I decided to start a new thing on this blog – Personal Finance Fridays!
Personal Finance has become a big part of my life, and is something I have a vested interest in (no pun intended, heh) because I’m getting myself out of debt, and I want to be financially secure in the future.
I’m sometimes asked what my short-term goals are and I usually say “Oh, I want to finish school, lose some weight, and get out of debt.” I sometimes get the response, “Oh! I want to get out of debt too. What have you been doing that helps?”
- I decided one day that enough was enough and I was going to do something about it.
- I created a simple balance sheet in Excel and put in all my paychecks and all my bills with dates for each item. This morphed into something pretty spiffy over time.
- Started figuring out how much I spent each month for food, gas, and household items and included that in the budget. This helped me see that I had enough for all my bills plus all my expenses, and it showed me how much I had left.
- Tracked my debts. I pulled out all my current statements and put it all in the budget. The credit limit, the balance, the interest rate, the payment due date, and my priority for paying them all off.
- Opened a second checking account just for spending on food, gas, and household items to keep my daily spending separate from my bills. I transferred the money I needed for those items from my main checking into my second checking account, and I never used the debit card for my first account. This protected the money I budgeted for my bills… because it has to be protected from myself LOL just kidding.
- Started carefully considering each thing I buy. If I’m thinking of getting something, I pause and think about whether I really should get it. As a result, I stopped going to coffee shops and started bringing my own lunch to work.
- Tracked all my spending. When I got to this point, I wasn’t even sure I wanted to go there, but I jumped in and realized it was actually kind of good. I wanted to see everything I spent in a pie chart.
- When I get tired of tracking everything, I persevere by reminding myself that even small choices will help me clear my debt and free me up in the future.
So that’s it.
I think there are things I could add to that list that would be helpful too. I want to read a few books about personal finances to get some more ideas. I also want to open a high interest savings account.
Some people feel like a budget is like a self-imposed prison. I think it’s actually very useful, as long as you don’t let it rule your life. When I’m asked, “how can you stand having a budget? Doesn’t that drive you crazy? Isn’t it a little obsessive?” And here’s what I say: It’s actually been empowering and liberating.
1. I’m sick of being in debt.
Honestly, when I really saw how much debt I had, I was horrified and disgusted. I was also saddened. I knew that it was all because of myself. No one forced me to do it. Sometimes I get so sick of having debt that I feel like living completely bare bones, and cut back on food. But then I remind myself that I’m in the home stretch and I only have 6 more months of paying stuff off.
2. The benefits of a budget: Seeing where you’re at, and planning where you want to go.
I decided to let bygones be bygones. I can’t change the past. I can only affect what I do from here on. So I thought, “ok, what can I do?” and I created the budget. I knew enough formulas in Excel to create what I needed. It was basically a glorified balance sheet with a lot of color in the beginning.
When I first created the spreadsheet, I put in all my income and bills and I saw that I was actually fine, and it was a big relief. I had been stressed out about money for two years at that point. Big time. When I saw what my financial reality really was, I realized I could pay everything off. It’s amazing how when we are ignorant of something, we can get so stressed out unnecessarily. The truth can be really liberating.
I kept going with it and put in everything up to 2014 based on my current income, which I know will change. I could also see how much extra I would have by 2014… hehe. Based on how much extra I had between paychecks, I could budget that money toward debt repayment, and I could see exactly how long it would take to pay off my debt.
I realized I could pay everything off in 15 months.
Then I had to pay my U of M tuition back, and that pushed everything out. That was $5500. I finished paying that off in May, and now I’m in the home stretch!
You know what too? I’m not going to blow money once I’m out of debt. Being careful about money has become a habit that I really value now, and I think I’m always going to do it. I will still keep a budget, and put all my extra money in a savings account for the future.
3. Debt sucks, but so does not living your life.
Letting debt rule your life totally sucks. Before I started the budget, I would stop at a coffee shop if I felt like it, or go out for lunch if I felt like it. That contributed to my financial problem. I was just doing what I felt like doing in the moment. While that’s not bad in general, I think it can be bad if you’re not tracking your spending. More on that later.
Once I had my budget in place, I added in a $70 haircut at the Aveda Juut Salon. I’m not going to compromise on a good haircut. I’ve had too many bad haircuts to know that for me, it’s actually a waste of money to get a cheap cut because I think it takes a special stylist to know how to give me a good cut. With my last haircut at Juut, I found a great stylist who knows how to cut my hair. Each strand is fine and I have a lot of it and it is wavy, so it needs a good cut to help it out.
4. Tracking my spending.
Once the spreadsheet had been up and running for a while, I took a leap and added a daily expense tracker so I could create a pie chart of my spending. When I started doing this, I was glad I was the only person seeing it. It wasn’t quite the rosy picture I thought it was. Not to say it was bad, it just wasn’t wonderful.
The more I did this, the more I came to appreciate it because it keeps me more on top of things. It makes me feel like I’m more responsible. I keep all my receipts in a separate section in my wallet, and when I get home, I put it all in the tracker.
