This month, I’m here to tell you not only how we made it through so far, but how we’re beginning to thrive.
The steps were — to take a phrase from finance, justice, and minimalism blogger Jennifer T. Chan — “simple, not easy”:
- Cut out using credit cards and put yourself in financial detox.
- Look at what you owe and make a plan.
- Budget and track spending.
- Save. Save, save, save, save, save.
These four steps, not always easy even now, have led to a most surprising turn of events in less than six months: We are not only reducing debt and saving, but we seem to have more of everything all of a sudden.
I could have predicted that we would have less debt or a little more savings, but what I could not have predicted was the ease we feel, the ability to seamlessly cut still more from certain categories like groceries and utilities. We just have more of everything somehow, or need less, or both.
How’d that happen?
We Cut the Credit Cord (Before It Strangled Us)
It’s been five months since we stopped using credit cards. That alone is a miracle. That’s the first time in twenty years or more that I have gone so long without using one.
But here’s some real talk: The first thing that happened to us? It got worse before it got better.
I’ve spoken elsewhere of how we had to budget to buy a broom that first month. Even now, $20 feels like an awful lot of money. (I just gave up a friend’s drag-brunch-baby-shower last week because of money, but I did send her a gift).
When you stop using credit, you have nowhere to hide.
You can see, really see, whether you’re making ends meet. (We could, and we weren’t.)
You can see exactly how your debt accumulated because you can see what you’re not able to buy with the “extra” hundreds in credit that you no longer have and never really did.
Once you stop using your cards, you also have this heart-sickening understanding: your credit card balances rise anyway each month, because of the interest tacked on each time the statement period closes. Pay down a hundred, watch sixty disappear without spending a dime. Poof.
At first, it really sucks. At first, when you put the plastic away, and start to count pennies, you live in the constant presence of not enough. For at least the first month, there is no cushion, none at all.
The second month might be a little better, or worse.
Then in the third, the fourth…hang in there, because finally, sometime, something happens.
If you are lucky, and canny, like we were, you will feel an easing up at last. The emergency savings you are building will be more of a cushion, and you’ll be accustomed to planning, to doing without, to delaying gratifications of all kinds. Money, not debt, will begin to accumulate.
We Made a Realistic Plan (and Stuck to It)
In my situation, which remains pretty dire, I needed a plan that was both realistic and held hope. This was not easy to do. For example, just forecasting how long it will take me to get out of debt at my present rate was a shock, and set me back a few days before I was ready to look at the numbers again.
To this day, the debt payment plan I am working on is conveniently vague about how much it could take me to settle both debt and interest. Don’t worry: I know that reckoning will come. But for now, my goal this year is simply to be better off at the end than at the beginning. If I factored in all the interest on top of the debt that could take me three, five, maybe even seven years to conquer, my heart would shatter into a million little shame-ridden shards of goo (is that a thing? Shards of goo? I’m sticking with it).
My 2019 plan, then, is to get through and do better. In 2020, well, then I will re-reckon the true costs and graduate up to Level 11 Debt Payoff.
This plan suits me. That’s really key: You’ve got to create a plan that looks squarely at what you owe, preferably visualizing it in some motivating way, but also leaves you room to gain confidence and grow.
You have to be both truthful and kind in your goal-setting. Follow one of my first rules of personal finance: Don’t Be a Dick to Yourself.
Budget, Budget, Budget.
The backbone strategy to getting to enough is to carefully monitor your income and expenses, systematically carving away what you don’t need (and putting that toward debt or savings).
I know what you’re thinking: “Won’t I feel even more pinched and deprived?”
At first you might, yeah. Facing the music is hard. But give it just a few weeks — eight to ten weeks, in my experience — and the thrill of saving will begin to replace whatever pleasure you got from spending.
I use a spreadsheet to predict what we might spend in a month, and we collect paper receipts or jot down our purchases to log into the sheet, tracking actual expenditures alongside the projections. You can also do this using your bank‘s software or an app like Mint or Personal Capital. I find the spreadsheet approach simpler to visualize, and the physical activity of logging expenses helps me stay aware).
