When I got married I really had no hands-on experience handling money and I had a lot of college debt. My husband and I both did.
Even though my parent’s paid for my college tuition, I felt like I needed to do my share and cover all the incidentals. Not realizing the challenge I was setting myself up for, and being in an expensive major I would charge film, photo paper, photo equipment rentals and lab fees when I didn’t have the cash to cover it. (Go ahead and insert your best “older than dirt” joke here since I really did earn a photography degree before the digital age.)
Our Dumb and Dumber Approach to Finances
My husband and I started off our marriage living paycheck to paycheck thanks to his school loans and my credit card debt. We always wondered where the money went. Bonuses, tax refunds, and gifts seemed to evaporate in the checkbook. We frequently transferred money from savings to cover monthly expenses with the full intention of paying it back the next month, but rarely had the extra to do so. When savings ran out, we’d use the credit cards to pay for dentist bills or car repairs.
Like many families, when the economy took it’s nose dive in 2008, we got hit hard.
We’d had a home we rented out that caused us major expenses thanks to a renter who racked up a $1400 water bill and frequently bounced her monthly rent checks. By the time we sold it, the housing market had tanked and we lost $40K+ equity, barely breaking even at the time of closing.
We continued to limp along for as long as we could. Our wake-up call was when my husband received his second pay cut because the company he worked for was struggling financially. (Thank you again crappy economy.)
We didn’t know how we were going to make it. Even with the extra money my home businesses brought in, we ended up scrimping and saving to come up with the money for property taxes that year. I laid in bed every night worrying about money.
Turning the Out of Control Money Train Around
When our pain and stress around money got bad enough, the pain of doing the work to change it didn’t seem so awful. We got angry with the situation which got us motivated to change, and every little step in the right direction we made, gave us more commitment to turning things around.
Within our first year we’d paid off more than $9,000 in credit cards and medical bills from my son’s birth. Money surprises still threw us into a tail-spin, but we did everything possible to minimize them, including replacing the window motor in the door of our mini van ourselves, turning a $400 auto repair expense into a $50 one. (It’s a funny story which I wrote about in a guest blog here: Financial Failures: Money Saving Auto Repairs Not to Do Yourself.)
Our Biggest Money Mistakes
Looking back on our financial journey, I can see a few areas where we made our biggest money mistakes. I also asked our friends on Facebook to see what golden nuggets they had learned about money.
- Not tracking every dollar that’s spent.Money evaporated out of our bank account. We’d deposit a chunk of money from a bonus, tax refund or birthday gift and never really knew where it went. We’d get lazy in tracking our spending because we had a sense of security having a cushion in the checkbook.Things got immediately better as soon as we started with tracking where every penny went. Using tools like mint.com helped us to see where our money was going. We realized that there were subscriptions we were paying for on PayPal, extra channels on cable, and unused minutes on our cell phones we didn’t really need.We threw every extra bit we could towards paying down debt, which had inched its way up over the years, and was at the point of feeling totally oppressive.
- Feeling entitled to living a higher lifestyle.We used to feel entitled to treating ourselves to things like restaurant dinners and family outings because we work hard and justified those things as an “investment” in our family relationships. As with time, money flies when you’re having fun.We cut back on eating out and started looking for cheaper activities to do with the kids on the weekends. We still treat ourselves to fun family outings and dinners out but only when they’re part of the budget. We have an agreed upon amount we’ll spend and it’s a family decision where we spend it. Are we perfect at this? No. Are we better than we were? Much!Not planning ahead and succumbing to impulse purchases.
- I’m really good at justifying the savings on something and I think it’s something I’ll always struggle with. Working here at FatWallet with hundreds of “deals” right under my nose adds to the challenge. I can hardly resist at 70% off savings on something I know I’ll use, even if I wasn’t planning on spending it.It’s helped to have budgeted for things like household things, clothing, and gifts. That way when I see a great deal on something like a Lego kit for my son, I have it in the budget to buy it after Christmas and save it for his Easter basket.It also helps because we’re less likely to overspend when we can plan ahead for these seasonal purchases and shop frugally. (I’ve also shared my money goals with my co-worker Bryan, who has my full permission to give me a hard time if he sees packages from my online purchases arriving here at FatWallet!)
- Not having an emergency savings account to survive Murphy’s law.We didn’t get into debt “shopping,” we got into debt by charging essentials like car repairs, home repairs, and things like dentist bills that were higher than we anticipated.Dave Ramsey recommends starting with a $1,000 emergency savings account and then putting everything else towards paying down debt. Our challenge is that we learned that $1,000 wasn’t enough to cover our medical deductible or unexpectedly replace four tires (and struts) after my husband got a flat on our all wheel drive car.Having gone from no money in savings to our first $1,000 emergency fund, gave us a huge feeling of security. But we’ve found that for our family, while 6 months of emergency savings is our goal, $3,000 is our minimum for emergency incidentals as it covers most surprises that could come up.
- Accepting the belief that I just wasn’t good with money.Whenever I think back to my experiences with money as a kid, I always think about my little sister. She’d did her homework a week ahead of time; I did mine on the bus on the way to school. She was the saver; I was the spender. I would tease her because she’d organize her money according to serial numbers while mine was crumpled into various purses and jeans pockets.Every hiccup and surprise that resulted in a money crisis in my adult life reaffirmed in my mind that I sucked when it came to money. It became a self fulfilling prophecy. Thinking that I wasn’t someone who could be good at money became my biggest challenge.Overcoming it is still a process, but through the process of building my business I realized that we all start from where we are and that there are so many other people with bigger challenges than I have, who are successful. If they can do it, I can too! Thankfully that business skill has transferred to other challenging areas of my life, one of them being money!
I was introduced to Dave Ramsey’s plan after asking the FatWallet community what personal finance books they recommended right after I started here in 2011. Dave Ramsey’s baby steps were what got us going on the right track and they have given us a blueprint to follow. We’ve tweaked his plan to fit our needs by increasing our initial emergency fund amount, but it was a great starting point and helped us get on the right track. We’re almost done with Baby Step 2 (Debt Snowball) and have paid almost all our medical bills, car payments, and credit card bills in the last couple of years. We will be debt free except the house this fall (possibly before the end of summer) and it feels absolutely amazing.
Turning your financial life around is about progress not perfection. There are going to be money surprises and things you’ve overlooked, but every month that goes by will put you in a slightly better position than you were in the month before. Stay focused on your achievable goals.
If you’re frustrated with your finances and are wanting to turn things around, I highly suggest you read the FatWallet finance forums and get engaged with our community on social media as well. There are so many money-savvy people around here who are willing to help!