Archive for category finances

The Lean Years Part 4: Why It Happened

Even though I’d created a budget, had begun to live within my means, and felt “in control” of my finances moving forward, I still didn’t quite know WHY I’d gotten myself into such a deep hole.

I think at first, I blamed others:

  • I attended a “rich” school, and it simply cost A LOT to keep up with everything happening on campus
  • My parents never taught me how to manage money
  • My high school never taught us basic living skills, like managing money
  • Credit card companies sent me offers that were too good to be true (or appeared to be too good to be true!)
  • My ex spent our money frivolously (took me a while to realize I did, too!)
  • Being a homeowner was expensive and no one warned us about all the costs that go along with it
  • My company simply wasn’t paying me what I was worth! Obviously I deserved to make more money in order to achieve the lifestyle that was expected of me.

But let’s be totally honest. No one else was swiping my bank card and credit cards for me. No one else was signing the checks. I was the one making the decision to live a lifestyle I simply couldn’t afford. It took me a long time to swallow my pride and accept that I was doing this to myself.

But, still the question: Why?  Why did I feel like I needed to live outside my means? Why did I resort to “retail therapy” anytime I felt a little down? Why did I feel like I needed  a new car just because my co-worker had a Lexus? Why did I feel like I needed to build a brand-new home? Why did I “need” a new outfit for a wedding? Who was I competing with, and why was I competing with them?

I had to get control over my emotional spending habits, and that meant asking myself some very hard questions. Ultimately I had no good answers to my questions. There was NO good reason why I felt like I need to keep up with The Jones’ (whoever they are!). It all boiled down to a lack of confidence in myself and a lack of satisfaction or fulfillment in my life that I needed to deal with.

I spent a lot of time journaling about WHY I felt a lack of confidence about myself. Much of it went back to childhood. Specifically, I always had a major fear of disappointing my parents. I had so much anxiety built up around being Little Miss Perfect that I was willing to do anything, ie: SPEND ANYTHING, to make it look like I was “successful”, “happy”, living a better life than where I’d started.

I also looked very deeply into why I was so unsatisfied with my life that I felt like I needed to surround myself with material things. I began to realize I had built a life for myself that I didn’t really like, and the person I liked the least was myself. I realized I was harboring a lot of negativity into my life. I had surrounded myself with a lot of negative people, and was holding onto drama and stuff that I ultimately couldn’t control and that wasn’t important in the Grand Scheme of Things. The unimportant things I was trying to control gave me a very false sense of importance and fulfillment.

I recognized that I wasn’t spiritually fulfilled and began going to church more regularly. I started hanging out with the Negative Nancies less and less. I went to a therapist just to chat about who I was and what direction I was headed. I learned how to differentiate between the Circle of Control and the Circle of Influence. I worked on the stuff INSIDE me, and everything going on OUTSIDE me started to fix itself.

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The Lean Years Part 3: Savings & Debt

When I was in the early stages of learning how to manage my money, I heard from two camps: 1) Save up an emergency fund before paying down debt; and 2) Save money in the long run by throwing all your money at debt first, then start aggressively saving for the future.

I wasn’t sure which was right or wrong, or best for me. I decided to just start vigorously attacking my debt so that I could save money in interest. For 3 months I made very aggressive payments towards my Visa with the highest interest rate. It was incredibly satisfying to knock off $1,000 after only 90 days.

It was even more satisfying to pay off that much while still being able to make ends meet. I was diligently keeping a checkbook and had decided to live only on cash.  After my bills were paid, I used cash envelopes to make sure I stuck to my budget: one for food and one for gas. I never spent that money outside of those 2 categories and had virtually stopped using my Debit Card. It.was.AWESOME.  I was so proud of myself, and my progress towards my goal of becoming debt-free.

