Tuesday, December 18, 2018
Monday, October 29, 2018
It has been three years since I’ve paid off my $9,000 mound of credit card debt in October of 2015. I haven’t posted about anything related to money since then but I’m proud to say that I am still credit-card debt free! A lot has happened. I paid off the rest of my car loan (around $5,000) eight months later. I accumulated $5,500 in emergency savings by the end of 2016. I have paid down my student loans by over $20,000. Another $6,000 and I’ll be completely debt-free!
The way I manage my money has evolved now that I’m not in a situation where I’m living paycheck to paycheck to pay my bills. The Matt Budget helped me manage every dollar on a micro-level which was completely necessary at the time. Now that I’m (mostly) out of the red, I have more freedom and flexibility. My current system sets me up for “automated growth;” it’s the same system Luke uses for managing his money. I’m growing very, very slowly at the moment because I’m focused on eliminating the rest of my student loan debt. More on that later.
I had about eight or nine credit cards when I started this journey. I am now down to four cards as a result of banks closing them due to inactivity or because I made the decision to close those cards. What I will say for now is that I don’t think anybodyneeds more than one or two credit cards and that in certain circumstances, closing cards really won’t affect your score that much. I will make a separate post about credit scores and the factors that affect them at another time.
As far as credit card usage goes, I didn’t use any of them for a very long time. Now, I use only one card for very specific purchases. I do not carry this card with me on the regular. Some might say it’s a slippery slope (Luke does not approve) but so far, it’s working for me. I do not swipe that card unless I know I have the cash in my bank account to immediately pay it off.
Work in Progress
It would be dishonest of me to sit here and tell you that I never make any money mistakes anymore. I still have a spending problem that I am working on. In the system I use now, I have a set amount of money each paycheck that is specifically for “fun” spending and I run it into the ground before the next paycheck arrives. It’s about $272 every two weeks. I know that my unnecessary spending usually comes from the need to fill some kind of void. I’m still doing a lot of mental/personal work on this. I’ve also become very conscious of the amount of waste I create, which has been a big help in curbing the urge to spend money on material items. The majority of my fun spending goes to restaurants, skincare, and gifts.
When I run my fun spending into the ground, I don’t have the freedom to say “yes” to experiences when they come up. I also don’t have the ability to “splurge” on something special for myself when I come across it. It comes down to making short-term sacrifices to give myself more choices in the future.
I am currently focused on the elimination of my student loans which is just under $6,000. At the rate I’m paying them off – about $700 a month – they should be gone within the next nine months or less. Once that is taken care of, I’m eager to start building up my emergency fund a bit more and shifting my focus to investing.
I am so grateful for how far I have come, what I have conquered and accomplished, the challenges ahead, and the direction my life is moving in. Life is so different when you choose to believe that you have control instead of choosing to believe that you are helpless.
Sunday, October 21, 2018
My Debt is Gone. What Now?
Recently, I came across a finance article on the Mr. Every Day Dollar blog about something called "Lifestyle Inflation." He defines Lifestyle Inflation as the behavior of increasing your spending as a result of an increase in your income. I have always been guilty of this but I had no idea because I wasn't mindful of what it was until now.
Obviously for the last few years up until October of 2015, the only spending that ever increased was the amount I was going to put towards my credit card payment to clear my debt. I haven't had a raise since I started this job but once that credit card debt was gone, I suddenly had $1000 a month that was now free for spending! It certainly felt like I had given myself a raise. Where was all that money going to go now? I could go shopping and buy many of the things I've wanted to buy but put off to reach my goal of paying off my credit cards. I could start throwing more into my retirement savings or investing it in some other way. What do you think sounds more appealing to me, the Shopaholic?
Without a plan and without discipline, my spending habits get out of control. I haven't been perfect since I paid off my credit card debt. I splurged $200+ on some fancy workout clothes right off the bat and spent more than I would have liked to on dining out in that first month. But for the most part, I've stuck to the spending habits that I've had for the past year that aligned with my goal. Here is a list of some of the things I'm still not spending my money on:
- Manicures & pedicures
- Clothing (with the exception of my early splurge)
- Coffee (I’m making it at home)
- Makeup (Quality over quantity)
- Cinema (I never liked going to the movies to begin with)
- Magazine subscriptions
- Backup products (I only buy things right before I run out)
- Shaving Cream
- Junk Food
Once I gave up or cut down on these things, I found I didn't really miss them all that much. They are things I might splurge on every once in a while, but I won't be spending money on them regularly. So, what am I doing with that extra $1000 a month?
Groceries. I've beefed up my grocery budget significantly. One of the hardest things I had chosen to give up spending money on was organic, locally grown/raised, grass-fed, etc. foods. I switched to conventional to keep my food costs low. Now, I don't have to do that. I can feed my body with things I feel better about.
Dining Out. Food is my “thing.” Anyone who knows me well enough understands this. I rarely go to concerts, bars, movies, or watch TV. I’m willing to splurge here because sharing a great restaurant experience with my friends and family is gives me more joy than any of those things.
Personal Care. I'm spending a little extra money on personal care like skincare products and facials. It’s how I pamper myself without feeling like I’m being frivolous because I’m just taking better care of myself. All that has changed is that I now get a facial every few months and I use two or three extra products that I had given up while I was stashing cash for paying off the credit cards. It’s like a trade-off for not spending much money on makeup.
Charity. I significantly reduced what I was giving to charity. "You have to put your own oxygen mask on before helping anyone else," was certainly logical to apply while paying down my debt.
Savings. I don't have an emergency fund so setting a good chunk of money aside is a no-brainer. I want to feel confident that if my car were to need repairs or a replacement or if my living situation were to change, I could walk out of that without sweating the money. When life happens and money isn’t an issue because you’ve made smart choices, it’s easier to take better care of your mental/emotional self.
What about retirement? I always forget to bring attention to this because I have my IRA through my employer and already have contributions set up. Until I have a good emergency savings established, I don't see any reason to beef up my retirement savings.
With time, my spending will change as my life situation changes. There isn’t some secret formula that I used to decide what I “should” spend my money on and what I “shouldn’t.” There is no “one size fits all” either. It really comes down to my personal priorities. These are the things I’m prioritizing right now they will likely change as I’m adjusting to my new "available income.”