Eliminating Debt

Strategies to Avoid Slipping Back Into Debt

Posted by jefferson on May 15, 2013 in Eliminating Debt | 21 comments

For a couple that recently paid off a giant pile of consumer debt, the months after reaching zero can be a bit of a dangerous time.  The time that we spent in full-on debt reduction mode was filled with sacrifice and boredom, and we both emerged with some serious withdrawal. Our cash flow is in a much better place without all of the payments to our creditors, which means that there should be a buffer to handle some of the things that we have been putting off.

However, we didn’t work this hard for this long just to dig ourselves another hole. While we no longer have to live a life of lacking, we also can’t drop back into the bad habits where we were spending more than we earned.  My wife and I promised each other that we wouldn’t go back into debt, no matter what.  To make sure, there are certain strategies that can be followed to keep us on the right path, and to keep from slipping back into a bad financial situation.  The skills that we learned during our 14 month frugality marathon can continue to work for us.

Don’t Fear the Budget

Budgeting is absolutely essential when you are in debt reduction mode.  In fact, I advocate a system where you track every dollar that you spend and do anything it takes (take on extra work, sell old valuables) to make sure that your budget is happy.  Now that our cash flow situation doesn’t look like a scene from a horror flick, that type of fine-grain analysis is not a requirement.  However, you still need to have a general idea of how much money you are pouring into various spending categories.

In addition to tracking our (mostly) fixed expenses around utilities, our new budget sets basic guidelines around how much we should be spending on variable expenses as well.  We have buckets for everything from home supplies (cleaning products, paper products, etc), to work lunches, to girly beauty supplies.  If the spending for these categories is approaching the budgeted amount, we force ourselves to put off additional purchases until the next month.

To accommodate some larger goals, we recently added some new buckets as well.  We have a bucket for clothing, which accounts for new shoes, replacing worn-out jeans, etc.  We have three kids and they go through clothes pretty quickly at times, so we had to make this bucket large enough to accommodate that.  We also created a few savings buckets to help us reach our long term goals as well.

The Path Less Costly

As our debt-free date approached, many of our readers asked us if we were going to take a huge expensive blowout vacation to celebrate the occasion.  After all, we went without during the entirety of 2012,  and all five us were itching for some some sunshine, waves, and a few days of escape from the grind.  Now that we have reached that goal, we have a number of things in the works.  First and foremost, my extended family is all getting together this summer in southern Texas for a large family reunion.  We had considered flying down there and renting a car for the occasion, but the cost of doing this would be nearly $2000.  Instead, if we drove the 15 hours, we would only pay a fraction of this cost and would be able to potentially stop and visit some other family on the way down.  Although flying would certainly be easier, the practical and frugal route is to drive instead.

In addition, I have long been wanting to take my wife on a romantic vacation just for a night or two somewhere out of town.  This type of trip can certainly be cost prohibitive, so I have been developing a strategy using credit card reward points to help cover the costs (don’t worry, we are paying the card off immediately each time we use it).

Of course, vacations are only a small part of the costs that creep into our lives on a daily basis.  We are using the knowledge and lessons learned from our debt reduction phase to make good choices on a seemingly daily basis.

Keep the Communication Lines Open

I am always grateful for the fact that my wife and I have a completely open marriage.  No, not THAT kind of open marriage–gross.  I am talking about our communication and finances here.  We share our bank accounts, and we share responsibility for keeping the finances in good order.  Each month, we build our budget together, and whenever we are making a major purchase, we both spend time researching the nuts and bolts of everything about that purchase.  When times are tight, we both are willing to tighten our belts a little bit and find ways to scale down our spending.   In addition, when we find ourselves needing to scramble to overcome a shortfall, we are both willing to hustle and find some additional income sources.

Money is the number one thing that couples fight about in this country, and the benefit of open communication is that there are no surprises.  If there is something that either of us wants to spend money on, it is never an issue– we aren’t each other’s babysitters.  In this scenario, we just check the current state of our finances, and make sure there is room to fit that particular purchase in.  If there isn’t, then we may have to wait a paycheck or two to slot it in, which certainly isn’t a big deal.

—–

After fully understanding the gravity of what it means to be buried underneath a pile of consumer debt, we don’t plan on ever going back.  We want to be the ones who decide how we allocate our cash flow, instead of just pouring it into the coffers of a bunch of creditors.  If you are currently in debt and looking for a way out, don’t panic.   You can do it too.  The articles and stories told here on See Debt Run can help you show the way.  Click here for more information.