But — then I had a medical bill come due. And then an unexpected car repair. Since I was being so aggressive about putting all extra money towards my debt, I had no savings and no “left over” money to pay either of those bills, which totaled just under $1,000. I suddenly realized why saving  up a $1,000 emergency fund would have been the smarter thing to do right off the bat, rather than leaving myself open to losing my job because I had no money to fix my car.

Since I needed to get my car fixed, the only option was to pay with a credit card. Suddenly I was back in the position I started in — no savings, no leftover money at the end of the month and no credit available. All because I didn’t build that safety net before throwing all of my money at high interest.

Somehow, I stayed motivated. I don’t know how I kept my positive attitude towards my goals, other than maybe knowing that I couldn’t live with the stress of being tied down by debt.

I decided to start over.  I recreated my budget with a focus on getting $1,000 saved up in an emergency fund. I didn’t yet trust myself to not spend that money on a not-so-emergent item like groceries or new boots, so I set up an online savings account with ING rather than a Brick-&-Mortar bank where I could easily access the funds at the ATM. To get the money into and out of the savings account, I had to set up an electronic transfer between my checking account and my savings account. The transfers take a minimum of 3 days, so it bought me time to think through my decision to spend the money, and spend it wisely.

It didn’t take me long to get that safety net established. Once I did, I went back to my budget and got re-focused on paying down the credit card with the highest interest rate first.

However, this isn’t the end of my story. I had a lot of mental and emotional baggage to deal with in order to truly get control of my spending habits. Getting the big picture via Excel spreadsheet didn’t solve my “need” to spend money unnecessarily. Check back soon for some of the curve balls I threw at myself during The Lean Years.

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The Lean Years Part 2: Budgeting 101

When I first started I honestly believed that I was fairly good at budgeting and had a pretty good picture of where my money was going (the necessities, duh!!). Well, it didn’t take long to figure out that not keeping a checkbook and not having an outlined budget meant that I was, in fact, not budgeting. If anyone had asked me how much money I’d spent on fast food at lunch over the previous month, I couldn’t have even ventured a guess. It was time to change that.

When I forecasted my paychecks, I discovered that there was some money left over each paycheck, albeit not much. So after forecasting my paychecks out for the next year and facing the reality of my debt balances, my next step was to figure out how I was going to live off the very small amount of cash left over each paycheck. I had to create a budget.

Like my unfamiliarity with keeping a checkbook, I had no idea how to start (and stick to!) a budget. Once again, Google to the rescue. I found a number of articles on what the “right” % of money to put towards debt and various methods for paying down credit card debt, however after a lot of number crunching, I ended up making my own plan. Of my monthly net income, 50% went to debt, 30% went to other monthly bills like rent, 5% to an emergency fund, and the remaining 15% was for living expenses: food and gasoline.  Please notice: there was no budget for clothing, entertainment, birthday gifts, charitable donations, or even vacations. There simply wasn’t enough money.

This was The Lean Years.

Since it was important to me to pay down debt so that the minimum payments were not taking up so much of my income, I did some research and came across 2 debt reduction methods that sounded promising. One was the Dave Ramsey program. The other was the Suze Orman method.

Dave said to save up a $1,000 emergency fund first, then start paying off debt using the snowball method, starting with the highest interest rate first. Suze said to start paying down debt with quick wins — smallest balance first — to gain momentum and motivation. At first, I tried Suze’s method. It didn’t work for me, but I’ll explain why in the next post.

Here’s what my budget looked like after deciding to try Dave’s approach:

My 1st Budget

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The Lean Years Part 1: Getting Real

So after coming to grips with the realization that I couldn’t afford a vacation for the rest of my life, I was determined to do 2 things:

First: figure out where I went wrong.

Second: figure out how to fix it.

Figuring out where I went wrong meant getting very real with how much debt I actually had.  The first thing I did was take my Excel checkbook with 1 year of paychecks forecasted out and add a sheet to that. That 2nd sheet was called “Balances”.  I wrote in each and every debt I had (whether consumer or personal), the total balance, the interest rate, and the minimum payment. This, by far, was the most gut-wrenching thing I’ve ever done. Ever.

