New to this series? Read the introduction here.
Skinny Seahorse is about my adventures during a yearlong break from my career. But this is not just my year off – Britt is not working either. Although he is (sort-of) looking for work – we don’t feel the pressure for a paycheck. Call it a family sabbatical. Call it family QT. Call it whatever you want. I am loving it and so are my kids. They don’t know how lucky they are to have mommy and daddy home together. Everyday is Saturday to them.
(On a side note – our society needs to incorporate the idea of at least one family sabbatical into our culture. I truly believe it would change the landscape of our nation. You think it’s not possible, but I believe it is.)
How did we do it? Well, it started with wiping out my debt. (I say “my” because the majority of debt in our household was mine. Mr. Frugal Pants over here already knew the ways of spending disciple.)
To be clear, my definition of debt is anything beyond a mortgage and one car. We won’t have a mortgage in a few years (a post on that later as part of this series). But we will always have a car payment – we lease vehicles. Say What? You’re reading an article about smart finance but the author leases cars? Everyone knows that leasing cars is stupid. Duh.
Baloney, I say! Unless you hold onto a car for more than 10 years, leasing can be the financially responsible thing to do. (Also a post on this later – you’re welcome.) (Update 4/15/2013 = here is my post on why I lease a car.)
The reason we lease is because I like, no need, to have a new car. Hi, my name is Dianne and I’m a new car-a-holic. My vice is new car smell. It’s a weakness. And partnering with your weaknesses is the key to paying off debt. Confused? You’ve always heard that the trick to paying off debt is to tighten the belt and stop spending. Well yes – to some degree, but conventional wisdom is wrong. Read on and I’ll explain.
It is a bit embarrassing to publicly admit I was in debt. I’m a CPA, so doesn’t that mean I am a financial know-it-all? Well, I suppose I’m a know-it-all (ha), but when it comes to my finances, it’s a bit like the proverbial mechanic who drives a broken down piece of you-know-what. I work(ed) on financials all day. The last thing I wanted to do when I come home is to worry about my own.
Debt happens, particularly when you’re young. Habits develop and habits are hard to break. I always felt like I was the only one with a problem. On the surface, I was making smart money decisions. I started saving for retirement when I was 22. I bought my first condo when I was 24. I sold that condo 2 years later and paid off $25,000 in student loans. I read all those smarty-pants financial magazines. You know – Money, Kiplingers, blah blah blah.
Even with all this brilliance – I made some poor decisions. If I wanted something, I bought it. I deserved it – I worked hard! And nobody tells me no! It didn’t matter if I didn’t have the money to buy whatever the thing was at that moment – I would just put it on a credit card. Strange, I know! I would put 15% of my salary away for retirement, but I would rack up a credit card bill for the newest Coach purse.
So this was me…
Until I got the bill. Then this was me…
(Just pretend both women are brunette. I couldn’t find any pictures that look like me – go figure.)
Getting out of debt was not a wink, a nod and a wiggle-my-nose transaction.
This didn’t work….
Neither did this…
I just memorized the card numbers. Along with the expiration date. And whatever that 3-digit thing-a-ma-jig is on the back.
It took many years, a lot of reading about how other people did it, multiple failures by following what everyone else said I should do, wising up that I needed to do things differently and finally, FINALLY, this was me…
(No – that’s not me either.)
I prevailed. This is what it took:
- An honest self-analysis of my behavior, habits and patterns
- Setting a budget that works with my weaknesses & bad habits
- Inverse relationship between income and expense (one where the income is rising – not the expenses. Don’t try to fool yourself – the other way around doesn’t work. Trust me on that.) In other words, living below your means.
Those are three tough things, right? The first one was the hardest – it hurts to be honest with yourself. The second was pivotal in my triumph against debt and was really where I went against the grain. The third, well, this is just the mechanical step in paying off debt (and for saving).
My self-analysis was not a formal sit down and fill out a questionnaire type process. It was more of a simple internal examination of my habits and looking at my own historical trends. When I did this, I found that when I planned to pay down my debt, each time I would do the same thing…
- Write out a plan
- Set a timeline
- Set a super tight budget
- Plan to stick to the budget
My problem is that I can stick to something hard for only so long. And then I fall. Once I fall, I fall far. Then I find myself worse than when I started. A bad cycle.
So I realized that my budget needed to cater to the fact that I can’t always stick to a plan. I needed some wiggle room for failure. I then looked at what caused me to fail. In the business world, we call this a root analysis. What I found was that it was almost always one of three things:
- an unexpected expense
- something new that I had to have
I was keeping my budget so tight that I was not planning for the new summer line of Coach handbags. Or a really bad day at work. Or a fight with Britt. Or when when my hot water heater leaked. Or when the new car smell disappeared. You catch my drift?
What I’m really trying to say is I HAVE NO DISCIPLINE when it comes to things I want and I’ll always find an excuse.
As soon as one of these things happened – and they always did, well then I was over budget. And since I was over budget, why not keep going, right? I could always start over next month. And since I was going to be on an even tighter budget next month (because I had to make up for my lack of discipline), I better get everything I need now. Oops I don’t have any cash – better put it on the card. Yep – the never ending cycle.
So what I needed was a budget that allowed for my flaws, if you will. In the next post of this series, I’ll talk about how I set up my budget. The one that actually worked for me. I’ll go into detail about how I set up specific line items, separate bank accounts for those line items and created some “spend it on whatever you want” categories. I’ll even show you my budget spreadsheet.
Are you like me? Have you tried paying off your debt but fail over and over again, like I did? If so, I encourage you to sit down and think about where and why you fail. What are your spending habits? When does your spending spike? Is it when you’re upset or is it when you’re on top of the world? Do certain people trigger your spending? Rather than fighting your weaknesses, you need to work with them. Use your weaknesses as strengths. Partner with them. Think of them as your friends. Because they are. They are YOU! And you like yourself don’t you? Don’t you?
Not in debt, but find that you aren’t saving anything. Join me in the next post when I talk about how I set up my budget. Getting out debt and saving are pretty much the same thing. One requires you to pay others; one requires you to pay yourself.
Or are you one of the lucky ones – like my husband? If so – share your tips.
Whatever you’ve got – leave a comment. I’d love to hear from you.
Have a blessed day. See you at the next post.