Today is December 23, 2014. It’s two days before Christmas and the last gift on my list is one for myself: I just made one final payment on one of my credit cards, effectively bringing my total credit card debt to $0.
Six months ago, however, things were a very different story.
It was Sunday, July 20th, and I woke in the apartment of one of my best girlfriends, as I was staying with her in Ft. Lauderdale to celebrate her birthday weekend. Our plan for the morning was to go out to brunch to celebrate with all of her local friends.
As I slowly opened my eyes and prepared to get myself out of bed, I reached over to grab my phone and check my bank account balance (I knew things were tight so I wanted to double check I at least had enough money to cover my meal.) My eyes popped open the moment I saw the balance. One of my bills had cleared two days earlier than I anticipated, leaving me with an overdrawn balance. (Note: seeing a (-) sign next to your balance is never a good thing.) At the time, I didn’t even have a cent left in my savings account that I could transfer for overdraft protection.
So, let's review: My checking account? $0. My savings account? $0. My two credit cards? Maxed out and totaling over $7500 worth of debt.
I closed my phone and I started to cry.
I felt trapped. I felt burdened. I felt like a failure.
With my tail between my legs, I had to embarrassingly share with my friend the devastating state of my financial affairs, and let her know that not only could I not cover her brunch as I had planned, but I had to ask her to cover MINE too. Luckily, as a best friend of mine and a complete gem of a human, she approached it very much with a “happens to everyone” attitude, but it was still humiliating to me nevertheless.
That weekend was my financial rock bottom. And I knew something drastic had to change.
I was tired of struggling, tired of feeling poor. I was ready to take a good hard look at my finances and take some aggressive steps toward eliminating my debt and rebuilding my savings.
But, before I get into what those steps were...
why was I so far in the hole in the first place?
First of all, when I started my own business, I had ZERO cushion for myself. I had $2,000 in the bank at the time, which left me with only one month of bills before I had to be turning a profit (or at least breaking even.) In my case, I didn't really have a choice of when to leave my previous gig because the startup I was working for basically closed its doors. It was do my own thing, or look for a 9-to-5 job and I knew the flexibility I valued so much would be harder to come by in the corporate world. So I dove head first into the deep end, hoping I'd learn how to swim before I drowned in a sea of debt.
This brings me to the first lesson you can garner from my financial disaster if you're thinking about going out on your own as a freelancer or small biz owner:
Save up at least a few months of expenses (six months if you can!)
This is not just a smart move because it takes time to launch a business and get things off the ground, but because when you're pressed for cash, you start to make short-sighted business decisions. With more of a safety net in the bank, you can see your business and its vision more clearly, rather than focusing on where the next check is going to come from.
Unfortunately, because I didn't have a safety net, when I had months where my income from design projects didn't cover my cost of living, I did what a majority of America does: I borrowed.
Don't get me wrong, I think credit can be a really useful tool if used in a responsible, measured way. But unfortunately, I wasn't paying close enough attention to my growing balances. Looking at my mounting debt would make me feel queezy, so my clever solution to that problem was simply to never pay attention to it. I paid my minimum balances, and before I knew it, both of my cards were maxed out and I was racking up gigantic interest payments, putting me only further into the hole.
Take it from me: when you ignore your finances, things don't get better, they only get worse (And FAST).
My one smart decision amidst my many credit mistakes was limiting myself to two cards. When I hit my credit limit, I didn't go out applying for more cards, I simply took them out of my wallet and said "That's it. You're on your own."
By this point I'm sure you're wondering what was going down with Made Vibrant that was preventing me from covering my living expenses. Was I just sitting around watching Netflix all day, hoping that money would magically appear in my account?
I can assure you I was not.
I was actually working hard, with plenty of consistent projects filling my days. But where, then, was the money going?
Another lesson from the dark days: If you're running your own business and your days are full but your bank account isn't, here are the most plausible causes for the discrepancy:
- You're not charging enough.
- You're not spending your time efficiently.
- Your expenses are too high.
In my case, I was bringing in high marks in all three categories! Woohoo!