My birds-eye-view of my financial life looked a little something like this:

The Starting Point

As a side note: The above spreadsheet does not include items that my ex was responsible for paying, per our Separation Agreement. At beginning of The Lean Years my FICO credit report showed a total of $240,000 in debt, which included a $165k house and joint-credit cards not listed above. Yes, that’s right… $240,000.

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The Real War in America: “I want” vs. “I need”

http://www.acf-fr.org/

Learning the hard way about "Need" vs. "Want"

Four years ago, I was living what I considered an average, middle class life. Right out of college, I had a $29,000/year job, a home, a dog, a solid $20k in student loans and a few credit cards. I was working hard to achieve the lifestyle I wanted, and had all the stuff to prove it. If I “needed” a new top, I bought one. If I “needed” a night out with the gals, I took it. And at the end of the month, if I had no money left over to pay my medical bills… well, that’s what Visa was for. Emergencies.

That’s right. At the end of the month, come the due date on the billing statement if I didn’t have any money left in the checking account (many times there was some money in there, but it was “hard-earned” money I preferred to spend on something fun and fab), it’d just get put on a credit card.  Groceries. Gas. Electric bill. Medical bill. Lunch. Buy 1 get one 50% off at NY&Co.

I didn’t see anything wrong with putting a little bit on the Visa to make ends meet — I mean, heck! The average American family has $8,000 in credit card debt, so obviously it’s totally acceptable to use the cards to finance the lifestyle I’ve worked so hard for, and so deserve. Right? Right!

Wrong. There came a day when not only was there no money left over in the checking account for my “necessities”, but there also wasn’t enough credit available. And the interest rates, naturally, were in the 20%-30% range. My minimum payments just kept creeping up and creeping up, until the point where the minimum payments on all of my bills exceeded my monthly income. Obviously I needed to make more money, yes?

Ha. With new jobs and more money came more spending. And not on paying down debt, but instead spending towards that lifestyle I deserved. I mean, why shouldn’t I get new shoes? I’ve worn these for an entire year now! And what about that dinner out with friends? Obviously it’s important to be well-rounded and it’s healthy to have social interaction. Obviously. Justification after justification had led me deeper and deeper into a pit of dispair, depression and poverty that I never saw coming…

Until the day I ran out of money and had a problem to solve: how long before I have enough money to pay for my vacation? Seriously, even after running out of money, I still believed it was my God-given American right to go on vacation. Whether I had the money or not, I was going. It was the only acceptable thing for any 20-something, college educated, hard-working woman to do when Expedia.com was offering 50% off deals.

So, to figure out when I’d have enough cash to buy my airfare, I decided to start a checkbook. I’d never actually kept a checkbook up until this point. I had no idea where to start, so I Googled “how to keep a checkbook” and away I went. I built it easily enough in Excel so that it could do all the math for me. I began entering expected paychecks and bills that I knew would need to come out of them.

After forecasting paychecks for 2 months, I realized the minimum payments on my maxed out credit cards were eating away my much-deserved vacation money. So I kept forecasting out: 4 months. 6 months. 1 year.  Still didn’t have the cash to go on vacation.  Ok, re-group. It suddenly dawned on me that I simply could not afford a vacation that year. And probably not even the next. I was utterly shocked. Who knew that attending a prestigious school, working hard, getting promotions and being diligent would lead to poverty? And yet it did.

Starting that checkbook started a new chapter of my life that I call “The Lean Years”. As a single woman, I was making more money than most couples combined, but I’d worked myself into such a vicious debt deathbed that I couldn’t enjoy even a sliver of my hard-earned paycheck.

So what did I do to turn it around?  Keep reading. Future posts will take you along my journey through The Lean Years, and into what I now call “The Age of Reason”.

How many times in your life has there been more month left over than money?

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