3739: [Part 1] Making a Financial Turnaround by Steve Pavlina on Paying Down Debt

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[00:00:54] This is Optimal Finance Daily, making a financial turnaround, part one by Steve Pavlina of stevepavlina.com. And I'm Justin Malek. Today I have a longer post for you, so I'll read the first half today and finish it tomorrow. This is an older article, and some of the bankruptcy references are out of date, but that's a small part of it, and the rest offers great value. So with that, let's get right to part one as we optimize your life.

[00:01:28] Making a Financial Turnaround, part one by Steve Pavlina of stevepavlina.com. Have you ever found yourself in a negative financial situation, either broke or deep in debt? Maybe you're in the midst of such a situation right now. In this article, I'll share with you some insights on how to successfully recover from a negative financial situation. Number one, acceptance.

[00:01:54] The first step in recovering from a negative financial situation is to fully accept where you are. You'll never solve your problem while in a state of denial. This acceptance process comes in three parts. First, accept that you're not going to magically transform your financial situation from scarcity to abundance overnight. If you want to solve this problem, the first thing you have to do is respect the magnitude of the challenge,

[00:02:24] which is on the order of overcoming a major addiction. Maybe it will, in fact, take you years to recover, so you may as well surrender to that idea now. Secondly, accept the reality of your present financial situation. I don't think it's necessary to calculate your net worth to the dollar, but at least do a halfway decent assessment of where you stand in terms of income, expenses, assets, and liabilities, or debt.

[00:02:53] Consider what will happen if your situation continues into the future. Is it sustainable, or are you headed towards a crash? If it's the latter, then accept and acknowledge that one way or the other, something must change, either by choice or by force. And thirdly, accept and acknowledge how you honestly feel about your financial situation. When you're broke or in debt, you know something isn't right.

[00:03:21] That sinking feeling you get whenever a bill arrives in the mail isn't healthy. When your finances are strong, a bill is nothing but a piece of paper that takes two minutes to process. But when your finances are weak, a bill can be a stressful burden. It's easy to fall into the trap of denying these negative feelings and going into escapist mode. Those feelings of stress and worry are there to tell you it's time to make a change.

[00:03:50] You need to do something to correct this situation. The way out is through action, not avoidance. Acceptance basically comes down to admitting to yourself, this is a bad situation I've gotten myself into, and I accept that it's going to take some serious effort and commitment on my part to turn things around. It won't be easy, but it will be worth it. Number two, goals.

[00:04:18] The next step is to set some goals or intentions for how you'd like to improve your financial situation. Don't worry about the how at this point. Just focus on the what and the why. I don't think it's realistic for most people to set a goal of going from total scarcity to total abundance. It's too hard to believe, so the intention will just be overwritten by fear and self-doubt.

[00:04:45] Start with a realistic goal, such as stabilizing your financial situation at a certain level you feel is reasonably attainable. As your financial situation improves, you can always set new incremental goals. When I was broke and in debt, I wrote down all kinds of abundance goals. I focused on my ideal financial situation.

[00:05:09] Very little changed because I couldn't see how it was possible to get there, at least not anytime soon. So I stepped back and set much more reasonable goals, ones I could believe were possible from my current starting point. That was very effective. Big goals are great, but if you can't see how they're even possible, step back and define a milestone that's a little closer to you.

[00:05:35] This will allow you to use the process of creative observation to begin seeing your goal as real. I highly recommend posting your monthly income goal in a place where you'll see it often. Many years ago, Aaron and I wrote our income goals on pieces of paper and taped them to our apartment walls. By keeping the goals in front of us at all times, we stayed focused on doing what needed to be done. Number three, plans.

[00:06:03] Before you jump into the planning phase, let your goal or intention incubate for a few days. This is especially important if you're not sure how you'll achieve your goal. Goals and intentions can be very powerful, but most likely you'll be the primary vehicle for them to manifest, so be prepared to put in some effort. Allow your goals to manifest through you. Often within a couple days after setting a goal, you'll begin getting ideas for how to make it work.

