It Is Actually Happening!

We get paid on the last business day of each month. Getting a paycheck only once a month was tough, at first, because if money runs low, there is no more coming in a couple of weeks later. On the other hand, it makes budgeting a lot easier, and we don’t have to juggle which paycheck will cover which bills. During the first week of each month, I update Quicken for all of our various accounts. This month I was updating balances in our debt reduction plan and I looked back to this time last year.

We spent a lot of time in the last year feeling frustrated because it seemed like the balances never went down. Well, I am happy to report that despite that frustration, we have eliminated $12,000 in debt in the last year! I believe the true total of what we paid off is actually $19,600 because we had financed a few things that were not included in last year’s totals. Some of what we financed was what we consider necessary, like vet bills, some was justifiable, like my stand mixer that allows me to make all of our bread, and some of it was just frivolous, like tickets to a show.

So, despite a significant amount of slip ups in our plan, we have lowered our total debt by a very large chunk in just one year! It can actually be done, even on one income, even with four kids. If you are trying to pay off debt, don’t get discouraged if your balances don’t seem to be going down. If you make a mistake and purchase something you shouldn’t, don’t give up. It really can be done, and you don’t have to be perfect, or live Little House on the Prairie style to do it.

Long Term Goals

The whole reason we started working on getting out of debt was because we really want to be able to own a home. When we first got married, house prices were pretty low, but my husband’s job was not very secure. He was teaching, but he was on an emergency credential which meant that he was almost guaranteed to be laid off at the end of every school year. We didn’t want to commit to a mortgage when we didn’t know what our income would be like in a year or so. Once he was finally fully credentialed, we didn’t even consider trying to buy, because the house prices in our area were so ridiculously over inflated. We were starting to feel like we would never be home owners. Fortunately for us (but unfortunately for many recent home buyers,) the housing bubble burst and prices started coming down. Unfortunately, home ownership had seemed so out of reach for so long, we had not been preparing for it. We had too much debt and no savings. The down side for us of the bubble bursting is that home loans are much harder to come by now. Your credit has to be good, not just OK, and there is practically no such thing as 100% financing anymore. I knew what we had to do, we just hadn’t actually been doing it. When we got serious about getting out of debt, I started this blog.

It was really frustrating at first. We were paying well over the minimum payment on our highest rate debt, and paying the minimum or just a little over the minimum on everything else. The balances never seemed to go down. When we would make some headway, the car would break down or some other expense would set us back. We were still relying on our credit cards too often. On top of that, our debt reduction plan included a program to pay off student loans for teachers who work in low income schools. If we got the loan paid down to $17,500, the program would pay off the rest, once my husband finished his 5^th year teaching at a qualifying school. This year is my husband’s 7^th at his current school, and his 5^th as a fully credentialed teacher at that school, so come June, the rest of his student loan would be paid off. Or so we thought. When Mike applied for forbearance on his remaining loan so that we could apply that payment elsewhere while we waited for his anniversary date to roll around, we were told that he did not qualify for the program because his first student loan was issued 6 days before the window for this program began. Six stupid days. In the three years that we had been communicating with them while we paid his debt down to below the $17,500 cut off, no one at this program had ever bothered to mention that we didn’t qualify. We had been counting on that debt to essentially eliminate itself, and now we would be paying it off ourselves. It was a big blow to our morale.

Things got a bit better when I checked in on a Gifttrust I had. We decided to cash it out, and it gave us almost $3000 extra. Instead of using the money to buy things we wanted, we set some aside to get our van fixed because it was having some issues, put $1000 into our savings account so that future unexpected expenses wouldn’t have to be charged, and sent $1200 to our highest rate card.  Having that emergency fund really, really helps. Now I know that we can get the car fixed or whatever without making our debt situation worse.

We just got done filing our taxes and we are expecting a nice refund.  Even before the return was filed, we had already virtually spent pretty much all of it. We will replenish our emergency fund, and but an extra $500 in it, to make it a total of $1500. Some of it will be used for Mike to be able to attend his sister’s wedding in Texas. A large chunk of it will be used to pay off a credit card. A couple of hundred dollars will be set aside for me to attend a Women’s retreat in October. If there is anything left after that, it will be applied to the debt as well. After we figured all of that out, I took a fresh look at our debt reduction plan. If we are able to stay on track, we will be completely free of credit card debt by October. That still leaves us with Mike’s student loan, and another loan that is the result of a previous attempt at debt consolidation, but all of the really bad, higher interest, and rechargeable stuff will be gone.

