Money Monday was supposed to be Financial Friday, but I didn't end up getting it posted. So, here ya go!
Welcome to Friday! One of my favourite parts of waking up on Friday morning is that J. Money at
Budgets are Sexy posts a weekly
Friday Round-up of excellent blog posts from around the web. I love finding new blogs, personal finance and otherwise, to add to my reader.
I’ve been trying to decide whether to post the details of our most recent financial feat or not. But, in the interest of honesty and ‘keeping it real,' I decided I’ll post the basics without the figures or details. For me, personal finance is just that – personal – and private, and although it’s something I’m passionate about, I also share a financial life with another individual and I owe it him to keep it as private as possible. None the less, there’s a lesson or several to be had here.
This week, K. and I both cleared our credit card debt to ZERO! We have had a pretty aggressive payment plan set up, but our budget for every day spending was still very comfortable.
How did we end up in credit card debt? We were fairly financially saavy with no consumer debt, and then, somehow, it fell apart.
· We depleted our savings when we bought our house for the sake of a down payment. This is a mistake I will never make again.
Lesson: It’s just not worth it to completely deplete savings for anything except an emergency
· When we filed our 2010 taxes, we determined we would get enough back to complete our re-flooring renovations. Instead of waiting for the money to be refunded into our hot little hands, we went ahead and booked the renovations, paying with our credit cards. We then got only about 2/3rds of what was expected back, which left us stuck for the remaining third of the flooring costs on our credit cards.
Lesson: Never spend money you don’t have free and clear in your hand.
· We continued to plan a vacation to NYC instead of smartening up and paying down all our debt first. Our reasoning? We had free hotel stay credits that expired in the future. Result? More credit card debt.
Lesson: Don’t continue to use credit cards once you’ve identified that you have debt you need to pay down. Especially if you don’t NEED to use them.
· We failed to get real about paying it off. We paid it down a chunk at a time and then just kept re-spending.
Lesson: You only make progress paying down debt if you budget properly and stop spending money you don’t have.
In the grand scheme of things, it really wasn’t a lot of debt, but for about four months, it just wasn’t going anywhere because we weren’t trying hard enough and refused to admit how much of a problem we had.
How did we make the debt go away? We got pregnant and I started panicking about losing a big portion of my income during my year of maternity leave. How would we ensure we are financially sound going into this? There were some sleepless nights and finally I got to work creating a budget we could live with.
· We made sure our new budget was cash-based for groceries, shopping, entertainment, gifts, and other discretionary spending. We withdraw cash twice a month and use the envelope system. Sometimes it’s really limiting and it sucks, but it really works. And we’re not perfect – we’ve both been known to whip out a debit card or credit card after forgetting to prepare our wallets with cash. But it still works.
· We stopped using our credit cards.
· We made sure we allotted enough money to entertainment to keep ourselves from going crazy and feeling deprived. In our experience, deprivation leads to the “I deserves” which leads to spending binges.
· We allotted a HUGE chunk of our monthly income to debt repayment. This knocked it down very quickly once we finally got serious.
Where do we go from here?
· We will continue to contribute the debt portion of our budget to savings – a majority will go to our emergency fund (which is now NOT empty, thank goodness), and the remainder will go into savings for things like my college program and big ticket stuff we need/want. The goal is to avoid putting any big chunks on credit.
· We will not spend money we don’t have. For instance, I need a new laptop for my college program, but I won’t buy it for another month or two because it will take me that long to save the cash to buy it outright. If we want something, we will save for it the old fashioned way. Now – to be fair, other than the flooring and vacation last year, we have always been this way so it’s not a radical departure. I’m now just a LOT more devoted to this mind set.
· For a large portion of the next year, our budget is going to be tight. But thanks to our budgeting, we will be able to still contribute a modest amount to savings even while I am grossing 55% less than usual. I also feel confident that although babies are expensive, we’re able to meet the challenge easily.
I’m not proud that we ever got in this position to begin with, but I am proud that we cracked down and tackled it before it became a bigger problem. And although we weren’t perfect during the process of paying down the debt, we still did it in about 5 months, comfortably and without depriving ourselves of life’s simple pleasures. Our lives are about to change so dramatically that it was really important that we be able to enjoy our last months as just the two of us.
Have you ever found yourself in a financially stupid place despite knowing better? It's so annoying to know it's your own damn fault for getting into such a situation. But the good news?
You can always make a plan to dig yourself out, and no matter how big or little your problems, you'll feel better every step of the way.