[00:06:33] You may also attract some helpful synchronicities to speed you along your path. Once you've allowed your goal to incubate and have generated some ideas, develop a plan of action. How much planning you need to do depends on you. Some people require a detailed step-by-step plan to get moving. Others only need the general idea and they're off and running. Just make sure that no element of your plan requires a mystery step equivalent to magic happens.

[00:07:03] Good plans have an aura of inevitability to them. If I work the plan, I'll eventually reach my goal. What if you're too deep in debt, the bills are piling up, you don't have the skills to generate sufficient income to cover your minimum payments, and your creditors aren't willing to wait? If you're forced to conclude that bankruptcy is inevitable, then bankruptcy needs to be part of your plan.

[00:07:30] If you can't avoid it, then plan through it. Despite the social stigma, bankruptcy is intended to be a financial recovery tool. Bankruptcy laws help people who've made financial mistakes avoid lifetime financial ruin and get back on their feet with a fresh start. Restoring people to productive capacity is to the benefit of all. Over a million Americans file for bankruptcy each year.

[00:07:57] Bankruptcy filers include Donald Trump, Abraham Lincoln, Walt Disney, Francis Ford Coppola, Richard Harris, Larry King, Stan Lee, Jerry Lewis, Willie Nelson, Mickey Rooney, and Samuel Clemens. Of course, you want to avoid this situation if at all possible, but if you do find yourself filing for bankruptcy, visit the non-profit After Bankruptcy Foundation and read every issue of their free newsletter,

[00:08:27] with their help, you can be fully recovered in two years or less. I know that many countries don't have bankruptcy laws as liberal as the USA, but do your homework and see if there's a bankruptcy recovery process in place that you can use. It might be a difficult path, but there's usually a light at the end of the tunnel. For some people, bankruptcy is a very positive step in the turnaround process.

[00:08:56] Sometimes when you're making plans, you have to consider what sacrifices you're willing to make. What costs will you cut to reduce your expenses? Cable TV, newspaper and magazine subscriptions, coffee, going out to dinner, and so on. But cost cutting will only get you so far because you have a hard limit on how low you can go. While cutting costs can make things easier in the short term,

[00:09:22] it's usually much more productive to focus on boosting your income. So unless your expenses are irresponsibly high, I suggest you invest most of your planning attention on the income side. Number four, hear that on tomorrow's episode. You just listened to part one of the post titled Making a Financial Turnaround by Steve Pavlina of stevepavlina.com

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[00:11:18] Easily customize the twinkle across trees, wreaths, and garlands to match your holiday vibe. Create stunning light effects, then switch it up with the top of your fingers. Even the man in red will be impressed. Shop the holiday decor you want online only at homedepot.com. Thank you to Steve. I'd separate accepting where you are from deciding that everything that happened was your fault.

[00:11:46] That line about a bad situation you've gotten yourself into might fit your experience, but it might not. Maybe you lost income unexpectedly. Maybe you made a decision that seemed reasonable with the information you had at the time. And even if you do wish you'd handled something differently, I don't think you have to keep reminding yourself of that before you're allowed to move forward. Looking at what you owe is useful, but turning that number into another reason

[00:12:15] to be disappointed in yourself doesn't really help you with what to do next. He also mentions that you don't necessarily need to calculate your net worth, may not agree, but at the same time, this article was written decades ago when it was really difficult to do that by hand or by spreadsheet like I did. Now, it's very easy to connect your account securely and have it all tracked for you, including your net worth. So I'd argue, to try it,

[00:12:44] the hard work is mostly gone these days. But that's just part one. I'll finish Steve's post for you tomorrow. So for now, thank you for being here and listening every day. And I'll see you tomorrow where we'll finish up this post and where your optimal life awaits.