Originally, our plan was to completely pay off all of the debt, and then start saving for a down payment, and THEN buy a house. After our car got broken into twice in 2 months, we realized we have to get out of this neighborhood as soon as we can. It was once a great neighborhood, but has been steadily declining for years. Now, sirens and the sounds of the police helicopter are normal, and we need to get out before it gets much worse.  Using a bit of online research, I found that even with those last two debts, we will be in a pretty good position to get a home loan once the credit cards are paid. That is, if we can come up with a down payment. In order to speed up our timeline, we have decided that in October, when the credit cards are paid off, instead of applying that payment to the next debt, we are going to put it into savings for a down payment. We will continue to pay the minimum payments (or slightly more) on the remaining two debts, but we won’t be paying extra until we have accumulated a good down payment. Our tax refund for next year (if we receive one) will also go towards a down payment. If we are able to stay on track, we should hopefully be ready to start buying a house in a year. Our goal is to be moving by early summer 2012.

Needs vs. Wants

Many years ago, I had a neighbor who would come over every month to use our phone so she could call the phone company and get her phone turned back on. Each time, she was in a panic because her husband was in the military and was required to have a working phone at home, so she was afraid that he would get reprimanded if his commanding officer tried to contact him before the phone company got it switched back on. This same neighbor would get take-out food several times a week, and always had cable service with premium channels. Somehow, I never really felt sorry for her when she would regale me with tales of their financial woes.

As I have mentioned once or twice, saving money, whether you need to reduce your debt, save for a large purchase, or just live within a small budget,  really just comes down to determining needs versus wants. A person’s basic needs come down to food, water, shelter and clothing. I could survive by eating rice and beans, drinking only water, having only 2 or so outfits to wear, and living in a one room shelter. I’m not saying it would be a fabulous existence, but it could be done. With that in mind, almost everything I own is a luxury. For me, the realization that I have so many things that I don’t truly need, helps me deal when I can’t afford to buy something I want.  

We live in a society that puts a high value on material possessions. We are bombarded by advertisements that try to convince us of all the luxuries that we need. The truth of the matter is that the vast majority of us don’t need any of these things. Nobody needs a high definition television. Nobody needs a television at all. If you are trying to pay off debt, you do need to control your spending.

For me, a few luxuries make the other sacrifices easier to swallow. It comes down to deciding which luxuries are worth it, and which ones aren’t. For example, I don’t need a high speed wireless internet connection in my home. It is very nice to have, and it allows my husband to do some of his work at home, and allows me to have this blog, so we decided that a broadband connection was worth the expense for us. It would also be nice to be able to access the internet from my cell phone. I could find the cheapest gas prices nearby and get driving directions when I lose my way. In the end, I spend most of my time in my house, and I don’t travel to places I am not familiar with very often, so I couldn’t justify the expense of a data package for my phone.  

Which expenses are worth it for you, depends on your particular financial situation. If you are only making minimum payments on your debt, and you have trouble buying food and paying utilities every month, then you really have no business spending $60 a month on satellite television service. On the other hand, if you have and are following a debt reduction plan and can comfortably pay all of your bills, spending $20 a month on a Netflix subscription can make it a lot more tolerable to skip that movie night or dinner out.

I have found that many of the luxuries that we cut out of our budget we have been able to replace with less expensive alternatives that are almost as good, or sometimes even better. The more your expenses exceed your income, the more things you need to cut. It isn’t always easy and it isn’t particularly fun, but neither is being $40,000 in debt (and that does not include a mortgage!)

Excuses, Excuses

Since I have started to try to live more frugally, I have had a few conversations with friends and family about financial struggles. One thing I have noticed is that no matter what our individual situation entails, it seems there are 2 possible solutions. If your income isn’t enough to cover your expenses you either need to find more income, or reduce expenses. Going out and finding a 2^nd job or a higher paid position isn’t that easy these days, but I don’t personally know anybody who doesn’t have at least some areas of their budget that they can reduce.

