Watching my friends and family consistently fall into giant financial traps and pitfalls is becoming increasingly difficult for me to watch in silence. But somehow, I manage to do it. I simply let everyone know that I am available to help. I have knowledge and tips and tricks and information and if they EVER need it, I’ll be here and I won’t judge. BUT SERIOUSLY GUYS. It’s really freakin’ hard to keep my mouth shut. It’s like watching someone stick a fork into a socket and getting electrocuted. And then they get up and do it again. And again. and again. But you aren’t allowed to say anything, because that would be RUDE.
So. Instead of stewing in silence, I’m going to tell you about how hubby and I got our financial poop in a group and stopped sticking the damn fork in the socket. Plus include tips and tricks in case anyone feels motivated to follow suit. Because that would be an amazing start to your new year, right? :D
Digging the hole:
So lets start from the beginning. This part was really hard for me to write because honestly, we were stupid with our money. We were absolutely clueless. The only good thing we knew then was that we NEVER wanted to have a student loan, so we paid cash for school. But other then that, we were ignorant. And if I had known than what I know now, we would be in a much better position. But. You do what you know. And when you know better, you do better….
This story starts 3 years ago, with a super cute newlywed couple and their one and only piece of crap car. Now don’t get me wrong, I was (and still am) grateful for that hunk of junk, because it got us to work and we didn’t have a car payment. In fact, we didn’t have any debt whatsoever. But about 2 months into being married, the car broke. And it cost $1000 to fix. And being newlyweds with no savings account, we did what we “had” to do. And we took out a lovely Firestone credit card. But hey! It was six months same as cash! So no biggie, right? Well, a month or 2 later, we needed new tires. So on the credit card they went. And then the new brakes. and then when the car broke down again, hey! We just charged it.
About 6 months into being married, a banker told me that I had next to no credit, and it was “in our future family’s best interest” that we take out a joint credit card so that we could buy a house in the future. So that’s what we did, FOR THE CHILDREN. We also got a Best Buy Card so we could buy ourselves a TV, Wii, and a computer for Christmas. Anyways. A few months later, our car completely crapped out on us. Totaled. Kaputz. So we went and bought a BRAND NEW CAR. Because that’s what everyone does right? And if you buy used, you wouldn’t get the warranty! And that new car smell! Shortly after that, I picked up a second job so that Bryan and I could move into a nicer apartment. And by nicer I mean literally DOUBLE the rent we were paying at our first apartment. Now lets take a snap shot of where we were at our first anniversary.
- We owed $2,000 in car repairs on a car we no longer owned.
- $2,500 on a credit cards that we “needed”.
- $12,000 on a brand new car that was now worth only $10,500.
- Plus we were living in an apartment we could barely afford with me working 2 jobs and both of us going to school (Community college. Thank God).
We weren’t in the best financial situation, but it was manageable. We could stay afloat and we were comfortable. But then we got 2 major bombshells:
Bryan’s contracting position would be ending that month
And I was pregnant.
The wake up call:
I started pouring over our finances. Where was all our money going? Why was there never any money in the savings account? And the worst question, could we afford for me to stay home with the baby? WHAT THE HELL WERE WE GOING TO DO?!?!
After a good cry (or two… or three) we decided to go on a modified Dave Ramsey plan. For those of you who don’t know, Dave Ramsey is a Christian finance guy who uses the “Baby Steps” to help people handle their money. His biggest thing is that debt, any debt, is BAD. Seriously. You don’t need it. This post is long enough, but if you really want to know why debt is one of the stupidest things you can do, go here. So. Back to our modified plan. Dave’s first step is to stash away $1,000 dollars as fast as you possibly can. Why? Because $1,000 covers a ton of stuff. An ER visit, the car breaking down, or the a/c going out. It’s your safety net. How would you feel if you had $1000 just sitting in the bank right now? Awesome, right? So that’s what we did. We bought minimal groceries, didn’t eat out and stuck every penny we could find into our savings account. And do you know how long it took? About 4 weeks. FOUR. I was so surprised! If we could come up with an extra $1000 in a month, what else were we wasting money on?!?!
Dave’s second baby step is the debt snowball. You list all of your debts, smallest to largest (not including a mortgage) and you ATTACK. You still pay all of your minimum payments, but you throw any extra money you can find at the smallest one until it’s gone. Then you take the minimum payment you were paying on your smallest debt, and add it to the next debt on the list. (i.e. you have a MasterCard with a minimum payment of $25. You get that paid off, then add the $25 to your Visa payment, which has a minimum of $45, but you pay $70, plus any extra money you can find. Once that is paid off, you move on to the next one with your extra $70. Hence, the snowball).
