Tag Archives: debt

The prodigal blogger returns

Yes, it’s been awhile.  I didn’t even give you a little post to say Happy New Year.  My apologies.  I hope you don’t want excuses.  I’m sure I have some, but it actually kind of annoys me when bloggers give a list of excuses when they don’t write.  I mean, are we paid to do this (I mean, most of us)?  Anyway, I’m not going to go there.  I will, however, fill you in on 2010 so far in our home.

New Years was uneventful – the older we get and the more kids we have, the more I would just rather go to bed on New Years Eve than stay up forever.  This year was probably the earliest we’ve gotten home in years.  It might be different if we had a babysitter or could leave the kids with their grandparents, but we can only keep them up so long.  We came home around one and Mike and I got to bed around two.  Thankfully the kids slept in until around ten that day, so we managed to get seven or eight hours of sleep.

It’s only the sixth of January now, but it feels like weeks since New Years Eve.  I got a box from my dad that day and in it were four different books.  I started reading one but quickly gave into the temptation to read another one before I was done with the first.  The tempting book was Dave Ramsey‘s The Total Money Makeover.  I read it whenever I had time, until yesterday, when I finished it.  And I’m blown away.  I really, honestly thought that there was no way to change our circumstances financially and was always saying we “couldn’t afford” things.  But it’s not about that.  It’s either, “we shouldn’t afford it” as in, we don’t need it, or “we need to save towards it”.  Such as a larger house.  If we had no debt, no payments, money in savings and some being invested, we would certainly be able to “afford” a larger house.  I’ve been basing it all on how much Mike makes each month, and while our current payment on the house (plus property taxes) is what it should be – roughly 25% of our income – this does not mean that we can’t afford something else.  The timing may not be right for some time – maybe more than a year from now – but if we get our finances on track, we’ll be much more likely to be ready when the time is right.

Dave’s plan is pretty simple; he uses seven baby steps and explains it all in easy to understand English.  Baby step number one is to get $1,000 into an emergency fund as quickly as you can.  The reason he advises doing this before paying off debt is because if you attempt to pay off debt and then suddenly have a $500 emergency (the furnace breaks, transmission goes out on your vehicle, etc), you will have to go into more debt to pay for it.  If you have an emergency fund, you may have to put your debt-clearing on hold, but you won’t be acquiring more debt.  Then the only rule is that you fill up the fund again before you go back to paying off debt. 

Baby step two is, of course, paying off your debt.  He suggests paying them off one at a time from the smallest to the largest.  This means if you have ten dollars in library fees, pay them first and then move onto the credit card bills.  Keep on paying the minimums on the other bills while you work on the smallest, but keep going in order to feel your success each time you pay one debt off.  For us, that means this months credit card bill which is just over $2,000 and our line of credit which has a little over $3,000 on it.  Mind you, we paid for everything last month on our credit card which is how we typically do it and typically we pay it all off at once.  We will do the same thing this month, but it will be a challenge because we have decided not to use our credit cards anymore.  At all.  Not even for air miles.  We will pay as much as we can on the credit card from our checking account and then use the line of credit to pay off the rest.  This may not typically be the recommendation, but for us it makes the most sense.  Our credit card interest rate is upwards of 18% while our line of credit interest is around 10%.  At that point, we will have one debt to pay off instead of two.  We are very fortunate in that our decisions have not put us in a terrible place – there are stories in Dave’s book about people who had $30,000 in credit card debt when they started this plan.  We only have one income to pay ours with and it’s not huge, but at least we only have around $5,000 to pay off.  We had planned to pay everything off with our tax refund in April or May, but we will instead try to pay as much as we can before then.  Of course, we will first get our emergency fund ready – so far, we have $300 in it. 

Baby step three is finishing your emergency fund, which should be equal to three to six months of expenses.  We will make ours a six month fund and aim for $10,000.  This is slightly less than six months of income, but if Mike were out of work and we had to pull from the fund, we would certainly be watching our spending and eating lots of cheap food until he had a new job.  It seems as though it could take ages to get our fund that big, but when I think about it and plan for it, I know we can do it, even if it takes a year or two.

Baby step four is putting 15% of your income into investments for retirement.  An astounding number of people are not prepared for retirement and we don’t want to be part of that number.  We both have grandparents on fixed incomes and their lives are not always easy. 

Baby step five is saving for your kids’ college education.  We have been doing this on a small scale since Elias was born but once we reach this step, we may add to what we’ve already been doing.

Baby step six is paying off the mortgage.  This part sounded too good to be true, but there are many stories of people who have managed it in five years or so.  We don’t have a huge mortgage so it shouldn’t take us too long once we get there, but by the time we reach this step, we may be in a larger house with a slightly larger mortgage.  But again, this is a long way off so we won’t worry too much about it now.

Baby step seven is building wealth.  Dave suggests having fun with your money (reasonably), investing it and giving it.  The part that gets me is the thought of having enough money to really be able to help people.  We give our ten percent tithe and sponsor two World Vision kids, but I would so love to be able to do more.

So, this is the start of our journey.  Mike is still reading the book so we won’t fully begin until he’s finished.  However, we will attempt to live on a rough budget and we will also be using cash or debit rather than our credit cards.  We have a weekend in Edmonton at the end of the month and as of now, our plan is to really start going in February when we get home.  A written budget is obviously a very important part of this process as is sticking to it.  One great feeling is that we will be at the start of baby step three by the time we get our tax refund back.  For many people, the first two steps take a year or so, but because our debts are not wildly out of control, we will finish paying them with our refund this spring.

