How to Triage Your Personal Finance When You Have No Money

Stop the bleeding so “pay yourself first” can become a realistic option for you.

Pay yourself first. If you’ve spent more than a few minutes online researching personal finance, you’ve likely heard this phrase. It calls back to a series of pamphlets from the early 1900s compiled into a personal finance book titled “The Richest Man in Babylon.”

The phrase itself means that you should take, at minimum, 10% of your earnings and set them aside to be used for investments. It means to do this before paying any of your bills, food, or anything else. The idea is that you won’t feel the missing 10 cents out of every dollar, and it’s better to use that to grow more money.

This is excellent advice if you’re trying to build wealth. Back in 1926, had more people heeded Mr. Clason’s advice, the depression might have been easier to survive three years later.

The problem is that advice doesn’t work for a specific group. I like to break personal finance into three stages: triage, recovery, and long-term care. Most personal finance books assume you are in recovery or long-term care already. This does a disservice to the majority of the population who perpetually live in triage.

Mr. Clason was an investment banker. He knew that most of the world lived in triage, which is why he wrote more to his book than just that one line. While “pay yourself first” became a cultural meme, the final parable of the novel, titled “The Camel Trader of Babylon,” is a story written for people in triage situations.

The story describes the life of a man named Dabasir as he goes from overextended playboy, to enslaved person, to escaping slavery and coming home to find a way to pay off his debts by any means necessary.

Instead of rehashing the story, however, let’s modernize it. What does triage look like to someone today?

Triage

Whenever I discuss personal finance with friends who are in triage mode, I hear the same argument: “Making coffee instead of buying it isn’t going to fix my problems! Capitalism is terrible, and I’ll never fix anything because my bosses don’t pay me enough!”

These are all legitimate arguments, and I’m not here to tell you that you’re wrong. I am here to tell you that if these are your arguments, you’re never going to get out of triage.

We’re not trying to get rich here. This is triage. In war situations, triage sometimes means battlefield amputations. That is the level of desperation I want to see, not irritation and passing the buck, but hands deep in the dirt, ready to cut a limb to save the body.

No, making coffee at home instead of buying coffee won’t solve all of your problems. That’s not the point of not buying coffee. The point of not buying coffee is that you can’t afford to buy the coffee.

You might not be able to afford to make coffee at home. You might need to cut coffee out entirely.

But we’re getting ahead of ourselves. The first step of triage is worse than cutting coffee out. The first step of triage is to create a budget.

Budgeting

We don’t need anything fancy here. Take a piece of paper, and write down how much money you bring home per month. We want the actual number rounded down. If you work a variable number of hours, use the least amount of money that you have ever made in a month at your current job.

This is your income budget. This is all the money that you have to work with every month. You need to keep a roof over your head and food on your plate with this amount of money.

Next, we need to write down all of our expenses. If you pay for something regularly, it gets written down. Round up to the nearest dollar for expenses to make our math easier. If we round up, we’re consistently estimating high, and we’ll save ourselves some headache.

If buying coffee is a requirement, this goes in the budget, on its own line, right beside your rent, electricity, etc. This way, you can see exactly how it adds up.

Looking at my budget, I buy tea from Dunkin at least five times a week. Those teas cost me $3 and change per tea, so let’s call it $4 per tea. That’s $20 a week. Fifty-two weeks in a year, my tea budget would be $1,040 per year, or $86.67 a month.

Hey, I created a template of my budget for you to use! Just copy it to your Google Drive, and fill it in.

I spend $80 per month on my internet. If I were still in the triage phase, cutting tea out of my budget wouldn’t solve all of my problems, but it could very well be the difference between having the internet or not — and if I have to choose between tea and the internet, I’m choosing the internet. I can buy a box of 100 tea bags for the same price as a single tea, and that 100 tea bags will last me the entire month.

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Cutting dead limbs

When I was doing my triage, I had to cut a lot of limbs off. At my lowest point, I was homeless with a wife and two kids under four. I was lucky. I had family willing to bring us in and let us live rent-free while we built ourselves back up.

Not everyone will have that, but everyone has something they can do — even if that means being homeless for a while. It isn’t an ideal situation for anyone, but if done intentionally and as a tactic, not out of desperation, you can find a path forward.

