One of the most important bits of advice given to addicts attending 12-step recovery programs like Alcoholics Anonymous is this: the first step to resolving the problem is recognizing you have one. Without that initial self-reflection (and a commitment to change), anything that follows is next to useless.
Financial guru Dave Ramsey says the same is true regarding finances. He recently expressed that when you recognize you have a problem, 90% of the problem is solved.
This post was updated to clarify fees associated with cash advance apps and Ramsey’s recited verse about discipline being a Bible verse.
Learning discipline is the easy part
In a segment titled, “My Money Vanishes When I Get Paid,” an anonymous viewer of Dave Ramsey’s The Ramsey Show detailed how he is behind the eight ball.
As a person who works overnight shifts at Walmart (NYSE:WMT | WMT Price Prediction) for $20 an hour, the viewer spends a large percentage of his money eating out and he finds his “bank account always is a race to zero.” He finds he needs to use cash advance apps like Dave (NASDAQ:DAVE) (not affiliated with Dave Ramsey) that charge him anywhere from $1.99–$9.99 (depending on advance amount) to get access to his next paycheck. As a result, he has dug a $3,000 credit card hole he can’t find a way out of while owing the IRS an additional $4,000.
What he wants to know is, how can he learn discipline to break this cycle? At 27 years old, he knows he needs to get his act together.
This is when Ramsey recites the advice his father gave him regarding recognizing a problem. Ramsey says because the viewer is acknowledging there is something wrong, he’s already got himself together; now comes the next step of doing something about it.
Breaking the cycle
In this particular situation, the solution may be as simple as buying food at the grocery store and making meals at home. When his friends want to go out to drink, he has to say no, I can’t afford to go. He should also stop using payday lending services like the Dave app.
While the cash advance services seem to address the short-term cash flow problems far too many Americans find themselves in today, they only serve to dig financial holes deeper. Accessing this money prematurely comes with a steep fee.
The $5 the Dave Ramsey viewer pays for getting money from his next paycheck may not seem like much, but the effective annual percentage rate charged is steep. And when that next paycheck does arrive, he is not getting all the money he made. As the saying goes, the first rule of holes is stop digging.
Commit to change
Every situation is different but taking that first step looks the same: acknowledge there is a problem. Look at your own situation and think about what the major pain points are.
If you have a cash flow problem where you run out of checkbook before you run out of month, then you need to increase your income or decrease your spending. Does that mean taking on a second job? Maybe. It also means budgeting your spending, too. Live below your means.
The solution isn’t easy, and most likely isn’t going to be enjoyable. Ramsey makes this point by quoting a Bible verse: “no discipline seems pleasant at the time, but it yields a harvest of righteousness.” (Hebrews 12:11, NIV)
Recognizing there is a problem is the first step. Whether it resolves 90% of the problem or some lesser percentage is meaningless. As long as you commit to making the necessary changes, you can turn your situation around.
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