Teaching Kids About Money

Posted by jefferson on May 13, 2013 in Eliminating Debt | 18 comments

The following is an excerpt from the eBook “The A-to-Z of Saving Money”, which features 26 amazing articles by some of the best bloggers in the business. This book is now available for the new amazingly affordable price of $4.99. That’s right, for less than 5 bucks, you will get access to an outstanding eBook that includes previously unread articles written by both Michelle and myself.

_______

I remember the day that I realized that I needed to make it a bigger priority to teach my kids about money. I was at the local electronics store playing with the iPads with my ten year old son.

“Dad, we should totally get one of these“, my son told me.
“They are fun. But I can’t afford to buy one right now”, I responded.
“That’s okay, dad. You can just put it on your credit card.”
“Uh, but then we would have to pay it back, with some interest. You can’t just put things on a credit card if you cannot afford them.”

My response was met with a completely blank stare. He was completely baffled by the concept. He clearly had no idea what interest was, what credit was, or what it truly meant to swipe that little plastic card. It was clear that my wife and I needed to open up our kids’ tiny little heads, and start pouring in everything that we knew about finances.

My Story

In my childhood, my parents really didn’t put forth much of an effort to teach me about money. I received a small allowance as a teenager, but never had to work very hard for it. My parents lived a fairly frugal lifestyle, and I certainly learned by watching them, but I never developed the skills to manage my own finances. At some point everyone must learn to understand the difference between wants and needs, and to realize that in order to get the good things in life, you need to put in the work and have patience.

When I graduated from college, I found myself a single man with zero responsibilities and a healthy paycheck. But with no idea what to do with this money, I managed to remain living paycheck to paycheck, spending my money mainly on bar tabs and concert tickets.

A few years later, I met my wife and we started a family together. We bought a house and traversed through a cycle of spending and budgeting for years and years until the levee eventually broke and we found ourselves deep in credit card debt, needing to make dramatic changes. We have since righted the ship and vowed to never go down that path again, but it took a serious wake up call to get us there.

I know that our story and our struggles are not unusual in today’s society, but I do want my kids to have a more healthy relationship with money than my own. A few years ago, my wife and I spent a few months reading everything that we could on the topic and decided to make some changes that would help our kids to begin to understand the world of finance.

Model Behavior

The most important thing that you can do to teach your children about finances it to walk the walk yourself. If you are constantly lusting after the newest possessions or dreaming of something bigger and better, than you can be sure that your children will do the same when they are older. If you drag your kids along to endless shopping expeditions to the local shopping mall or mega-store, then by proxy you are teaching them that the proper way for adults to entertain themselves, is to go out and spend money.

Contrarily, if you incorporate healthy money habits into your life, your kids are much more likely to adopt the same behaviors. If you keep your house clutter-free and sell or donate items that you don’t use, it helps to show that there is more to life than material things. If your kids see you comparison shopping, hitting the clearance racks, or clipping coupons, they will start to understand the value in saving a few dollars wherever possible. You might even be able to include your kids in the family budgeting process!

Many adults are afraid to talk about money in front of their kids, but it doesn’t have to be a taboo topic. Money can be a powerful tool to get the things that you want in life, but there is no reason to shroud it in secrecy. I certainly don’t tell my kids everything about our financial situation. They have no idea how much money I make, and their guesses on how much our house cost range from $5000 to $5 million dollars (obviously, the true value is somewhere in the middle). However, I will freely admit to them when times are tight and we won’t be able to go out to eat or go to a movie. In the past few years, I have talked to them about everything from retirement savings to mortgage refinancing. I figure, the more that they are exposed to the concepts that make money work, the more that they will absorb.

Feeling the Savings

Every kid seems to receive money, at least a few times per year. However, what the kids will do when they get this money can vary wildly from child to child. Our oldest son often started begging us the minute that he received a cash gift to take him to the nearest toy store so that he could pick something out. Since it was his money, it felt wrong to tell him that he wasn’t allowed to spend it. After a few days of nagging, we would eventually relent and he would spend every last cent on Pokemon Cards, or another toy that he would love for a few days and then promptly forget about.

His little brother on the other hand, was content to just put every dollar that he received into his wallet, where it would stay untouched. While an instinct to save came naturally to him, it was obviously a much greater struggle for his big brother. We needed to find a way for his brother to learn how beneficial this type of behavior can be.