The flip side is, if you’re not tracking your spending, one day you’ll look at your bank account and go “Damn, where did my money go?” This has happened to me many times. And the scary thing is, stuff doesn’t always show up right away in your checking account. It depends on when the vendor processes it. So when your account is low and you think you spent some that might cause you to overdraft, it’s super stressful. As long as you track your spending, you’ll know exactly where you are every day, and you can relax because you know that if you feel like getting a pop for $1.25, you won’t get a $35 overdraft fee.
There has to be a little bit of room for things like going out to eat every few weeks, or going to see a movie… it’s important to enjoy things. Everyone should be able to spend money on something they enjoy.
There are also some people who say, “It’s really irresponsible to get into debt like that. How can you go buy a $1.25 pop when you have so much debt? Don’t you feel guilty? I would freak out if I had that much debt. You should be putting everything extra toward paying off your debt.” Yeah whatever.
There are also some personal finance blogs out there that say that if you are in debt, you shouldn’t spend $1.25 on a pop because pop is not a necessity, and you could put that $1.25 toward paying off the balance on your 26.99% interest credit card. Because $1.25 isn’t just $1.25. It’s $1.58 per cycle at that interest rate. And then they say that once you pay one bill off, you could snowball the next $1.25 pop you would have bought later into paying off your next debt, and on and on. OMG. Please. If I want a pop because I want to enjoy a cold, refreshing pick-me-up that will help me get through the rest of my day, then I’m going to get it. I think it’s really important to be level-headed and have a healthy perspective. There has to be balance. Of course small amounts of money can be put toward paying something off but it’s crucial not to get obsessive. I’m not going to become a stingy person. Since I have a plan for paying it off, I’m not sweating it.
I do, however, think that if someone has a lot of debt and they’re really stressed out about it, they don’t have a budget, AND they’re not tracking their spending, then it might be better for them not to spend $1.25 on a pop ONLY because if they don’t know where they are financially, how will they know that that $1.25 isn’t just enough to prevent them from being able to pay their rent on time, or their phone bill? Without knowing for sure, it’s better to be safe. That’s just how I feel.
5. Tracking my debt as I get new statements in the mail.
Every time I get a statement in the mail, I update my budget with the info in it, i.e. the new balance with the new interest that has accrued during the previous billing cycle. It pisses me off that it goes up as much as it does because of interest, but that motivates me even more to pay it off as soon as possible.
6. Switching things up a little.
After I started the budget, I stepped back and looked as objectively as I could at what I spend money on. I asked myself, “am I too lax about how I spend? Should I be more disciplined, more careful?” I think it’s important to be straightforward with your self about these things.
I also thought about why I pay for certain things (i.e. gym membership, cell phone bill, etc.), and if there was a way to get it for cheaper/better, and what it is really costing me.
For example, I looked carefully at my cell phone bill and I have a plan for unlimited minutes and unlimited text, but I usually don’t use more than 500 minutes/month. It’s really more like 450-470, and there is a plan available for 500 minutes/month. But there was a time when I had a plan like that but I used my phone more and got burned pretty bad a few times with overage charges. I switched to unlimited because I wanted the peace of mind of knowing my cell phone bill would be a certain amount each month. So I decided to keep my unlimited plan.
I also quit getting coffee at the coffee shops. I was spending about $4.50 per coffee, and I almost always didn’t enjoy it because it was too strong, too burnt and covered up with too much sugar. I found a good recipe for what is basically a coffee cooler and I make it at home. It almost tastes like Haagen-Dazs coffee ice cream with less sugar! It’s SO good. It’s what I wanted from the coffee shop, and I can make it at home. I love it. Plus it saves me a boat load, and I know how many calories are in it. The recipe is 1 cup milk, 1.5 tablespoons sugar, 1 tablespoon Folger’s instant coffee crystals, mix it up with a spoon till the sugar and coffee crystals are mostly dissolved. Put it in the blender, add 5-6 ice cubes, blend it up, and voila! A frosty, creamy, lovely coffee. And it’s not bitter. And a gallon of milk at Costco is $2.39. Just sayin 🙂
When I start feeling like a hamster on a wheel, I reorient my attitude by remembering why I’m doing it, and I remind myself that the end is in sight.
I get tired of seeing that when I make a minimum payment of $45, most of that went into the black hole abyss of interest. But then I look at my budget and see that when I get my next paycheck, I can pay $550 toward paying it off, and it makes me feel better.
I’m actually really lucky for being able to pay off my debt the way I am. I am really appreciative to have the job I have that allows me to do this.
Appreciation helps me persevere.
That’s pretty much it.
I just keep at it, and keep trying. I buy things I regret once in a while but I just keep reminding myself that I’m on the right track.
I think the main thing is that if you want to get out of debt, you have to find ways to make it work for yourself.
That’s really it. It sounds like it makes a lot of sense when it’s all together, but the process of coming to this point was something else. It was a gradual process of making small changes over time that has become a habit. It has been emotionally draining at times, but keeping my budget and spending organized has helped me tremendously.