The baby-steps I took to becoming debt free

A few years ago the recession hit and I was saying good-bye to colleagues who were let go and I was wondering if/when it was my turn to be let go. I was a spender, heavily in consumer debt and had no emergency savings. Like many, I was not remotely prepared for a job loss. Fear prompted me into action.

I had to ask myself some serious questions and do some hard work to find the answers.


Question #1: How much do we really need to live off of?

I had no idea. We were doing okay and so I never thought about it. I had the mentality that credit cards paid for emergencies. I had to force myself to do the math. I made a list of all our fixed monthly bills and estimates on what we spent on variable expenses.


Question #2: How wrong is my list?

It was very wrong. I forgot about the expenses that we have to pay annually like car and home insurance and property taxes. I forgot about a lot of things including debt repayment. Ugh. I had to re-do the math to come up with an actual monthly amount.


Question #3: Where is all the money going?

According to my list, there should have been money left over every month... and there never ever was. It would be easy to simply blame debt repayment, but stupid spending was the cause. Even still, there was money slipping away at a fast rate than what it was coming in and we needed to face the facts. We were spending more per month than what we made with the mentality that we would "pay it back later". If we could live off of less than what we could make, then why were we spending more than what we made? Our justification at the time was "you have to live life". We needed to re-think that concept.


Question #4: What could you live without if you had to?

Here's where the cutting started. The easy things were cable (substituted for Netflix, watching TV the day after online and rentals from the library), cell phone features (I never actually used voicemail anyway - I'd always call the person back before ever hearing what they said), land line telephone (google phone, skype and we had our cell phones)... those were fairly obvious. In order to really cut things down, I had to imagine what I would think about the things we had if I was jobless. Can we cut back enough to survive? The answer was yes. The cutting began.

Question #5: Can you cut out even more?

Yes! The variable expenses were obvious, but what about our fixed expenses like our mortgage? Yes, that too could be shaved back if ever faced with an emergency. This is when we re-evaluated some of our "needs" and the items that we considered to be essential, but really aren't (yep, a family can survive without toilet paper!). Then followed more cutting, more cutting, more cutting.

Question #6: If you could get so low during an emergency - why not do it now?

We knew we had the ability to get costs down to an absolute "bare bones" level. I think everyone knows (thinks) that if they really needed to costs down, they could. Not many people really have the motivation to figure out what their bare bones number is, or to try it before they really have to - even if they are heavily in debt. It's also tough when living in a partnership and one person is on board, but the other person doesn't have the right attitude.

Question #7: Do you want to try it now? How low and how long can you go? 

This is about when we decided to try what we dubbed the "Minimum Wage Challenge". Thinking of it in terms of a challenge rather than a "budget" really gave us incentive. Budgets seem onerous. Not having money to do the things you want seems depressing. Giving things up might hurt or just plain suck. But a challenge - well, that's aiming for a goal, that's setting a fixed time period, that's a test. It's also not embarrassing to talk about. "Sorry, I can't do that - we are on a "Minimum Wage Challenge" is easier to say than "I can't afford it."

We set our time frame at six months. We implemented all of the things we would do if we needed to in an emergency. It was tough at first, but as we became accustomed to our new lifestyle it became easier and easier. We started adopting new habits, making substitutions and learning more about what we can do on less.
 
Question #8 - How to apply these savings to debt?

I was worried about the "right" way to pay debt. I've heard of paying high interest first, I've heard of paying smallest debt first and many other techniques. For me - I took the approach of getting rid of what would go away. Maybe there is a term for this. I don't know. Credit cards and line of credits can be paid off and then racked up again. I tackled the cars first because I knew that once they were paid - they would be gone forever. Because we were living bare bones, there was no more use of credit cards and line of credit and so we paid the minimum. But all extra money went to what would go away. Adios! Next was line of credit and credit cards.

I'm not sure if there is a 'right' way to apply the savings to debt. What's crucial is that the money does go to debt. Don't waste your efforts. Hold strong and get excited about the grand total at the end of the time period. All the little savings will add up. The key is to not cave. You can't go out to dinner to celebrate that you found crackers on sale. Just like when you are dieting, you shouldn't "treat yourself" to ice cream just because you went to the gym that day.


Question #9 - Why didn't we do this sooner?


I'm summarizing a couple years worth here in these questions. It took a long time to readjust our thinking, but now that we are looking back on things we really are kicking ourselves for not starting sooner. We are also questioning why we were never taught about money properly as we were growing up. We are questioning a lot.

As a result of this, we are taking extra efforts to teach our 4 year old about money, waste and the relationship between the two. She will remind us "You are spending money on lights" and that's a good attitude to have in our opinion.

