The Cowtown Chronicles

This is the second of my series of posts on the changes I’ll be making in my financial life. The first discussed setting specific goals and making sure that you’re in harmony with your significant others about what you want to achieve. This post will discuss the next step, coming to grips with the situation.

The Reckoning

In a lot of these “we got out of debt!” stories, people will say how the debt snuck up on them, as if their brains and their bank accounts had never met. That’s not the case with MY debt (and I say MY debt, because I’m the spendy one). I spent us into declaring bankruptcy 4 years ago because I couldn’t tell myself NO when the question was “can I have…”. I figured that I had a good job, with tons of upside to my earning potential, so I might as well enjoy myself. I was in denial about the total amount of debt that I’d piled up, but I was fully aware that I was spending money I didn’t have while I was doing it. Like so many others, I did the math and the numbers told me that if I was able to make the credit card payments, then I must be able to afford whatever it is I’m considering buying.

I think it’s pretty obvious that this line of thinking got me into some serious financial trouble. Before the bankruptcy, we had nearly $60,000 in debt, both secured and unsecured. (And no mortgage!) Afterwards, we just had our cars and one credit card which we affirmed during the process so we would have something for “emergencies.” But when you’re living paycheck to paycheck and can’t control your spending impulses, EVERYTHING is an emergency, and we weren’t able to make any headway on paying down our debt.

Over the last 4 years, we’ve bought and sold a few cars, bought a house, got a few more credit cards (the bankruptcy didn’t slow us down much in that department), and eventually we got back into the same situation we were in before: increasing credit card debt and not so increasing income. The final straw was when I had to hide from Jenna the fact that I’d applied for and gotten a new credit card to pay for our new iPhones. She figured it out when she asked me where I’d gotten the money to buy $1300 worth of phones (yes, I paid full price), and I hemmed and hawed until I finally admitted to what I’d done.

That experience became our wake-up call.

Wrangling the Dollars

When we’d talk about paying down our debts or getting an handle on our finances, neither of us knew where to start. Over the years, I’ve used Microsoft Money to track our finances, at least until I switched to Mac. Once I switched, I sort of stopped using personal finance software regularly, mainly because Quicken for Mac is one of the worst programs ever written, and there weren’t really any alternatives besides that. Instead, we’d just log in to our bank’s website and check balances and if there was money left, we’d spend it. So the end result was that we had enough money to cover our bills and expenses, but no real idea on where we actually spent that money. And when we did start to sort of keep track of things, we started to feel guilty every time we ate out instead of putting that money toward a credit card or whatever, since we also had become aware of what kind of trouble we were in debt-wise.

This cycle of spending and guilt continued until one day I was browsing at a book store and happened upon a copy of “The Total Money Makeover” by Dave Ramsey. I read the first couple of chapters, and almost immediately was hooked. Dave has sort of a take no prisoners approach to his readers and their financial problems. He lays the blame for your (my) financial troubles exactly where it belongs: with you (me). Your decision to live beyond your means and your willing ignorance of where your money goes is what has gotten you into so much trouble.

Dave lays out a 6 step plan for getting yourself out of this mess. I’m not going to go through each step individually, I’d rather not get sued, but I will tell you about our approach to each one.

The first two steps basically are the financial embodiment of the Will Rogers’ saying “If you find yourself in a hole, stop digging!” Cut up the credit cards, destroy the checks for the line of credit, and commit to yourself and your partner to stop incurring any more debt. In order to do that, you need to have some money (actual cash money) set aside for emergencies. Dave recommends $1000, but your needs may vary. I try to keep more like $3000 handy. (It took us a while to save that much up.)

The next step is the most important one, and it’s the point of today’s post: write down a spending plan. You may have heard it called a “budget” in the past, but there’s so much emotional baggage with that word. It makes it sound like your personal finances needs to be penny-pinched and run through the wringer like at a corporation. You don’t need to go quite that far, but you do need to sit down with your partner and really, honestly, think about and write down where your money comes from and where it goes. The first time is the hardest, since you likely don’t know how much you spend on lattes and magazines every month. You’re going to have to guess a lot the first month, but here’s the trick for getting it right the second month: be anal. Get a receipt for EVERYTHING you buy all month. Energy drinks at the RaceTrac, dinner at Spiral Diner, EVERYTHING. At the end of the month, figure out what categories your spending falls into, then add it up. I guarantee you’ll be shocked at where your money goes. Use this month’s worth of data to find areas where you can save for the next month, then write out your spending plan for the upcoming month.

Once you’ve made the spending plan, track your progress. The easiest way to do this (according to Dave, and I agree) is to start using cash. Yep, anything that you can pay cash for, you should. Gas, groceries, dog food, if you buy it in person, use CASH. Nothing says “Damn, I just spent $5 on a cup of fancy coffee” like watching that five-dollar bill leave your hand and getting a few cents in return. Using a debit card (or god forbid, a credit card!) abstracts you from the actual money that’s associated with the transaction. Cash brings it back to the real world and puts it in your face. When you’re out of cash, you’re quite literally out of money for the month. We have been doing this for the last two months, and I can vouch for the fact that it really does work.

Next time, we’ll talk about what to do with the debt you have, and then we’ll look to the future and what your life will be like when you’re completely debt-free!

fort worth, sustainability