When I went homeless, it was because I had made a decision that, in hindsight, was a very dumb decision. I chose to quit my job and start freelancing. I thought I’d make a lot more money that way since my freelance client paid me double what my salary was.

A week after quitting my job, my client dropped me. I went from making more money than I’d ever made to that point to making nothing in a week. Luckily, my wife worked part-time for Walmart, making minimum wage, so we weren’t entirely without income.

We cut everything. I do mean everything. We let our car go back, which we paid only $200/month for. Instead, we found a van for $500 that we bought outright. We went back onto state aid, getting food stamps and WIC, as well as health care.

Most importantly, though, we stopped paying on all of our debts.

Tactical Collections

Sometimes the best thing you can do to get out of debt is stop paying for your debts. You won’t see this in many personal finance books, but I attribute my finance recovery directly to this tactic.

We just stopped. We stopped answering calls from bill collectors. We stopped payments. We let things go to collections. Yes, it killed our credit scores in the short term. The calls became angrier and scarier, and the letters didn’t stop, but we didn’t care.

Here’s the thing: Credit scores recover. There is no permanent black mark on your credit if an account falls into collections. How do you fix your credit?

You pay the damn thing off.

How do you pay for it? You figure out your turnaround. You can’t do that if you’re being nickeled and dimed by debt collectors.

I paid the last of our debts off the month before I bought my house — 7 years after first letting things go into collections. Collections don’t charge interest. They can’t do anything but annoy you. Most companies are even willing to work with you on payment plans — I had one debt collector accept a payment plan of less than $10 per month.

The idea isn’t to never pay those debts. The idea is to stop the bleeding, regroup, and start down the road to recovery.

Recovery

Now that we have a budget and we’ve performed our personal bankruptcy, we have the space to figure out a path forward. This plan will be very different depending on who you are, so I won’t go too deep into specifics here.

At the core, however, the focus needs to be on increasing income and decreasing expenses. This might mean moving to a larger apartment and bringing on more roommates. It might mean taking on a second job or doing side work on a site like Fiverr or Upwork. Maybe it’s writing Medium articles to earn some extra money every month.

Our goal during this phase is to stabilize our personal finance situation. We’ve triaged, but that only stopped the bleed. Stabilizing the wound puts us in a position where we can make progress towards healing.

Debt Shuffling

We’re left in a very tenuous situation after allowing our debts to go into collections. We’ve damaged our credit score to the point that it will be difficult to recover without paying all of those debts off. Unfortunately, we can’t afford to pay all of those debts off.

To get out of this, we should perform debt shuffling. Debut shuffling is when you move debt from one area to another. In our case, we will find a Secured credit card or personal loan and shuffle our debt there.

A secured credit card is a credit card where you pay a deposit, and they hold onto that deposit and provide you with a line of credit — sometimes, that line of credit is equal to the deposit. Sometimes it is larger than the deposit. It depends on how badly we’ve damaged our credit score with the collections.

The trick to debt shuffling is to pay the collections with the credit card. Then we pay the credit card with cash. This does two things: First, it lowers the amount of money we have in collections. Second, it begins to grow our credit history, showing a history of on-time payments to our credit card, as well as showing that a company has been willing to give us credit.

Because we plan to pay off the credit card in full every month, the actual interest rate doesn’t matter. It’s more important to find a card without monthly or yearly membership fees. This way, the money we spend is already in our budget. We’re just shuffling it.

We’re now solidly on the road to recovery, and we can start planning our long-term care.

Long-Term Care

Long-term care is where we start looking at paying ourselves first. We should have an income higher than our expenses, and we can begin funneling money into an investment account.

I find it best to treat investing money like spending money, so I’m not tempted to pull that money back out and spend it. For that reason, I like investing in things like Fundrise, which allows me to invest small amounts of money at a time, reinvest my earnings, and build my investments up exponentially.

The goal here isn’t to get rich. At the start, we want to prove that we can put money aside and grow it. We’ve spent so much time with our heads underwater, clawing at the sand, trying to dig ourselves back up to the beach. Now is the time to take a deep breath and make a sandcastle.

If you want to learn how to get rich off of investments, you’re finally in a place where the rest of The Richest Man in Babylon will make sense for you. To that, I say congratulations, and I’ve shown you everything that I can for now.

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