While in college I took mathematics courses like  – “MATH 101 – Math for Life” and “STAT 200 – Statistics for Liberal Arts Majors”. My husband on the other hand, graduated from a top 5 business school with BS in Actuarial Science. I never even had heard of that major before we met.  Even today when people ask me what my husband does I say, “Don’t ask me. I’m just a girl [tee-hee tee-hee]!”

Of course I’m trying to be a funny guy, but much like that ill-fated barbie doll, math really isn’t my strong suit.  I always assumed because I had trouble with Chi-Square tests I was doomed when it came to investing, finances and budgeting.

But Personal Finance really isn’t about math. Because even with a math-nerd husband we still found ourselves not doing the right things when it came to money.

Personal Finance, at least in its beginner stages, is about commitment, sacrifice and self-control.

When we decided we didn’t want to live paycheck to paycheck any longer and wanted to get control (FULL control) of our finances.  I researched all kinds of Personal Finance advice, read the blogs, learned all the lingo. Worked out the budget, planned for our irregular expenses. Basically, I prepared for almost a full year for the commitment we were going to make to be debt free.

It had been working out great.  We’ve been sticking to “THE PLAN”.  We no longer use credit cards.  I actually cook almost all our meals.  We have a small but growing emergency fund that we continually add to.   We gave up the Y membership, soda, name-brand coffee…

I have been waiting on the inevitable though.

And so we come to our first true test in our quest to be debt free:

The family TV broke this week.  It’s dead and it’s un-fixable.

I applaud and am in awe of those families with kids who limit TV watching to 30 minutes a day or the like.  We are not that family.   While I don’t worry for a minute that the kids watch “too much TV”  – they don’t.   I do use the TV as a crutch when I need to get something important done and having an almost 2, 3 and 4 year old under my feet is too much.  After the kids go to bed, my husband and I are *gasp* also TV junkies.  I admit it.  We don’t spend our evenings reading each other Shakespeare, we often sit slack-jawed, immersed in our favorite mindless entertainment.

In much the same way the TV was is a “crutch” so were the credit cards.   In the past we would have run out and bought a new TV AND put it on our credit card.   We had a very serious conversation (I’m not joking) discussing what to do with this dilemma.   Things like, “Will we survive without  TV?” and “After investing 5 frustrating years, will we never find out what’s really going on on LOST?!”, were said.

In the end we decided to do the grown-up responsible thing, not raid the emergency fund, and save up to buy a new TV with CASH.

In the meantime, my husband has agreed to don a smoking jacket and get a pipe.  Me and the little children will gather at his feet nightly by the fireplace, our chins resting on his knee, looking up at him with our angelic faces while he reads Dickens (my favorite!) to us…

(Full Disclosure – We do have a dinky old 19″ TV we can drag out if the above fantasy doesn’t work out.)

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The “great debate” that centers around whether it makes financial sense to get a tax refund or not usually entails one of two perspectives:

The “No Refund” crowd loathes the fact that you are loaning the government your money for free.  Your monthly overpayment in federal taxes could be put in a high-yield savings account and earn you interest throughout the year.

The “Pro-Refund” people usually argue that getting the big refund allows them a forced way to save money that they wouldn’t otherwise save.  The refund can be used to pay down debt or put away for a rainy day.

I’m a reformed “Pro-Refund”.  We used to get the big refund and pay down the credit card.  The same credit card that we were forced to use throughout the year for necessities.  There was no end in sight, the credit cards would never get paid-off because the take-home pay was not enough to cover our lifestyle. What a crazy cycle, we were giving our own money away(letting the government hold it), and then we would have to use credit cards (at about 18% interest over the year) to borrow our own money, pay off the credit card with the refund and start it all over again!

Last week I asked my husband to bring an updated W4 to HR so we can avoid a refund.  Not so we can put this extra money per paycheck in a savings account or use it to pay off debt.  We will use it to avoid using credit cards. We are a paycheck-to-paycheck family.  We are fed up with that lifestyle.  For us, not getting a refund will result in an extra $200-$250 a month.

The majority of our credit card purchases were made because there was not enough wiggle-room in the budget to pay for our monthly expenses.  Even with our cost cutting measures, we were still one small hiccup away from using a credit card to get us through. Maybe down the road, when we have better control of our finances, this money can be used for a “Vacation Fund” or the like.  For now, I’m looking forward to NOT putting groceries or gas on a credit card.

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Today our credit card debt alone totals over $11,000, but for the first time in a long time I fall asleep at night with hope rather than despair.   I’ve tried for over 2 years to get out debt but truth is we never made a dent in it.  It seems so obvious to me now why I’ve failed at getting our family debt.

One of the big reasons – I was unprepared and underfunded for the yearly bill/irregular bills when they came.   The fact that I never properly budgeted for the sewer bill or the car registration/inspection meant using credit cards or spending any “emergency savings” we had built up.   Basically back to square one.

Then I had an awesome idea that would revolutionize the personal finance world!    I would take all the irregular yearly bills, add them up, divide by 24 (my husband is paid bi-monthly) and make that part of my monthly budget.  I would call it our “Personal Escrow Account.”  GENIUS!

