Hitting Financial Rock Bottom - What's next

Not too long ago, I sat at one of the most prestigious Michele-star restaurants in Mexico City. After enjoying a magnificent culinary arts display, I faced the question we all dread.

Who pays the check?

I was the guest, but my previous invitation to go out with the in-laws implied I would also pay for this. I've paid before without hesitation, but I've never been hit with a 3k USD bill for a party of 6.

Pride got the better of me, my heart sank, and I handed over my credit card.

I was already in severe debt: credit cards, lines of credit, payment loans, and auto loans. I was on a sinking ship, and that was the last straw.

I knew my spending was out of control and that I had hit rock bottom. Little did I know how low I sank.

I didn't know my financial status. What was I worth? Was I even covering my monthly expenses with my job income?

You may have faced similar situations:

• Swiping at the grocery store without knowing if the credit card payment will clear

• Looming doom in the back of your mind that you will overdraft your bank account

• The crippling anxiety that your check won't stretch until the next pay cycle

• Spending foolishly to keep up with your peers, knowing you shouldn't

Money isn't the devil. It has been a tool for prosperity and leverage since the dawn of time. The sin comes from mismanaging it.

Perhaps it's not entirely your fault.

• Lousy education system: We teach and encourage debt but say little about household management. Schools are notoriously bad at educating the youth about what to do with the money we make.

• Friends and Family: Most people at home miss the principles of managing money. A friend may lead you in the wrong direction or may even result from your overspending.

• Society: We are constantly being bombarded with targeted ads. Every year, there is a shiny new iPhone with slightly better specs. Trends come and go, and wallets become thinner.

Hitting rock bottom isn't the end of your life. It's a signal, a sign that you are now self-aware. You are taking the first step in making a turn for the better. 

It's easier to ignore the challenge. Weak people choose to ignore their current circumstances to avoid pain.

We are not weak; we have taken the first step.

What's Next?

Stop digging the hole. Start making the journey to get out.

Three steps after you come to the realization you are not in control.

1. Net Worth Tracking

Find out the reality of your financial situation. What are you worth today?

The easiest way is to do a net worth tracking spreadsheet. On one side, list all your debts and liabilities. On the other, list all your assets/income.

Then, take the difference; this is your net worth. Keep track of this as a starting point.

This may be a negative number, but it's ok. It is better to know than to live in denial.

2. Basic Budget

A basic monthly budget is essential to understand where your money is going.

Take exports of your bank statements, pay stubs, credits, and any other outstanding obligations.

Next, build a basic spreadsheet. I used Google Spreadsheets as a quick starting point.

Take each transaction and create categories like income, gas, rent, utilities, fun money, unexpected expenses, and eating out.

Group each one into those categories and get a sum for the month. Use trackers like Mint, YNAB, or EveryDollar to speed this up and automate it.

The task seems complicated, but it is simple: track everything you spend for a month. Place it in a category for future comparison.

Take the difference between the total paid and what you earned in the month. This is your net income for the month. It may also be negative.

The result may be unsettling, revealing that you are spending more money than you are making. A red flag will be corrected going forward.

3. Future Planning

It's time to dream

List goals and milestones for where you want to be and in what timeframe. Then, ask yourself, based on your current net worth and spending habits, will you hit those?

If the answer is no, you are on the wrong path. It is time to course correct. Are your plans for the future already funded, or will they be paid off with a credit card?

Vacations, weddings, children, college?

Guidance on this is complex because everyone has different desires. The critical thing is to grasp your milestones both near and far.

Money shouldn’t be feared. It should be treasured and managed correctly. Bad decisions come from desperation to face reality.

Knowing where you stand may be the most essential checkpoint of your life. It is the first step in accountability and will build the foundation for your new lifestyle.

Great news! Today, you have done what most won’t and taken the first step into financial freedom.

You now know where you stand and what caused the hole you dug. Rejoice that this little step has opened the door to a road most will avoid.

Change your perspective from being in a hole at rock bottom to being at the starting line for the most beautiful race of abundance to come.

Instead of letting money rule over your life, you have intentions and purists.