I have never in my life been able to save money, no matter how much I made. I have always been either (1) in my 20s too broke to have anything at all, (2) in my 30s not paying attention when I was for a nearly a decade a millionaire thanks to an inheritance or (3) post 2008 catching up to pay for everything I spent the month or months or years before. And that slowly and inexorably led to being in debt to the tune of $661,000.
I’ve now got my debt down to $641,000 but more importantly I’ve got $13,000 in a college fund and about $400 in another savings account and a bit over $8,000 to pay for the rest of the coming month’s expenses, having already just now paid nearly $5,000 toward credit cards.
Yeah, those are some big numbers, but the point is that I’ve turned things around. Instead of playing catch up, I’m ahead of the curve. Even if your income is a tenth of mine, you can do the same.
The key is budgeting — planning, before every month begins, what is going to happen to every single dollar, rather than wondering where all those dollars went. (Thank you, Dave Ramsey.) The integral part of this is patience, not putting every bit of money to past debt but setting enough aside to have money for upcoming expenses.
I’m a scholar, academic, brainiac, etc. but this was such a revelation to me: keep money in the bank to pay cash for the month ahead. Hello!!!!
I am super obsessive. Too bad I didn’t use that superpower before to stop and attack my debt. But I’m doing it now. When I ought to be grading papers or making final revisions to my current book project or prepping class, I’m obsessing over schedules.
Good thing. Because before I had despaired over the possibility of getting my kids through college without debt, I have now figured out how to do it.
I’ve got our bare bones budget down to $6200 per month (half of that is our mortgage). Minimum debt payments add up at this moment to $2700 per month. That leaves about $2500 per month to put more toward debt or college costs. We’ve got consulting income that comes in every few months totaling $50k per year. I’ve created a schedule whereby we can cash flow college expenses of at least $20k per kid per year — above that they are on their own — and still pay off debt. I say they are on their own because there are scholarships available to them that make this totally doable. But if they want a fancier education, they can pick up the difference. I finally have the confidence in these matters to say that.
By every August and January, we’ll have put about $25,000 into a savings account for college costs. That will come from monthly deposits of $2,000 plus 4 of 5 consulting payments.
The more we get rid of debts, the more we have available to pay off other debts — hence the snowball metaphor. We can then pay off the next item on the list by April, which will free up another $400 per month, then we’ll be hunkering down to stash cash for the fall semester. Then we can pay off the next item by the following January, freeing up another $400 per month and then it all starts moving quicker, even while we’re stashing cash for spring and fall semesters. With two kids in college at the same time — and us having never prepared for this moment — this is a big deal. In two years, all the credit card debt will be gone, one kid should be out of college with no more debt (than the $11k he has already incurred), the other halfway there, and then we’ll have money to make major advances toward paying off the house and maxing out our retirement options.
The key to all this is first and foremost a solid budget that is well below our income. Second is discipline to stick to it like maniacs. Third is postponing contributions to retirement beyond what our employers already contribute. Then with good planning everything else can fall into place.
In my attempts to live well on the cheap, for this month, I’ve just bought a case of ten-dollar Malbec at a 10% discount. I’ve discovered Aldi’s, which just opened up in my neighborhood and where I bought beaucoup stuff for 25 bucks. I went to the local import store that carries stuff from My People and got a huge thing of olive oil for $27. And I’m finding that I’ve got more than enough in the fridge and the pantry to make things. Honestly, I can’t make things fast enough. There’s plenty enough.
So let’s say we spend this month — honestly and I’m not at all proud of this — $300 on booze. I think it is realistically possible that we spend only $300 on food. I have to work to find ways to meet with colleagues that’s not “let’s do lunch.” Then maybe the February food and booze budget is down to $700.
Budgeting is a miraculous thing. So basic and fundamental and so easy to ignore. I am now dialing in the budgeting like never before. It’s astonishing. I suddenly have more money to pay for things. Instead of trying to pay for what I spent last month, I’m setting aside money to pays for what I will incur this month. And then I can see what’s left over to pay off past debt.
So I now have a super clear picture of where my money needs to go:
- housing expenses (including utilities): $4,000
- food: $720 (my former total downfall, often triple this amount)
- transportation: $180
- lifestyle: $1,160 (including dog food, once a month house cleaning, and pocket money for both of us mostly to avoid putting anything on a credit card but not a cent for stupid stuff like any more clothes or shoes)
- insurance: $259
- minimum for debt payments, including car loans, home equity loan, credit card debt: $3,000
- Extra to throw at one debt at a time until it is totally obliterated: $2,000
Yes, we make a lot more than most folks, but the ratios are probably about the same for those of us who have been clueless about budgeting: still too high a percentage on housing and also way heavy in paying off debt.
So the debt payments are extreme now. Mortgage plus those debt payments take 2/3 of my income!!!
But I am now super focused on paying off all that debt. I can do it in six years — though kids college may throw a wrench in that, so let’s say eight years. And then those dollars can go to something for the future and the here and now, not the past and gone.
I can’t tell you how much better I feel now that I’ve had the talk with the fella. Last night I went down to the TV room, where he sat flipping through channels, and said “we need to talk” and told him about the entire mess. This was not all exactly a secret; the ledger of our debts sits right there in the bill space. He just left it to me, all the responsibility and the blame. Yes, his spending is much more in line than mine; though it’s still too much. But with me in charge of groceries and kid expenses and my own predilections for designer accoutrements, I carry much responsibility.
This morning this is now entirely different. I gave him the virtual keys to the Mint account. Now he can see the whole ugly truth. I talked with him about my ideas for getting out of the mess: at the start of each month, first pay the basic bills; then set aside cash for what is budgeted for the month; then use the remainder to pay make minimal payments on all but one debt—and pour every last dollar into knocking down that one debt.
I feel hopeful; I am relieved; I am a million-fold better off.
Now my only little secret is that I’m blogging all this to the world.