Cash Money, Honey

Screenshot 2018-01-16 21.00.56

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.

Borrowing Money

Every time I plunk down a credit card to pay for something I am borrowing money.

Fact.

I have managed to avoid this fact because for many years—from the mid 90s as a young adult to right up to the economic crash of 2008—I had the funds to pay off all the cards immediately. I was what is known as a transactor. I used the card as a convenience, never as a way to avoid settling up at the end of the month.

But it is so so easy to slip from being a transactor into being a revolver, someone who doesn’t pay off the entire amount at the end of the month and lets the debt sit there to be paid off at some point in the future, a point that quickly recedes, accumulating interest, leading straight into the hell of debt.

I got my hair done today. When it was time to pay up I did something that is so radical for me: I pulled out my debit card. The funds came out of what I have right now, at this moment, in the bank. I didn’t borrow money to get a fabulous new do. I paid for it with what I already have.

I know this sounds so obvious, but it is quite a revelation and change of habits for me.