I’m no expert (and really why would anyone listen to an “expert” these days?) I’m not one of those frugal people who has lived all my life with no debt, and saved tens of thousands dollars. We’ve been focused on raising our family, and when emergencies hit we had no safety net so things got put on credit.
We started our family young so we’ve only ever had one income, and we’ve always lived just beyond it. I understand now what it means to spend less than you earn. No matter how much your income changes over the years if you keep adjusting your lifestyle (and the cost of things keeps rising) you’ll always be spending more than you earn.
We moved into a more expensive home about 18 months ago. It was a chance to start over and get things right. But somehow I just couldn’t make ends meet, and we were constantly spending a little bit more than we earned each month.
In August 2008, I finally wised up. I wish I could say there was some revelation, but there wasn’t. I became a member of Wesabe, and started reading about personal finance. First, I created a financial snapshot.
It included 3 items:
- list of all debts
- general yearly budget
- calculated net worth
This was scary enough, and it took me awhile to organize those items, and play with them a bit. (I like numbers so this is kind of a fun thing for me plus it was a distraction that kept me from really accepting what those numbers meant!)
It was obvious when I ran the numbers that we had more going out than coming in. So I started working on finding expenses to cut (since getting more income seemed more difficult).
I slashed everything I could. I started with the obvious stuff. Take-out, convenience foods, the hubby’s lunch each day, Target, expensive outings with the kids, etc. were the first to go. If we were paying for services, IE house cleaning, gardener, etc. now would have been the time to cut them. The easiest way to see how this added up was downloading my account info to Wesabe. Mint is another great site, or you can always use your bank account’s website, Quicken, QuickenOnline, or a good old-fashioned paper and pen. 
Next I looked at the biggest expenses.
Most $ in our monthly budget is spent on the mortgage, so we refinanced that this month (after a 4 month wait!) and lowered our interest rate by 1.675%!
We have a car loan, but I’m unwilling to refinance. I’m over halfway through it, and refinancing would only add more interest and make us owe more than the car is worth. The other car is paid for. (YAY!!)
Before the big credit freeze I transferred a bunch of smaller balances onto 0% cards. We have one card at 8.99% and one at 12.99% and the rest is at 0%. Our average APR is less than 4%.
I cut auto insurance costs by raising our deductible, and changing some of our coverages. I checked into switching homeowner’s insurance (it wasn’t worth it), and saved money on life insurance by setting up automatic payments.
I looked at our energy usage, (cue dramatic gasp) it was way too high. I started turning up the thermostat when the AC or heat was on, turning off lights, unplugging appliances and lights when they weren’t in use. I installed some power strips at key areas. I started using less water when washing the dishes.
We also cut grocery expenses. We knocked off about $400 in expenses by shopping sales, buying whole foods (no convenience foods) among other tricks.
Finally after all of that was done, I was given the fantastic advice to look at ways to increase our income. We upped our W4 deductions to give ourselves a pay raise. Then I started working part-time (first 2 hours a week, and now 2 hours plus another job with 13-19 hours a week). I work hours that are convenient for my family so we don’t have to pay for daycare or after school care.
Another tactic is to sell stuff we don’t need/aren’t using. Mainly this consists of books, DVDs and household items we no longer need. I have netted about $1500 from this over the last 6 months.
A few weeks ago, I sat down to go over the yearly budget, and update our net worth and debt spreadsheets. This is something I do monthly. I decided to make a chart and hang it on our wall so we can see how much debt there is and every time payments are made I can mark off our progress to the big $0 at the end. I think having a visual reminder will keep us motivated.
Next up I’ll discuss what method we’re using to pay off our debt, and the various schools of thought about paying off debt and why we chose the method we did.
Kelly
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