Alright – day 1. I have to admit that I haven’t fully thought through this attempt to reduce my debt and become more financially disciplined/responsible. But … I think that lack of thinking ahead maybe part of the reason I’m in this position … a mountain of debt and nothing to show for it.
I’m hoping some of you can relate. Makes you wonder how much thought any of us put into those dozens of little financial decisions throughout the week – that happy hour, Starbucks in the morning, the latest gadget, a new jacket, etc? And do we get to a point where our financial lives are such a mess that’s it’s just easier to ignore rather than turn that rock over and see just how ugly the situation is?
Anyways … I decided to apply a basic Six Sigma methodology called DMAIC (an acronym) in approaching my Debt Elimination project. The approach is used to improve a process and God knows that my financial process could use some tweaking.
So here’s a breakdown of DMAIC –
D – Define the problem and articulate the goals
M – Measure key components of the current process and collect important data
A – Analyze the data to uncover trends and relationships. Try to uncover the defects in a process
I – Improve the process based on the finding of your analysis. Implement new approaches that eliminate previous defects.
C – Control the future process. Based on the goal that was set, make sure all actions, inputs and processes don’t deviate from that objective.
I know, I know … sounds boring and unnecessarily complicated. But I think this type of approach my force me (or you?) to really think about the financial situation I’m in.
The Problem: I’m not yet 30 and I’ve got over $30,000 of debt. Debt that is growing larger each year. I don’t own a home, I drive a 7-year-old Toyota Camry, I’m not married, I’ve got no children and despite having a job that pays me a base salary of $42,000 a year + commission (up to another $20,000) … yes, despite all of this, I have very little to show for my mountain of debt besides the occasional head scratching moment when I’m paying my monthly bills and wondering what the hell happened. Again, some of you probably make much more, some less, some have more debt, some less … but I’m convinced that my situation isn’t unique and that there are millions of people just like me scratching their head at the end of every month.
The Goal: I’d like to be consumer debt free (no credit cards, car payments, student loans, etc) within 3 years. I’d also like to purchase a house by April 30, 2010 of this year (seems like too good of a buyers market now and I’d like to take advantage of that $8,000 tax credit).
Daunting, I know. So what are your personal financial goals for 2010?
In the coming days, I’m going to dive into “Measuring” the problem: what exactly are my debts? what’s my interest rate? how much am I paying in interest? where does my money go each month? I’ll make a conscious effort to be completely unemotional about the process and just collect relevant information about my personal finances to set up a base line of just what kind of financial mess I’m in.