As I have said elsewhere, the key that made it work for me was budgeting by the paycheck, not by the month. I acknowledge that this part is trickier for freelancers (check Mint for tips on budgeting for freelancers).
The key that made it work for me was budgeting by the paycheck, not by the month.
Save, Save, Save.
For years, I put every extra penny toward paying down debt. I could cry when I think how little I have to show for those thousands. It’s important to save while dealing with debts, if for no other reason than to keep from losing heart.
Now, doing things this new way, I love watching our savings accumulate. It makes practical sense in case of emergencies, and it strengthens me for the years-long battle against debt that is still ahead for me.
You have to decide what size emergency fund is right and manageable for you. We are aiming for the “Dave Ramsey”: $1,000 to start, eventually increasing to three to six months’ worth of living expenses.
I’m using a couple of strategies:
- Save before you know it (paycheck withholding). I’m having about $200/month withheld from my paycheck, and hope to increase that this year. If you never have it to spend, you never have to spend it. Plus, I am saving in taxes every time we do this.
- Pay yourself first. This was my dad’s advice, and I frankly never followed it till now. The minute we’re paid, I put $30 to $80 into our emergency savings, depending on what other costs we have in that paycheck. Total potential savings in a year: nearly $2,000.
- Save tiny bits as you go. I signed up for micro-saving with Acorns (just one of several such apps out there). In addition to saving $5 a month, I also have them “round up” any purchase, sweeping pennies at a time into my account painlessly. Doing this since December, I’ve saved $145 without noticing.
- Commit to whatever you can do for the long term. At the moment, I am saving only $25 a month in my IRA, but the principle of that habit, and the potential to scale up, matter more to me than the dollar amount right now.
Our saving experience has been more like a zig zag than a straight upward line. We’ve had to tap the funds lightly to avoid overdraft a few times, and we’ve had two big unexpected expenses that really made a dent. But we are able to recover pretty well each time. I admit that to have any savings at all, we have had to seek outside gigs. I am earning about $150 per month in gig work now, tutoring through Chegg Tutors and getting small payments from User Testing and Mechanical Turk. My husband is grading papers for a professor at the university where he’s a grad student. Do what you gotta do. Don’t stress if you can’t save much at first; we have found ourselves able to scale up these past few months. Even a one percent increase matters over time.
And Then: The Revelation of Enough
I want to tell you about the sudden revelation of plenty you might see in your bank account or your pantry as the magical “last week’s / last month’s reserves” begin to build up. We noticed it in our grocery bill; we’re starting to be able to trim it again after I thought we could not trim more, and yet we still have delightful things in the fridge at the end of the pay period. We’re not worrying and hungering as we were.
Little by little, too — not in a straight line but in that zigzag I’ve described — we have a cushion left in the checking account before payday. We are still nowhere close to the “last month’s income” goal that YNAB recommends, but there’s been something about planning and saving that, magically as in any fairy tale, has seemed to refill our shelves and replenish our accounts.
You Will Be Tested
We were feeling pretty good about ourselves when, as it always seems to, the engine light came on in the car. We squeaked by with uncharacteristic forethought and good luck:
Then, only days later, our beloved oldest cat Rambo gave me a funny look in the morning and was over the Rainbow Bridge by evening.
Not only was this last loss wrenching, but we briefly wondered if we would have to make the worst decision of all: a financially motivated decision about his care. (It happened that the matter was taken out of our hands; the vet discovered illness so life-threatening that we were all amazed he was still happily walking around at all. He left this world calmly eating treats and purring).
We were alarmingly close to zero after these back-to-back setbacks, but the story here is what did not happen: We did not pull out the credit cards.
Don’t Let Up
I’m here to say that the most important thing about magic is never to rely on it. Every day, we still put in the work to resist credit and unnecessary purchases, stick to our plan and keep visualizing progress, track what we earn and spend, and save every dollar not dedicated to another need. There’s a phrase I use every day to keep this train moving forward:
Don’t. Lose. Your. Nerve.