Q. I have $11,000 in a mutual fund account that is not a retirement account. My wife has a retirement account through her job as a teacher, but I don’t have one at all. We’re in Baby Step 2, so should we cash out the $11,000 in the investment account to pay off debt?
A. If this money qualifies as a non-pension fund, I’d say go ahead and cash it in. Use the money to pay off debt and stay focused on working the Baby Steps. Pay off that debt, build an emergency fund of three to six months of expenses, then it’s your turn to invest.
The fastest way to build wealth is to take control of your greatest wealth-building tool: your income. If all your money is going out to other people, you don’t have that tool at your disposal when it comes to important things like saving and investing. There’s some math in it, but it’s also about behavior and being intentional. Getting out of debt drastically shortens the distance between you and your wealth.
Many people are now having some key “never again” moments in the wake of COVID-19 and all the other things 2020 has given us. They say things like, “Never again will I be broke, never again will I be in debt and never again will I live without savings to provide for me and my family.”
You can do this, Chris. Go after it!
Zero-based budgeting explained
Q. What exactly is a zero-based budget?
A. Simply put, a zero-based budget is that income minus expenses equals zero. If you’re making $4,000 a month and you’re doing a zero-based budget, every item you spend, save, give, and invest should add up to $4,000. It’s a method of knowing where all your dollars are going. Most people don’t live on a budget. They just cash checks, write checks, then look up and wonder where all their money has gone. Not having a plan, especially for your money, is a bad plan.
List all your income from all sources for the month. Then make a list of all the expenses you have each month. Rent, food, cable, phones and anything else you pay for is added to the list. Your expenses vary from month to month, so you create a new spending plan every month.
Now, here it gets real. Subtract your income from your expenses. Ideally, this number is zero. It may take some practice, so don’t get discouraged if everything isn’t perfectly balanced the first few times. That just means you have to find a way to bring one of the numbers up, the other down — or both. But whatever you do, don’t spend a dime that isn’t responsible.
If you’re having trouble spending more than you take in, cut back a bit to equalize your income and your expenses. Using coupons, cutting back on groceries, or carpooling to work are great ideas for cutting expenses. If you want to make more money, find a second job on the weekend or sell some stuff.
You are in charge of the budget – in the beginning. Once it’s captured on paper, in a spreadsheet, or in an app like EveryDollar, the budget is in charge!