QUESTION: Kellee from My Total Money Makeover is a month behind on her mortgage. Should she stuff money away to get caught up or move forward with Baby Step 1? Dave suggests getting the mortgage caught up first.
ANSWER: Baby Step 1 is an emergency fund. If you’re behind on your mortgage, kiddo, you are in the middle of a freaking emergency. You don’t need to be working the Baby Steps until you’re current on your bills. Don’t even worry about the $1,000 savings in Baby Step 1—a beginner, starter emergency fund. You don’t even need to do that until you get current on your bills. Get current on your bills.
Here’s your order of events. You need to take care of what we call the four walls. The four walls of your home have to be protected first. This comes from, “Take care of your own household first.” What do we do? Food—buy your family food. That’s the very first thing you do. The next thing you do is keep the lights and water on—utilities. The next thing you do is take care of shelter. Then you take care of transportation, and then you take care of basic needs clothing. We pay the house payment and the car payment, we eat, and we keep the lights on before we do anything else.
Do not be behind on your home and current on your MasterCard and your student loan. If you’re going to be behind on something, if you have to choose to be behind on something—and I’m not recommending being behind—choose to be behind on things that don’t matter as much. They’re called unsecured creditors—creditors that don’t have any security. They don’t have a lien on anything. They’re not going to take away basic necessities of your life.
I learned a long time ago counseling people in their finances—and a lot of them are in struggle situations—that if I can get people who are struggling to eat, keep their lights on, keep their home current, keep the car payment paid or gas and insurance on the car if the car is already paid for, maybe sell the car because the car is too expensive, but keep it paid, keep the transportation in the driveway, and buy basic necessity clothing—not label, not brand name, not big deal stuff, not shopping all the time—basic things you have to have—food, shelter, clothing, transportation, and utilities. Do you remember going to fourth-grade civics class? They called those necessities. Everything else is not a necessity. You take care of necessities first. If your belly is full, your lights and heat are on, your phone works ... I’m not talking about a $148 cable bill. Turn that stuff off. We’re on a beans-and-rice, rice-and-beans budget. You take care of the basic necessities, and you know you’re not going to get evicted, or you know you’re not going to get foreclosed on. The children have been fed. We’re not going out for lobster dinners here. We’re not eating out at all, by the way. We’re cooking a lot from scratch because it’s less expensive and better for you. You can’t afford restaurants. Restaurants are a luxury when you’re behind on your bills. We’re eating at home. We’re taking leftovers for lunch the next day.
Does this sound like the Great Depression to some of you? To some of you, it doesn’t. We’re only doing this if you’re broke and can’t pay your bills. The weird thing is you kind of get used to it, and you’ll probably keep doing it the rest of your life. I ate leftovers for lunch today. Why’d I do that? It’s not really because I’m cheap, honestly. I don’t mind spending money on a really nice meal. We were in Chicago a couple of weeks ago. Sharon and I went to an unbelievable restaurant. It was cha-ching expensive, but it was maybe one of the best meals of my life. It was incredible. I don’t mind doing that. But today, I had leftover pot roast, carrots, potatoes. Sharon made that one evening. She’s a great cook. I eat leftovers because it’s better for me. Yeah, it’s cheaper, but that’s not really the reason I do it today, honestly. It’s faster. I don’t have to fool with some stupid restaurant in the middle of the day. I’ve never taken a lunch hour in my life.
If you’ve done all of those kinds of things and you’re living that way and thinking that way, food is on the table, lights and water are on, you’re not eating out—you get your house current. Now worry starts to leave. If you have a place to live, it’s warm and the lights are on, your stomach is full of food and you have clothing to wear and a way to get to work, you live to fight another day. The worry starts to slip away. When your lights are getting ready to be cut off but MasterCard is current, that trips you up. That sends you into a tailspin. You will not win in that situation. Put the four walls of your home up first when you’re in a crisis situation. Then work your way through the other stuff.