Cash Money, Honey

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In a recent post I laid out three steps I need to take to get out of debt:

  1. Whenever I get a big splash of consulting income (about four times a year) or a tax return, push it to paying off debt.
  2. Every month after paying off bills and before paying any debt, leave enough money in our checking account to have on hand for the month’s spending needs, from groceries to music lessons to the yard guy to out-of-network doctors bills.
  3. Then put the remaining amount toward paying off the cards.

I’ve been doing one and three for years. But two? It never even occurred to me. Since way back, when we had some inheritance, we got in the habit of paying for everything with credit cards and then at the end of the month paying off every penny. Credit cards were simply a convenience. We were what’s known as transactors, though we kept dipping into that inheritance to pay off the cards every month. But then after 2008, that inheritance was gone, except for some retirement accounts.

And so we turned from being transactors into being revolvers, carrying debt that each month got bigger. Whenever I had an influx of income, whether from paychecks or consulting, I’d put as much as I could toward paying off the cards, leaving hardly anything at all in cash for groceries and other spending that month.

Cue the crashing sound of a ten-car pile-up an an icy interstate.

I was so intent on trying to pay things off that I didn’t leave enough for now—for not borrowing now.

On other things, I’m pretty smart. I’ve written lots of books and articles and given keynote speeches around the world. But on money I’m as stupid as can be.

So now, no matter how much I want to see that credit card debt drop in record time, I’ve started a little emergency fund and I’ve left more than enough money in the checking account to see us through the end of the month. Then with the next paycheck I’ll go back through steps one through three, and the next month I’ll do it again.

Emergency Funds

Screenshot 2018-01-10 20.12.12Here’s a nice site: Well Kept Wallet — lots of ads and promotions but underneath it there’s a really great story of a couple who got their shit together and got out of $52,000 in debt. My favorite tip is having an emergency fund:

You might be wondering, “Why is having an emergency fund important”? Well, if you don’t have any money in the bank and an emergency does happen, how are you going to pay for it? For most people, credit cards become the funding source for those emergencies. If you are trying to get out of debt then you need to put a buffer between you and debt; that is exactly what an emergency fund does.

I have to remember this because, in my zeal to pay things off, I am often left with nothing in the bank. Then an emergency happens and—crazy me—I take out a cash advance to deal with the crisis. That just compounds my mess.

So oddly I need some patience—even as the interest rates rack up more fees. I need to keep a cushion of cash so that I can pay for things from a debit card rather than a credit card and have funds to deal with the occasional crisis. This also helps me get accustomed to paying for things with the money I have on hand now rather than what I anticipate having later. And, of course, that is what one is supposed to do.