But transportation is not an excuse to lease a new car, right? So after those four items, food, shelter, utilities and transportation, then you need to put the money towards these goals, paying off the debt, establishing an emergency fund. You know, Joe and Sally, they should save a quick 1000 or or, you know, maybe $2,000 as a small emergency fund while they tackle the debt that way, this they have something, this little emergency fund to help cover a roof patch or a new tire if that type of expense came up. But see, the quicker they go after the debt, the quicker they can then build up to their fully funded emergency fund. But they need to be intentional. Need to be focused. If they're unmotivated or just kind of lackadaisical, like whatever, like they're going to get buried with life's challenges again, but if they get after it now, they can leave their old ways and the poor money behaviors and all that in the dust, and they can begin to experience a new sense of peace. Experience and hope with their finances like this is so, so important, right? So, so what was that first step? Just admit that you've been the problem, right? So, kick starting a plan, scorched earth and real emergencies. That's what we're talking about today. Kick starting a plan. Hey, just admit that I've been the problem, and I need to change what I've been doing. A drastic. Way to do that is to go scorched earth, like I'm just paying my four needs, right? So I'm earning, I'm giving my tithe, then my before. I'm saving and other expenses. I'm I'm just doing my four expenses, my four basic needs, food, shelter, clothing and transportation, right? So that's scorched earth and real emergencies, right? Instead of getting caught up all, it's an emergency, it's an emergency. And we, you know, it's what a one word excuse for everything. Oh, it was emergency. Was it really? Was it really, and we talked about that emergencies. They're only emergencies if they're unexpected, right? They're only emergencies if they're absolutely necessary, and they're only emergencies if they're urgent, right? Urgent, like it's got to be handled right now, and then we have to use an emergency fund to come up with a solution. Don't borrow, don't dig a hole, don't use credit cards for emergencies, because then we're just gonna have to clean that up again later. Do you know, put up, put on your your thinking cap, and say, Hey, we've got a new emergency. We've got something that's truly unexpected. It's absolutely necessary, and it's urgent. We're not borrowing money. What's the solution? Maybe you're selling something, right? Maybe you're going in the attic and going, Hey, we haven't touched these things in years, and you're just selling them. Maybe you're picking up extra hours somewhere. Maybe you're cutting a few other expenses out of your life, right? I don't need to go the office every day. I'll try to work from home and just save two days of gas money every week, right? Whatever it might be, but be intentional. Push yourself to do things different so that you have the opportunity to get different results. So I don't know if you needed to hear this today. I meet people all the time that they just need to be reminded of this. So hopefully, if you're listening this and you're like, Oh man, I need, I need to do this, then I encourage you do it. Kick Start your plan. Go scorched earth, determine what real emergencies are, and create a plan to handle them. You know, not just to clean up whatever mess is there, but to handle things when they come, because they will come. There's new challenges all the time, but when we when we have a plan to handle these things, when we're working a budget or managing our money correctly, when we're developing those good behaviors, those emergencies just turn into like mild inconveniences, because we have a plan to handle them right. If you're married, work with your spouse if you're not, have someone that can encourage you and someone that you can be accountable to. So I hope this has been helpful for you today, if you if you need more help, if you're Paul, I don't think I can do this on my own. Hey, I've got a link in the podcast episode description. You can connect with me. I'm happy to chat through something with you. Or you can even there's a way to send me a note. Shoot me a question. I'll email your response. I'm here to help. So hopefully, hopefully I've been helpful today. Thank you for joining me. God bless. Thank you for listening to Catholic money talk. I hope you join us again next time, please click Subscribe in your podcast app to get notified of new episodes. God bless you and have a great day. You.