Cowtown Chronicles

Editor’s Note: This is one in an infrequently recurring series on personal finance and my plan for getting ours in order. I am not a financial planner, but I think this is common sense advice that anyone can follow, no matter your financial situation. Don’t sue me if you try it and it backfires.

It’s important to understand that nearly everyone in the United States has debt of some kind. You’re not alone. And if you’re overwhelmed by the amount of debt you’re carrying, you’re also not the only one out there.

Think about your debt. Do you have a credit card? Several credit cards? Student loans? Loans for other things, like cars or a boat? Do you own your house outright, or is it mortgaged? Now think about the people you know. That guy down the street with two really nice SUVs and the 58″ plasma - do you think he paid cash for all of that? If so, good for him, but chances are he didn’t.

Debt is neither good nor bad. That sounds really touchy-feely, but it’s true. Buying things on credit gives us the opportunity to live a good life and enjoy things that you wouldn’t be able to pay cash for all at once. There’s no way I could have come up with the money to buy my house with cash, at least not within the next 10 years. For one, I don’t have the kind of discipline that would make me able to save for that long, but also, the availability of a mortgage makes it unnecessary.

Having said that, however, while the availability of debt may be convenient, it’s not always a good thing. It’s VERY easy to overextend yourself with so much debt that it gets out of control.

I see some forms of debt as not as bad as others. Student loans and mortgages, in my opinion, are not as damaging financially as consumer debt. Consumer debt is debt that you take on to pay for STUFF. (I don’t consider your house to be part of that STUFF, since you need to have a place to live.) Student loans truly are an investment in your career and future. Study after study shows that a college degree is the ONLY trait that separates high earning people from low earning people. Family status or situation, whether you were from a single-parent or nuclear family, none of that matters when it comes to your lifetime earning potential. As I stated before, while real estate is NOT a guaranteed money-making investment, you need to have a place to live anyway, and it’s nice to own your own house.

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Jenna and I have been using PearBudget.com to help us keep track of our spending this month. It’s super-simple to set up and use, and it’s particularly nice because it’s all online so either of us can log in and enter receipts and cash spending almost as soon as we do it.

The site allows you to create a budget (the most important part!) that’s as basic or granular as you want. Then you simply enter the spending you do throughout the month, and the PearBudget keeps track of how much is left in each category, and your actual vs. planned spending so you know when and where to cut back. It also helps you keep track of the things you spend money on infrequently, like dog food or car repairs. It keeps a running total of how much you have set aside in that category vs. spent this month and for the year.

It’s still in beta right now, but I fully intent to pay to use it when it comes out of beta. While it’s being tested, the service is free, but once they’re ready to launch for real, it’ll be just $3/mo. So far my experience has been REALLY positive. I sent an e-mail asking a question, and I got a really detailed reply within an hour from the developer. You don’t get that kind of service with most online tools, especially not free ones!

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.

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You might have heard me say that I abhor “green” as a descriptive word. Unless it’s describing the color of something. Let’s talk about another word… Sustainable. The dictionary built into my trusty Power Mac provides the following definition of sustainable: “able to be maintained at a certain rate or level.”

What does that mean when someone uses it in reference to a lifestyle, building, city, etc.? Fortunately it means exactly what it sounds like. To live sustainably means to conduct your life in a way that makes you able to maintain your lifestyle at a certain rate or level. To build sustainably means that you use only what you need and that the built environment respects the balances necessary in nature both for sourcing materials and for heating/cooling and landscaping maintenance.

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