Question #10 - Why not keep at it?

Our goal was six months and by the end of the six months we had a fair chunk of debt paid off. It felt rewarding. We still had a lot of debt remaining, so why would we just go back to our old lifestyle? What did we find we really missed at the end of the six months? Only a few things. We added back in a couple of little things so that we didn't feel so deprived, but have kept on the path of being debt free. We stopped talking about our "Minimum Wage Challenge" because our family and friends and colleagues too had become used to our new approach to life and money. How they interacted with us changed - for the better. We started having girls' night in instead of meeting out for drinks, we started having pot luck parties instead of going out for dinner, we started heading to sample sales and thrift shops together... and the list goes on.

Here we are now... a few years later and we have eliminated all that consumer debt. Yet, we are still maintaining the same frugal lifestyle. Because we were out of debt we have now shifted gears to savings and investing which helps us feel more secure.

During this time though, my fear of a job loss never came to be and so we were lucky to apply all of our "savings" to debt. But the threat of a job loss still looms, even a few years later. I'd say every month there is a new "crisis" at work or a new threat made by the bosses. I still don't feel stable. It's getting stressful. Even now there is chatter at work that there will be a "big announcement" in the next few weeks about job cuts. We'll know for sure in the new year. At least I know that we are prepared this time.

It really doesn't matter if you are trying to cut back out of necessity, out of desire to become debt free or to start on the path of savings and investment... the basic concept of living below what you bring in will always apply - for us, the missing ingredients were the motivation and having the right attitude.

What are you waiting for? Are you going to check out your credit card balance, complain and then go out for coffee - or are you going to pass on going out and pay a couple of dollars toward your debt today?

Holiday Shopping - It's Just Not Necessary!

Before the holidays are even here, I am already starting to hear my friends and family complain about the expense of the holidays. I just have to wonder why people do it if they don't really want to do it. I don't go to any great expense and we don't miss out on a fantastic holiday. I actually would argue that we enjoy it more because we are at home baking instead of being at a mall cursing about not being able to find parking and then being overwhelmed by the crowds.

Every day this week we have been partaking in many of the free family activities that are happening in my community. There are also many low-cost activities too. So the getting out and enjoying the spirit of the holidays can be done at little to no cost... just remember to bring some snacks.

Back when the recession hit, my side of the family had a nice, honest talk about holiday shopping. We all recognized that we shopped primarily out of obligation. We all were stressed about the fact that we spend money we don't have, on things that the recipient likely doesn't want. We knew this to be a reality, yet, we had done it every year! Instead, we decided to put an end to the waste and stick with just a fixed amount of gift cards for the adults. We still keep the spirit alive for the children. But keeping the spirit alive doesn't require excess.

As an example, last month my little one just had a birthday. She had 10 little friends come over, so she had 10 presents. The party was lovely and the kids all had an amazing time. The party in itself was the highlight of the night, but after all of that there were gifts... they were opened one by one and then the big after-party crash happened. We cleaned up as she slept. I then decided to experiment... I hid half the toys. They are still hidden and no one has noticed. It wasn't the presents that mattered, it was the friends all coming together.

It's amazing how dreaded Christmas shopping is. Not many people enjoy it. Does anyone? Even grocery shopping is a nightmare from now until after the big day. We may just eat out of our pantry and our freezer until it's really necessary. There are far more fun things to do this time of year than stand in extra long lines.

Last Christmas, I noticed that every toy in our household was broken, damaged, or had pieces missing within two days. What a waste. Family could have easily have wrapped up used items and my little one would have been just as happy. Less waste. Less money. It's the spirit that matters. Yes, there's excitement with gifts, but it often doesn't matter what the gift is and for the young ones - they don't even keep track of who the gift is from and who did or didn't buy a gift. They just don't - until we teach them to.

So why do we do it? Why do we feel so obligated? Can't we all just be honest and calm things down?

It's not as if we are fooling anyone. We all complain about bills and debt all year, so it's not as if friends and family think that all of a sudden it's okay to spend on them. I feel gut-wrenched when I receive a gift from someone that I know is having a hard time - and it's not because I'm ungrateful, it's just that I'd rather they be okay with their money. I know I'm going to hear them complain again for another year about debt.

I have what I need. I have friends who come over nearly every day and I have the love of a strong family. What I need isn't more stuff.

The holidays can be done with joy, excitement, entertainment and love without all the stuff. We have a low-cost holiday every year and we have a fantastic time with friends, family, pot luck, homemade baked goods and getting out there to enjoy all the wonderful things in the community.