Of course this idea is old news.   In fact Charlotte, the subject of  an article at “Get Rich Slowly”, even calls her method a “Personal Escrow Account.”

While I won’t win any points for originality, this method has saved my budget and my sanity.  Breaking down big irregular bills into smaller semi-monthly payments not only makes me feel prepared but provides breathing room in the budget.

EXPENSES         YEARLY BILL         NEED TO SAVE per PAYCHECK

Sewer bill                        $204                                       $8.50

PreSchool                        $2430                                    $101.25

Cars(approx)                  $400                                      $16.70

Propane                            $1400                                    $58.35

These “mini-escrows”(I’m patenting that) have helped alleviate the pressure that would come any time a non-recurring bill would come due.  I round up the numbers to the nearest $5 and put them in designated ING accounts.  To build up the proper amounts I needed to borrow from the “Emergency Fund”.   I know, I know, YOU NEVER TOUCH the emergency fund but I would have had to either used the emergency fund to pay these bills or a credit card so what’s the difference?

I also add bi-monthly in sub ING accounts to the “Emergency Fund”, a “Christmas Fund” and a “Whatever Fund”.

When you NEED credit cards to pay bills you know you are in trouble.  That is where we were.  Hopefully, no more!  Over $11,000 in credit card debt is no joke, and while the amount we owe is still there I feel the crutch they provided may be gone.

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When you finally make a plan to get out of debt it is easy to succumb to irrational exuberance and put yourself right back where you started. 

This is my third attempt in two years to pay off our debt and this time I think I have it right.

Failure #1 -  A Sloppy Budget:

I never fully took control of expenses.  I basically just added up the bills and thought “OK – I’m done – There is my budget”.  But I underestimated costs of necessary reoccurring expenses.  For example – I’d budget $200 grocery shopping and spend $200 on groceries.  That’s all well and good but we’d run out of milk, bread or whatever and my budget never accounted for those in-between trips.   I also did not get rid of obvious money-suckers (IE premium cable).  Nor did I take the time to call my creditors/insurance companies/cable co. and request interest rate/premium reductions.

FIX – Why I hope the budget will not fail now:

I took a lot of time and many weeks carefully combing through the bank statements to find the true amount we really spend so we have an accurate picture for the budget.   I feel confident I’m not just blindly coming up with budget categories and sticking some number, any number in there. We cut a lot of unnecessary expenses.  We called every place we get a bill from and tried to get the payments or interest rates lowered.  And in MOST cases it worked, lower expenses = more money.

Failure #2 – Tried to do Too much too fast.

When the credit card bills rolled in I’d throw an $100-$200 at the payment.  I was so excited to be making a dent in amount we owe!  But days before payday when we ran out money (because of my sloppy budget) we would have to put diapers or a doctor visit or birthday gift (or all of the above) on the credit card.  We would be back to square one and sometimes in a even worse situation.

FIX  – Slow and Steady.

I am resigned to fact that it did not take a couple weeks to get in debt and it will be a marathon not a sprint to get out.  With careful and realistic planning being debt-free will happen.  Just not overnight.  If there is extra left over in the checking when payday comes THEN we can put that towards the cards.

Failure #3  – Not Expecting the Unexpected.

With no buffer in the budget or small emergency fund, unplanned expenses would HAVE to be put on a credit card.  These small setbacks were so deflating that this when I would often give up on the get-out-of-debt plan.

FIX – “Broken Window Fund”

Now that the budget is realistic and I am committed (but not irrationally over-eager to pay off the credit cards) we set up a small fund for all the little setbacks that happen in real life.

Plan Weaknesses – The “Emergency Fund”

It’s going to take a long time for us to save up the recommended 3-6 month living expenses most people say it smart.   I just have to cross my fingers here and hope for the best.   I put away what we can put away.  It’s the best we can do right now.  I think saving 1 month is worthy goal for now and if the “new plan” pans out I can revisit this later.

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In keeping with my last post I want to write about the reality of the money situation as well.  Here’s a little nugget of honesty,  when it’s three days before payday and the checking account has $2.06 in it and the dogs run out of dog food, I feed them cat food.  I give the kids a mixture a half-juice and half-water and tell them it’s healthier that way.   At dinner when we sit down to eat and the napkins/paper towels are used up – we use baby bibs as our “wiping rags”.  We’re so green.

That’s what happens when you stop using credit cards to bridge the paycheck  gap.  None of it is hurting anyone but it sucks.  We live in a snotty high income area and I often wonder how all these other people are making it.   Are they surviving on credit or have they just managed their money so much better than we have?  I told you before our net worth is $112,000 and that is true.  (We have 401k savings, we have 529 college funds for the kids and we put $100,000 down on our house (got really lucky and sold our old house at the height of the housing boom) but we can only put $8 of gas in the car!?!)

How come I’m eating Oodles of Noodles like I’m living in a dorm the day before payday?

Crappy choices.  Spending more a month than we take in month and using credit cards for the difference.   Cutting up the credit cards was tough, they were such a crutch but it was necessary if we are going to ever get out the paycheck to paycheck cycle.  So yeah, sometimes the dogs will have to eat cat food.

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