For me, as well as most people I talk to, getting started on making better financial decisions isn’t always easy. Sometimes, making excuses for why we can’t stop frivolous spending can be all too easy. Here are some of the excuses I have heard, or have, at some point, tried to use myself.

It was such a good deal.

While it can be a good idea to stock up on things you need when they are on sale, buying things that you do not need is a waste of money, no matter how much of a “good deal” it is.

My self esteem is tied up in getting my hair done, pedicure, manicure etc.

First of all, I believe that true self esteem comes from being proud of who you are, and what you do, rather than from how you look. While a new outfit, or hair-do can give you a temporary mood boost, that will fade, and if you aren’t happy with the person that you are, that outfit isn’t going to fix that. I often struggle with self esteem issues, and have turned to retail therapy to make myself feel better. The thing about it is, when the end of the month rolls around and we don’t have the money to pay that bill I forgot about, or to buy that box of diapers that we need, suddenly those retail therapy purchases don’t make me feel so good.

What does make me feel good is getting all the way through the month without accidentally overdrawing our checking account, or sending one of our credit cards an extra payment. Sure, it isn’t as glamorous as a pedicure in the short run, but in the long run living within our means is helping my kids learn to be financially responsible, and is helping my family move toward home ownership.

Why should I cut back on this when you spend on that?

When one spouse uses the other spouse’s financial missteps to justify their own, it can wreak havoc on a budget. Saying “well, she bought that new dress, so I can buy this new phone” is a lot like misplacing ten dollars and using that to justify throwing another ten in the trash. It can be tough when backslides happen, but instead of deciding to backslide further, learn from your mistakes and keep moving forward.

When spouses aren’t on the same page about their financial situation, it can be even harder to get your debt and spending under control. I am a stay at home mom, so my husband is the sole wage earner for our family. However, I am the one who pays the bills and balances the checkbook. If I didn’t talk to my husband about our finances (and if he never asked,) he would be mostly clueless about our debt situation. If your spouse doesn’t see the need to save money and get out of debt, you have to show them the reality of the situation. Write out a monthly budget to let your spouse see exactly how much income you have, and how much you spend each month. You might want to point out areas of spending that could be reduced. If your spouse is resistant to cutting back, don’t expect them to be willing to cut out all of their luxuries at once. Even stretching out the time between haircuts for one extra week will help cut costs. If you and your spouse have been in the habit of using each other as an excuse to spend excessively, you may need to present cuts in a format of, if you give up this, I will give up that. Hopefully having the numbers laid out in a calm, rational way will allow your spouse to see the need for frugality. Even if it doesn’t and they insist on eating lunch out everyday, you can still save money on the things you can directly control. Every little bit really does help.

I buy things for myself because I didn’t have anything growing up.

It can be very tempting to indulge your inner child, especially if you had to go without a lot growing up. If your financial situation is causing you stress, or you are in danger of losing your house, or car, you have to stop indulging the child that you were so that you can take care of the adult that you are. Odds are pretty good that your indulgence helped get you into debt in the first place. In order to climb out of debt, you have to stop frivolous spending. Period.

I have reward points that will expire if I don’t use them.

I currently have a $10 reward check from a store credit card. It expires at the end of this month, if I don’t use it I lose that “free” $10. Last time I was in this particular store, I didn’t see a single item for less than fifteen dollars. If I insisted on using up my gift check, I could buy a fifteen dollar item and save ten bucks, so it would only cost me five dollars plus tax. On the other hand, I could not get anything and it would cost me zero dollars. It doesn’t cost me anything to let that check expire, but using it costs me money.

The trick to moving towards a frugal life style is being completely honest with yourself. Once you get past the excuses for spending, you have to learn to distinguish between needs and wants and between can’t and won’t. That is the part that really seems to be a barrier for people. We are constantly inundated with information telling us all the toys and gadgets we need. When you really get down to it, your needs are very little, and the vast majority of everything else you have is essentially a luxury. Once you wrap your head around how many luxuries you really have, it makes it a lot easier to cut back on the frivolous spending.