When to take drastic measures to get on top of your finances

By Jessica Dosseh

It's time to take drastic measures.

Having to take drastic measures to manage our finances is a situation most of us don't want to be in, but it's the situation many of us find ourselves in.

You might be doing everything you need to do, like budgeting, managing your spending, and investing, but regardless of all your efforts, you seem to be going nowhere.

If you are at this point, it might be time to reevaluate your perspectives, habits, and way of life.

What does it mean to take drastic measures?

Ultimately, it means being honest with yourself about where you are, where you want to be, and how you plan on getting there. It's not necessarily always about making a sacrifice.

So, to get started, here are tips that may help you take your first drastic step to regain control over your finances.

Restart from 0.

• Task 1: If you are in a situation where you can't afford anything, then sell everything you own and start over from 0.

Think of it as a purge, a massive decluttering, a way to force yourself into a space of clarity.

• Task 2: Once you've sold everything, put the money you've earned into a high-yield savings account (HYSA). Then, take some time to reflect.

• Task 3: Reflection activity. Ask yourself – if you have nothing apart from the shirt on your back, the phone in your hand, a small roof over your head, and a meal on the table, would you still be able to live? If so, how would you make it work?

The answer to this question will be different for everybody, but here is how you could think about it.

Shifting your entire perspective isn't for the faint of heart. The hard part is getting over your own ego and internal shame. If you invest in one shirt–maybe two, a pair of pants, socks, shoes, and a warm jacket, the only thing that may stand in your way is having to do your laundry every day and people criticizing you for wearing the same thing daily. If you only have 2-3 shirts, you can always do your laundry by hand – soap and water work just fine, and air has a tendency to dry things. If people start fashion-shaming you, just say you're Steve Jobs and like wearing a uniform. Congratulations, you've just completed step one.

Step two is taking time to think about how you budget for housing and food. If you are living on your own and paying over 60% or more for rent, it might be time to consider relocating or living with a community – the same goes for those living in a 30x30 box and eating less than two meals a day in an expensive city. Budgeting for housing and food can be one of the most challenging things to do, especially as the cost of living continues to increase. Nevertheless, with the rise of remote work, working and living from a less expensive area is feasible.

Be shameless when it comes to frugality because you have bigger goals than to appease others or to appease your inner ego.

• Task 4: Print out the amount you have in your high-yield savings account and checking accounts in single-dollar bills and visualize how you want to use it.

Play with play money. 

• Task 5: Revisit your financial management plan, and use the play money to help you make decisions on how you want to distribute each dollar.

Categories to consider:

• Living expense plan.

• Budgeting plan.

• Savings plan.

• Investment plan.

Starting over gives you a blank slate. At this point, you have full control over every aspect of your life, so what do you want to do, how do you want to do it, but most importantly, why do you want to do it?

Practice Financial Minimalism.

When less becomes more.

Once you've purged, it's time to rebuild through financial minimalism. Financial minimalism means creating a balanced lifestyle, and minimalism is the practice of living with what is required – nothing more, nothing less.

Living a meaningful life has nothing to do with how much money you make. However, if money is all you can think about, then the real question here is – what is considered classy if you are rich but trashy if you are poor? The answer is the idea of having nothing.

It might seem counterintuitive, but having nothing (a large empty space) by choice is a luxury, so why not live luxuriously with less?

It's important to learn how to make better decisions with fewer resources.

When it comes to financial management, the bottom line will always be to spend less than you make. Until you fix this part of the equation, the rest does not matter. The first step is to always determine how much money you truly need to survive. Survival means working with the bare minimum – everything beyond that is just a want.

Knowing the difference between – Need, Want, and Like.

Do you know the difference between a need, a want, and a like to have?

Too often, we mistake our wants for needs—but many of the things we think we want, we don't want once we get them.

• Needs are the things that are the difference between life and death. It's all the things that you need to live.

• Wants are the things that may bring value to your life.

• Likes are simply the things that pique your interest.

In the meantime, cut out your wants and likes and only focus on your needs.

Absolute expenses.

Calculate your absolute expenses for Rent, Utilities, Car Insurance, Gasoline, Food, Savings, Investing, Health Insurance & Medical Expenses, and Cell Phone / Internet. That's it.

Once you've plugged in the numbers, it's time to question your life choices. Ask yourself why you are spending as much on each category.

• Rent & Utilities – This is one of the major things people overspend on, so when it comes to rent, are you living below your means, or are you doing everything you can to justify the high cost?

• Car Insurance & Gasoline – Do you need a car, or can you get by with public transportation? This answer will depend on the city you live in. For example, if you live in the country, you most likely have no choice but to have a car, but if you live in a metropolitan city, you can most likely get by with public transportation.

• Food – One of the major issues that come with food expenses is not having access to healthy food at a low cost. The typical American spends about $1,200 on fast food annually, so if possible, consider reevaluating what you eat.

• Savings – It is always important to have an emergency fund, but saving may seem impossible if you are already in a bind. Even if it seems impossible, it's extremely important to get into the habit of attempting to save. A dollar a day in a high yield savings account is better than doing nothing.

• Health Insurance & Medical Expenses – If you are under the age of 26, stay under your parent's health plan until you turn 26. If you are older than that, you are on your own, so you need to be mindful of your health.

• Cell Phone / Internet – you don't need a new phone every year. All you need is access to the internet. Free wifi in your local coffee shop or library is a blessing.

The idea of minimalism is consciously choosing to keep the things that serve you well and letting go of the rest. From a financial perspective, this can simply mean investing in quality items that will last rather than constantly buying everything at a discount just because it's cheaper. It can also mean reframing your habits and view on money so that you can make more intentional decisions about how you want your finances to affect your life.

Practice Communal living.

Path of intentional companions.

You don't always have to manage everything on your own, so consider finding or building a support system.

Our current society tends to impose solitude and calls it independence or adulthood, but as people, we are dependent creatures. There is nothing wrong with wanting to be on your own, but sometimes it is a lot easier to grow financially as a collective rather than as an individual carrying all the burdens of life. This isn't something we talk about often, but we all secretly know that it's a lot cheaper when we depend on each other. In addition to this, the government financially rewards couples, organizations, and collectives a lot more than they do single entities.

Relying more on family.

Your family is there for a reason; they are there to give you support.

It's time to move back home. If you move home and save $1,000 or more per month, after 2 years, you would have ($24,000) enough to make a 3.5% down payment on a $685,000 house (3.5% is the min down payment for an FHA loan).

Relying on relationships.

Get a roommate or join a co-housing space. Healthy relationships (whether platonically, romantically, or even in business) are important because it helps us split the financial responsibilities that may be crippling us. Splitting, housing costs, food costs, transportation costs, entertainment costs, etc can be the difference between saving a couple thousand dollars or not changing your financial situation. The more we work together, the easier it is to grow. The hard part is finding someone who you can trust and work with.

It takes a village to raise a child – on the same note; it takes a village to grow financially.

• • •

Taking drastic measures may mean something different for each of us, but at the end of the day, it just means having the courage to open your eyes to what you need to do to make a change in your financial life. Start over, change your perspective, and rely on the people around you.