This is the third article in Frugal Dad’s week-long series, The 7-Day Turnaround: One Week to Change Your Family’s Financial Destiny. Each day brings a new step to implement and help you get control of your finances.

The person that coined the phrase, “When you find yourself in a hole, stop digging” must have had credit cards. Used wisely, [tag]credit cards[/tag] can prove to be a legitimate financial tool for covering expenses and consolidating automatic payments, monthly drafts, etc. However, most credit card users carry a balance from month to month, paying banks millions of dollars in interest and fees. If you are in the middle of a financial turnaround I recommend ridding your wallet of the temptation to spend plastic.

Put your credit cards on the chopping block. For some people this step causes more angst than all the others put together. People feel some sort of loyalty to these little pieces of plastic, and the banks that offer them. Cutting them up is about as easy as breaking off a friendship with your best childhood friend. If you are serious about turning your life around you must get rid of credit cards. One caveat: hold on to your lowest-interest, no-fee card until you complete step 2, building an emergency fund. This will leave you some available funds in the event of a major financial disaster. Once your three month emergency fund is in place cut up that last credit card and rely on your emergency fund as a personal credit line. Keep this last “emergency” card in a sock drawer at home and away from your wallet, else you might confuse the lastest sale at Nordstrom’s with a true emergency.

When your financial turnaround is complete, resist the temptation to sign back up for a credit card. Despite what Visa and Mastercard would like you to believe, it is possible to live without credit cards. Debit cards offer the same convenience, and regulations protect debit card users against fraud in the same way credit card companies do. Many [tag]debit card[/tag] products also offer [tag]rewards[/tag] and travel points that use to only be associated with credit products. Remember, no one ever got rich offer their Discover points so don’t fret over rewards too much. When you are millionaire paying for an airline ticket or a Target gift card won’t cause you any heartburn. Continuing to deal with credit card companies might.

This is the second article in Frugal Dad’s week-long series, The 7-Day Turnaround: One Week to Change Your Family’s Financial Destiny. Each day brings a new step to implement and help you get control of your finances.

Experts argure over the first step of a money makeover. However, anyone who has ever been close to the edge, or hanging over the edge, will agree that there is no feeling like having a financial cushion. I heard someone sum it up that there is no softer pillow than money in the bank. So true. Instead of sitting up at night fretting over the next bill, or counting the days until your next paycheck, take actions now to put some distance between you and the edge.

Take drastic actions immediately to begin an emergency fund. Of all the steps in the 7-Day Turnaround, this one may be the most important, and one you simply cannot afford to delay. Carrying debt creates a vicious cycle. Your available cash is spent making large credit card minimum payments. When the hot water heater breaks, or the transmission goes out, you have no cash reserve and reach for a credit card. This is like trying to climb an escalator with the stairs moving in reverse. The faster you run, the faster the stairs move, but when climbing out of a hole of debt, the stairs are always moving just a little faster thanks to fees and interest. This means you are constantly losing ground. The only way to break this cycle is to implement an emergency fund, a place to turn for those untimely breakdowns and emergencies.

An emergency fund is not an investment vehicle. Forget about interest rates and investment options. The only thing you are concerned with is liquidity – how easily you can access your money. Ideally, your emergency fund should be parked in a bank or credit union savings account linked to your checking account for easy access. If the savings account comes with ATM access, even better. Murphy tends to visit on the weekends and late at night, making traditional bank access impossible. Many online banks offer a fantastic rate on savings products and allow electronic access to your money. ING (affiliate) offers such a product. Beware, sometimes the electronic transfers can take up to three days to process, so opt for a product with an ATM card or checkwriting priviledges.

I recommend keeping a minimum of three months of living expenses in your emergency fund. Notice I didn’t say income. Three months of living expenses should cover mortgage payments, car payments, insurance premiums, household utilities and food. Credit card payments, luxury purchases and gym memberships could all be skipped in a real emergency such as a job layoff. For most families, $10,000 is a good, round figure covering roughly three months of household expenses.

If you are like most people you probably don’t have much disposable income to put towards an emergency fund. This is where drastic measures come in. Round up books, DVDs and other small items that can be easily shipped and list them on eBay. Here are some great tips for selling on EBay. For larger items, consider listing in a local credit union or bank bulletin, or on Craigslist. Furniture, fitness equipment, and kids toys tend to generate a lot of interest in local advertisements. Things that don’t sell online can be collected for a yard sale. Schedule a yard sale around the first of the month, preferably after the first paycheck of the month.

Sign up for legitimate, online money-making opportunities such as CashCrate.  You will not get rich from these ventures, but every single dime you earn should go directly towards your newly established emergency fund. Most families can establish their first $1,000 in one month or less, just by boosting savings from their paycheck and/or selling items and part-time earnings.

This is the first in Frugal Dad’s week-long series, The 7-Day Turnaround: One Week to Change Your Family’s Financial Destiny. Each day brings a new step to implement and help you get control of your finances.

Before beginning a plan to overhaul any aspect of your life the first step is to develop a baseline from which you can measure future success. Dieters may visit the doctor or a gym to get the latest measurements and internal health samplings such as blood pressure readings or a calculation of body fat percentage. Consider this first step of your [tag]financial turnaround[/tag] a financial checkup. Many people go through the day-to-day motions of earning money, paying bills and spending the remainder without ever knowing where they stand. Though painful, without facing reality and establishing these baselines, you will not be able to measure future successes.

Step 1 – Get the tough part out of the way first; take an inventory of all your liabilities. This could be as simple as grabbing a legal pad and pen, or as technical as designing your own spreadsheet on a computer. The means by which you list this inventory isn’t nearly as important as the activity itself. Like any good hiker would tell you, when lost you must first try to determine where you stand before deciding on which direction to set out.

Armed with your simply-designed legal pad, or ornate spreadsheet, dump all credit cards, bills and financial statements out on the table and begin to get organized. Get current balances on all your debts by calling the companies individually, pulling a copy of your credit report, or accessing your information online. Add up the balances and record your total outstanding liabilities, the negative side of your personal balance sheet. Don’t forget medical bills, family loans and any other non-recurring bill outstanding.

Step 2 – Now list the value of all your assets. Beginning with the most liquid [tag]assets[/tag], cash outside of retirement accounts, list the current value of all the things you own. Even if the bank technically owns it (your home or your car), you need to list the current value to offset some of the liability recorded in Step 1. Visit sites such as Kelley Blue Book to obtain a current valuation on your vehicle, using the private-sale amount quoted. At this point, it is not necessary to pay for an appraisal on your home. Record your best estimate on the value of your home by comparing it to similar homes that have sold in your neighborhood, or peruse real estate listings and compare listing prices. Be sure to record all savings, investments, and retirement accounts on this positive side of your personal balance sheet.

Step 3 – Subtract your liabilities from your assets and you have just calculated your personal net worth. For most people this is a sobering point in their financial turnaround. The realization that you owe more than you own is depressing. The fact that you don’t own enough toward retirement, or another major financial milestone ([tag]kid’s college[/tag], [tag]new home[/tag], etc.) is also enough to bring you down. However, no matter how bad the situation looks it can only improve with the implementation of the six remaining steps. Turn the televisions off at night and work on just one step each day. Who gets the most votes on American Idol, or who gets voted off the island, means nothing for your bottom line. You simply cannot afford to go longer without a game plan.