As I’m writing this, I’m hoping that it’s not a bad thing to be listing the steps here on my blog.  I will say that reading this isn’t enough if you’re interested in trying this program out.  Get the book – buy it, borrow it, check it out at the library, but read it.  Even if you don’t have any debt, it’s a good plan (in fact, you’re in a great place if you have no debt because you can skip straight to step three). 

Anyway, that’s the big happening of this year.   Aside from that, I’m in two more swaps – one that I have a partner for already and one I’m waiting until Saturday to get.  I suspect that in order to really watch my spending I may have to take a long term break from swaps until I can fit them into my budget, but I had signed up for these two before I read the book.  The irony is that the bigger swap is a frugal living swap.  I’m crafting out of my stash and meeting my partner in Edmonton when we’re there to exchange packages rather than paying the shipping.  So it shouldn’t actually cost me much (if anything).  The other swap is a bookmark swap and I will attempt to craft from my stash on this one as well.  Even if I’m assigned a group (which means making and sending four bookmarks), the postage will be minimal as they can be mailed in standard envelopes.  If my partner(s) are in Canada or the US, I have enough stamps to send them already and won’t have to pay anything more than what I’ve already spent.

Was that enough catching up for the year?  I hope so because my brain is starting to hurt. 🙂

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Filed under Holidays, Money

Facing facts

It is never fun to realize in the middle of the night that your checking account will be overdrawn in the morning.  Just as I was drifting off, I remembered our mortgage coming out today and the fact that we did not have enough money in our account to cover it or the life insurance premium coming out in the next few days, either.  This does not mean anything dreadful for us, just a transfer from our line of credit to cover it.  But it was while I listened to account balances that it suddenly dawned on me – we’re well on our way to having a very large amount of money owed.  If we had no plans for the next few years regarding our home, it may not matter, but as it is, there are many repairs and replacements to be made.  Not only that, but we have no money in savings, which means that our tax refund this next year needs to be devoted to that so that we have money for a down payment on another house.  The thought of bringing another baby into this 800 square foot home is a bit scary to me, at least in the long term view of things.

So with this eye opening experience comes the death of a dream: our kid-free vacation.  I suddenly realized, at a quarter to one in the morning, that if we took the vacation we’ve been planning, we would be borrowing another large amount of money from our line of credit – probably well over a thousand dollars.  Added to that is the fact that while Mike will have no problem getting time off, his company does not bank vacation hours, so we would have to pay him his missed wages out of our line of credit as well, adding another thousand or more to make our bill payments.  I had been counting on paying off the line of credit in the spring with what will almost undoubtedly be a large tax refund.  When I thought about it, I could hear advice that someone must have given me in the past: don’t spend money you don’t have.  I should be able to count on the tax refund, but I don’t actually know how much it will be, or if there could be unexpected expenses coming up in the new year.

I really did feel like something had died.  I still do.  Mike and I didn’t have a “real” honeymoon and the only trips we’ve taken without any children were before Jenny was born.  With each pregnancy, I committed myself to finding time to take a trip of some sort on our own before the new baby came.  The unfortunate thing is that due to one thing or another, we never took that trip.  This time was no exception to my committment, although the planning had started before I knew I was pregnant.  And this time will apparently be no different from the past – I will have dreamt about this week or so alone with my husband and having a break from my kids – and I will have to give it up.  If the plan was six months away, it might be possible to work our way out of the debt and scrimp and save for this vacation, but as it is, we have a limited window of opportunity.  If we went ahead with our plan to go on a cruise – my ideal vacation as I wouldn’t have to do any work – we would have to go no later than the 3rd of January.  Our latest plan was to go in the middle of December, just before Christmas.  And now that dream must die, for the sake of being good stewards of our money.

This would not be nearly so sad if I thought it was possible to have this vacation sometime after the baby is born.  If I knew that I could go as soon as I was done nursing this baby (after May of 2011), I might be able to wait and not feel this so heavily.  But Mike’s parents were reluctant enough to take three children – I can’t imagine that they would be willing at all to take all four.  We have friends who were going to take our kids for some of the time on this trip, but if we waited, it would be our four kids plus their four and the one or two more that they plan to have in a year or so. 

So last night was spent crying and trying hard to fall asleep, feeling that this thing had died in me.  This dream of having time with Mike and time away from the kids must be buried now.  I don’t know how I’m going to fully give it up and trust God to provide.  I’m trying to talk myself into thinking that it was a selfish and self-centred thought to want this vacation in the first place, that it certainly wasn’t what God would ever want us to do.  That He would frown upon us leaving our children and spending money on something frivolous. 

With all of this comes the sense of responsibility to dig us out of this debt, to work towards fixing the house up to sell (new windows, paint, doors, etc), to save money to go towards another house, to limit our spending considerably in the future.  I keep asking myself where I should draw the line.  Is it so bad that I should stop going to Bible study because I have to pay for childcare each week and gas to get there?  Do I need to get a job?  We lived with a huge amount of money against our line of credit for years because of buying our van and we just paid it off last year – I don’t want to live with a shadow over my head again.  Of course, there are lights of inspiration in my mind – what if we get another low interest credit card and transfer everything over?  But then the answer is still the same – we may not be paying as much interest, but it is still debt.  And the thought that we would somehow get some unexpected financial blessing is foolish to me – God would surely not reward our debt.  Another little problem we’ll soon be facing is that Mike’s paychecks will be going back to normal again.  He has been bringing in an extra five to six  hundred dollars in overtime each paycheck, but the overtime will be gone in a week or two and I’ll be faced with making ends meet and paying off debt with that much less money to work with.

I don’t have the answers.  I don’t know what I’m going to do.  I assume that I will cry a bit every day over my lost trip – the lost time.  I spent too much time dreaming about our plan and not enough time looking at reality and now I’m going to pay for it.

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Filed under Life, in general, Melancholy, Money