This is where custodial savings accounts come in. A few times each year, many popular banks offer a special where they give a small cash bonus for opening a savings account. We used this opportunity to open up an account for each of our kids, giving them each a nice little financial bonus to step into savings.

The benefits of having a savings account for the kids are many. First and foremost, the money earns interest while it is sitting in the bank. This news was music to the ears of our middle child, who was thrilled to learn that his money could grow on its own when he saved it. For our older son with the strong urge to spend, the biggest benefit of the savings account was the fact that his cash wasn’t immediately available for impulse spending. It takes 3-5 days to transfer the money from the savings account to a usable format, typically enough for most impulses to die down. This is a similar strategy to the concept of freezing your credit cards in a block of ice that some financial experts advocate.

A year after opening these accounts, it is clear that our oldest is starting to understand the benefit of saving your money instead of spending it immediately. Instead of a drawer full of cheap toys that he forgets that he even bought, he now has a few hundred dollars in the bank. This is enough to purchase something that he can truly enjoy, or to just sit back and watch it grow until he will really need it.

 _______

This is an excerpt of my “Teaching Kids About Money” article from the eBook “The to A-to-Z of Saving Money”. To read the rest of the article, along with 25 other articles from some outstanding financial authors (including one by the heart and soul of See Debt Run, Michelle), you will need to purchase the eBook for only $4.99.  You will receive your copy of the eBook immediately after making your purchase, including the entire article excerpted above.

Budget Like A Rock Star

Posted by michelle on May 9, 2013 in Eliminating Debt | 9 comments

Thanks to the celebrity-obsessed media, we constantly hear stories of professional athletes who squander their bloated salaries, lottery winners whose winnings are spent before they’re even counted, and celebrity millionaires who can’t even balance a checkbook. We the common folk rarely get to see this up close and personal, and even fewer live it. For Jefferson and myself, we still haven’t tasted riches, but we have successfully made the switch from carrying debt to having a surplus and the question of what in the world to do with it. We recently sold our house and will be moving into a new home later this month. While we won’t be rolling in the dough necessarily, we will have a nice chunk to play with, so to speak. We are so relieved to be free from debt that we are in no way planning to splurge on all new furniture (Our broken couch gets to stay. It’s a conversation piece after all.), but we do have a new understanding of the riches to rags phenomenon. The less-known phenomenon is a little easier to grasp, and it’s called the debt cycle.

Looking back at how much debt we paid off in a little over a year’s time, you can easily see that we were super motivated and frugal as you-know-what the whole time. A lot of what got me through with my sanity intact were my dreams of our better life that was just around the corner. Undoubtedly, a lot of my dreams were of what I was going to buy and where I was going to shop once I was debt-free. Sounds great, right? Wrong. We still have to budget and we definitely can’t get all of the things I’d been dreaming we would. Not now, and maybe not in the next ten years. We are getting a new house, and that is an amazing feat for this recently debt-burdened family. However, that’s probably where our spending will have to cease until later this year. Don’t get me wrong; we are in a great place where we *can* go shopping for clothing if we want and even splurge on an actual bottle of wine instead of the box stuff, but why go crazy now? This is exactly why people who suddenly fall into money have a hard time living within their means, and precisely why people who have climbed out of debt find it so easy to slip back down the hillside. If I bought every single item I’d been daydreaming about since we started this process, I might find myself right back where we started in no time flat. Trust; it’s not hard to rack up debt! In fact, it’s really fun to spend wads of dough you don’t really have! However, it’s just not worth it. Budget will always be a part of our vocabulary, even if we ever found ourselves in the upper middle, or even upper upper class. I’ve grown so much in the last several months and know now that this is just reality for most people. Yes, even the uber riche Beyonce and Jay-Z have to say “no” to themselves occasionally.

If you are still wearing the shackles of credit card debt and looking forward to the commencement of your debtdom like it is the end of a prison sentence, stop. My husband and I feel much lighter now knowing that our future is more secure and that our children will be able to go to college and get a car even, but getting out of debt in no way means that we can go back to spending like we once did. That’s exactly what got us into the mess in the first place. We *will* be taking a vacation this year, though! Maybe we’ll see Beyonce and Jay-Z on their yacht. Wave back if you see us, guys! We’ll be the family of 5 stuffed into a small pontoon boat. Livin the life!