In addition to these major business mistakes, just a few months earlier I had started to deal with some very physical symptoms of anxiety, which negatively affected just about every vital aspect of my business - my confidence, my creativity, my productivity. My workload and my overall ability to bring in money took a hit while I worked on developing the personal tools to manage it. (Happy to report I'm doing much better on that front.)
So there I was in July of this year, feeling like the world was caving in on me. And now you know how I got there.
The more important question, though, the one I'm sure you're most interested in (especially if you're experiencing some similar struggles in your own financial journey) is how in the heck did I get out?
How I Turned Things Around
Literally the moment I got home from that trip to Ft. Lauderdale, I started making drastic changes in my life when it came to money. Jason and I sat down together and made sure we were on the same page with our goals. Our mutual agreement was to aggressively pay down our debt, limit our spending, and kick our revenue strategies into high gear.
Let me just take a quick second and say: It is incredibly important that if you and your partner's finances are interwoven (and frankly, even if they're not) that you're on the same page with your money goals. From experience I can tell you that it makes all the difference in the world, and I would not be here on higher ground today had it not been for the support and teamwork that Jason provided me from that moment forward.
Here are the steps that I went through to get myself out of the hole.
Step 1: Scale back expenses to the absolute bare minimum.
I went through every single payment transaction going three months back to see how I could limit my expenses. So many of us sign up for this thing or that and before you know it, we're paying $9 a month for something we never use. Now, $9 doesn't sound like much but after five of those hidden automatic payments, pretty soon you're spending $50 - $100 a month on stuff you don't use.
I stopped shopping. We stopped eating out as much. I even stopped getting haircuts for those first few months (you laugh, but it saved a good chunk of money!) We didn't stop going to the movies completely (our favorite thing) but we DID start going on Tuesday nights instead because the tickets were a few bucks cheaper and we started smuggling in our own snacks (oh yeah, such rebels!) instead of blowing $20 at the concessions counter. All of these little changes added up to a substantial change in my monthly expenses, which was a fairly painless way to make sure my money stretched further.
Step 2: Do everything in your power to lower your credit card interest payments.
The worst part about carrying high balances on your credit cards? Your interest payments start snowballing, making it feel as though that glimmer of hope you have for paying them off keeps gets perpetually smaller.
However, what few people take the time to investigate is how to lower their interest rates. For my American Express card (one of my two credit cards), Jason let me know that they had a "hardship program" you could call and enroll in that would lower your interest rate for six months. Literally all I had to do was make one phone call, keep asking for the program until I got the right person on the phone, explain that I was recently self-employed and it was taking me longer to get off the ground, and just like that my interest went from 20% a month to 1%. (Keep in mind, if you go with this option, the spending on your card is frozen, but in my case I was already maxed out so that was of no consequence to me.) One single phone call and I finally had a foothold on my debt - one decision that would shift the momentum in my favor.
Once I took care of the interest, I focused on one of my cards primarily (my AmEx, with the frozen interest) and I got really aggressive about paying that balance down. I created a Google Spreadsheet to determine what my monthly payment needed to be to pay it off by Christmas, and then I stuck to that number (sometimes giving more if I could.)
I was able to pay the first card off a full two months ahead of schedule, then allowing me to move my focus to my second card, making my final payment just a few minutes ago!!
Step 3: Come up with a system to keep track of your finances - and stick to it.
During this six months, spreadsheets became my BEST FRIENDS. I tracked my debt, my spending, my income, my profit margins on every service and product I offered. Jason and I also set up a weekly budget meeting (Tuesdays at 10:30am, in case you're curious) which allowed us to go over our progress, our revenue coming in, any big expenses coming up, travel budgets, etc. We did this every week with few exceptions, and it's something I can imagine we'll likely continue to do for the rest of our lives. Even if you don't have a partner, scheduling a time to confront your finances and focus on them regularly will keep you with your eye on the prize.
And the prize is freedom.
Step 4: Now take a look at how you can increase your revenue.