Hubby and I did the snowball a bit backwards. I wanted to make sure my midwives got paid first, before I worried about any of our other debts. But want to know the great news? Bryan and I were debt free just a few months after Jude was born. We put away $1,000 in savings, paid off $16,500 in debt, and paid all our midwifery fees in 13 months!!! And yes. I’m kinda bragging. But it’s amazing. And anyone could do it. It takes serious commitment. And sacrifice. And prayer. Lots of prayer. But it’s doable. So now. here are all of our tips and tricks to getting your money under control. :)
First, analyze EVERY bill you have. Also remember any cuts you make can be temporary. It doesn’t have to be a lifestyle change, just a small sacrifice until you get out of debt.
- Cable. Do you really need it? Really? We cut cable and signed up for Netflix, saving us $20 a month.
- Phones. I cannot emphasize this one enough. Hubby and I were paying $100 a month for both of our phones. Now we use Ting, which piggybacks off of Sprint, and we pay $30. FOR BOTH OF US. They have a savings calculator where you enter your cellphone bill information and it will show you how much you can save if you switch. Plus they will pay half of your termination fee for you. Check it out. (oh, and if you switch, this link will give you a $25 discount)
- Water. Now I might lose some of you with this, but here it goes anyways. We are a household of dirty hippies. We don’t shower everyday. Actually, hubby showers every other day, and I shower twice a week, and so does Jude. Why? Because that’s all we need. And water costs money. We also wash dishes in the sink instead of the dishwasher and stuff the washing machine with as much clothing as possible. Now you don’t have to be as extreme as us, but maybe you could shorten your showers a bit? Or be more conscious of how much water (and money) you are putting down the drain.
- Electricity. Where ever you live, remember that people lived there looonnngg before electricity, heating, and air conditioning were invented. Hubby and I have very strict rules on the house thermostat. The a/c does not get turned on until May 1st, and it gets turned off Nov 1st. It stays at 85 during the day, and 82 at night. We haven’t used the heater since we’ve been married. We’ve always agreed that blankets and cuddling are better. ;) But with baby number 2 expected to arrive in January, we might have to make an exception this winter. How much you can save on electricity really depends on you. The rule of thumb is that every 4 degrees you adjust the thermostat (up in summer, down in winter) is 10% off of your bill. So if your bill is $150 dollars and your lowered the thermostat 4 degrees, you would save $15 a month.
- If you have a bill you absolutely can’t get rid of, go ask for a discount. I’m serious. As soon as we started making our financial plan, I went and talked to our apartment manager. I simply explained to her what was going on and that we were pinched and if there was any options she could think of. And can you believe she actually came through?!?! She said she could take one of the pet rents off our lease, so that we only had to pay for 1 cat instead of 2, saving us $20 a month!
- Another thing you can do is threaten to cancel a service. Although morally questionable, its pretty effective. I do this with our internet service and our newspaper subscription. You call, and say you can no longer afford your current service. You’d be amazed at the discounts they can come up with to prevent you from canceling. Our internet service gave me a “loyalty discount”, saving me $12 a month, and the newspaper gave me 3 FREE months, which would have normally cost me $36.
Once you’ve gone through all your bills, it’s time to analyze your controllable expenses; i.e. groceries, going out, coffee, gas.
We’ve found that the envelope system is EXTREMELY helpful with these categories. Once you’ve set a budgeted amount for a category (either for a week, pay period, or month), pull the money out in cash and label it. Once the envelope is empty, that’s it. You have to wait until the next time you have money budgeted to go into the envelope. We go by month now, but when we first started we had to go by biweekly checks because otherwise we would blow all our envelopes and have no money for the last week of the month. Now that we’ve had more practice we can (usually) get to the end of the month with a couple extra dollars left over.
So how do you decide how much goes into each envelope?
Gas. Obviously this one depends on where you live, and how far you commute. Bryan and I only have one car, and have agreed that we can get by on 1 tank of gas a week, so that’s what we usually budget. For the holiday’s, I know we will be driving more then usual, so we will add a little extra cash to the gas envelope for December.
Entertainment. This one is entirely up to you, BUT. Budget what you need. If you decide to go to the movies, you gotta have the cash. You want coffee? You better have the money for it. This category varies for Bryan and I. Some months are tight and there’s only $5 in the envelope for us to go out and grab a slushie or some ice cream. Some months (like when a month has 3 checks instead of 2) we put away some cash for a nice meal out. Either way you should put SOMETHING in the envelope. Because no matter how hard you try, eventually you will cave and want to treat yourself. And if you didn’t plan for it, you’re going to (hopefully) feel bad about cheating. So you might as well have the money ready.
**Side note. Bryan and I have a pizza night every payday. We used to spend about $25 bucks having a pizza or 2 delivered, which is INSANE to me now. Instead of ordering, we go get 2 frozen pizzas, a tub of ice cream, and maybe a pack of pop, and we stay under $20. It’s way better.Be creative on how you save money and remember any cuts don’t have to be permanent!
Toiletries. Bryan and I learned the hard way that this envelope HAS to be separate from the groceries envelope. Why? Because we would blow our budget stocking up on a toilet paper sale and have no money left for food. So the toiletries envelope is now separate.
