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.