In all honesty, steps 1-3 were child's play compared to this doozy because I was painfully unaware of just how inefficiently I was operating as a business.
Quite simply, I wasn't making enough money. I think this problem can take different forms for different business - not enough clients/customers, prices too low, terrible margins. In my case, I was taking on far too many small projects for far too little money. $100 here for a lettering project, $200 here for a small graphic design job, giving deals to friends and not being more vocal about the real amount of time a job would take.
That's when I made the decision to redesign the Made Vibrant website with a focus on branding - something that I can charge more for than a small lettering project and something I truly enjoy. For the first time I started turning down work (those smaller projects) and getting a lot more confident in pricing the bigger projects more accurately. I know the value of what I can provide someone, and I needed to learn to stick to my guns on it because if I didn't, I had to remind myself I was going to slide right back into debt.
During this time, I also became extremely diligent about keeping track of my time. In any service-based business, time truly is money, and if it takes me two hours to finish a job that could have taken me one, I just lost an opportunity for additional revenue. By blocking out every hour of my day and keeping an eye on my time, I was able to eliminate wasted time and capture that revenue potential that was leaking out of my business.
To give you an idea of just how much money I was losing out on, after I made those changes in my process, I was able to TRIPLE my client revenue in the second half of the year.
Also, by the end of October, I finally developed my first sustainable passive income stream. (In case you haven't heard the term, passive income is quite literally money you can make while you sleep!) You invest your time up front and then you get to reap the ongoing rewards, without trading your time for money. In my case, I saw that there was demand for a quality hand-lettering resource for beginners and developed my first online course, 30 Days To Better Lettering. The impact? In just over two months, I've made over $7,000 in additional revenue for my business.
There are so many opportunities waiting to be had out there. You just have to find the drive and the commitment to make them happen.
The only reason I'm sharing all of this with you guys is because I want you to realize what is possible. I want you to feel the way I feel right now. To know that no matter how deep the financial hole is that you're in, there is hope. And if your business is struggling, just hold on. Believe in your talent and your vision and commit to your own success.
Step 5: Stick to the plan and keep educating yourself.
When the hand-lettering course started taking off, sure I could have used all that new money coming in to start buying more stuff again and give up on living our more frugal lives. But that wasn't the plan.
Instead, I set up the payment system for the course to transfer every single sale straight to my savings account. I never even see that money (and still don't.) Every bit of it goes toward creating a more stable future for us as a family.
I'm also finally thinking about investing for the first time in my life. Jason and I are both currently reading Tony Robbins' latest book, Money: Master The Game (aff link) and I can't recommend it enough. It's a super long book, but we have both realized that if there's any area that we all could benefit from investing time in some continuing education, it's in the area of personal finance. The book has really opened my eyes to what is possible by simply investing my money in smart, informed ways.
I don't know about you, but I didn't learn all this stuff in school. Money is a deep, emotional subject for a lot of people and just talking about it can bring up a lot of negative emotions: guilt, shame, scarcity. But I promise the moment you acknowledge the elephant in the room and make a plan, things will start to change. They have for us.
I stuck to my script, kept making payments according to my spreadsheets and now I can now finally celebrate that first milestone: eliminating my mountain of credit card debt.
In six months, I was able to go from a "net worth" of -($7,500) - meaning $0 cash to my name and all of that in credit card debt - to $0 in credit card debt and $7,000 in the bank. And still, there's a lot more I want to accomplish to become more financially free. It may not be a five-figure sales launch or a six-figure year as some entrepreneurs out there will share with you, but it’s my story. And I’m proud of it.
Take it from me, six months is nothing! It went by in a flash. But that was all it took to transform my financial future, and I know you can do the same thing if you're struggling or in debt.
Take control of your own future and make the commitment to change right now. I won't even make you ask me to pay for your brunch! :)
I used to feel weird about talking about money. Like it was rude, or tacky or something. Now I've realized that money is often the biggest thing keeping people from living their most vibrant lives, which is why I'm going to make a huge effort to be more transparent about my own journey with money here on the blog. I hope you'll join me.