Our toiletries envelope rarely has more then $20 in it. And here is why: I coupon for ALL of the things that come out of this envelope. Toilet paper, shampoo, toothpaste, paper towels… Whatever it is, It HAS to be on sale and I HAVE to have a coupon on top of that. (I’ll talk more about this later) And when that’s the case, I stock up. I buy as many as I can, so that I won’t be in a position to pay a higher price because we ran out before there was another sale. Now I’m not talking extreme couponing, fill-the-garage stock pile. I’m talking about having a 2 or 3 month stash. Giving up a shelf in the linen closet for some extra packs of tp and a few bottles of conditioner never killed anyone.
Groceries. This envelope could fill an entire blog post itself, but I’ll try to keep it as sweet and to the point as possible. You need to have enough in this envelope to keep you covered, but that is IT. The average American family of 4 spends anywhere from $150-$250 a WEEK in groceries. A week, people. Before we had Jude, Bryan and I really didn’t care about eating healthy, so I would coupon for anything and everything. Bryan and I lived on a food budget of only $35-$40 a week. Sadly, health food rarely has coupons available but our family of 3 now manages to eat pretty healthy, partially organic diet on a tight $70 a week budget. This DOES NOT include our weeknight dinners. I prepare freezer meals in bulk, averaging $5 a dinner. We use this meals about 5 times a week, still bringing our actual weekly food cost in at about $100.
In order to determine how much you need in your food envelope, first start with your basic grocery list. Things you get EVERY week. Here’s ours:
- 2 loaves bread – $6
- 1 dozen free range eggs – $5
- 1 lb grass fed cheese – $4
- 1 jar peanut butter – $3
- Fruits and veggies – $10
- 1 gallon organic milk -$5
So our basics cost us about $35 a week. Then determine how much more you need for your extras. This takes a little bit of trial and error. Start high, and lower it each week until it’s as tight as you can get it and still be comfortable. For our family, $35 a week gets us all the little extras we need to get by, although it is tight. Here’s how we make our grocery money stretch!
- Meal planning: Know whats for dinner ahead of time. Nothing will kill your food budget faster than “oh crap, what are we gonna eat?”
- Couponing and price matching: I have a whole blog post about this. But the point is that spending an hour or two a week looking through ads and cutting coupons can save you 40 to 50% on groceries. Just give it a try. :)
- Cut out the junk: $3 of veggies or fruit will be a lot more filling then that $3 pack of cookies…
- Buy the fruits and veggies that are in season: they are cheaper and better quality.
So lets review, shall we? We have $1000 in the bank, and we’ve got our budget as tight as we can get it. Now, any extra money should be thrown into the snowball. Obviously, Bryan and I didn’t knock out our debt that quickly by just cutting back. So what else?
- Sell. Dave Ramsey likes to say “sell so much stuff that the kids think they are next!” I sold off most of my shoe collection and some of my clothes to a consignment store. In that 10 month period we had at least 3 garage sales. I sold tons of books on amazon. And as soon as we got the money, we would pay it down on the debt THAT DAY so that there was no temptation to spend it elsewhere. Once we were getting down to the wire, we sold my 1972 Beetle (sob!) because we knew I would be leaving my job to be with Jude and that was a sacrifice I had to make to be a stay at home mom. So that was an extra 2k we got to roll into the snowball, plus we saved $40 a month on car insurance.
- Learn some DIY: We haven’t bought laundry detergent in almost 2 years. I make my own, and it costs PENNIES compared to store bought detergent. I also can our own jams and jellies, cleaning supplies, and cook dry beans instead of buying canned. I will probably make blogs for some diy projects after baby is here :)
- Get another job or two: I was already working 2 jobs, and Bryan had switched to a job that was half of his pay at Intel. We really weren’t making much extra to throw at our snowball. So we posted on facebook that we were available and would do just about anything for some extra cash. I mostly took a lot of babysitting jobs, while Bryan did the harder work. He got paid to scoop dog poop, paint peoples houses, pull weeds, fix computers, and rearrange furniture.
- Tax return: We usually get a large tax return because of school, so we took that large check and used it towards our debts. Was it painful? Oh yes. Was it worth it? Completely.
So what did we do once we were out of debt? Well, we loosened the reigns a bit. Started eating healthier with a bigger food budget. Went out with a bigger entertainment budget. But mostly, we SAVED. We were saving for a house so that we could get out of that apartment we could barely afford, but. You should really be saving for an emergency.
Dave’s 3rd baby step is having 3-6 months of expenses in your savings account. So, what is the MINIMUM you need to get by for one month with no income? Then multiply it. If your household has 2 incomes, you can probably get by with a 3 month emergency fund, because if you lose 1 income, you still have money coming in plus the savings. If you are like us and rely on 1 bread winner, you should probably aim for 6 so that if you lose that one income, you have a 6 month safety net.
Bryan and I are working on our emergency fund at the moment. Being pregnant has slowed us down a bit, but we are still chugging along. I cannot wait to see that big 5 digit number in our savings account!