Tried and True Methods of Dealing with Money!
by Diane Conlinn, November 6, 2000
We hear the same things over and over from Credit Counselors. The traditional wisdom is listedin this article. I followed that for years, and it just never taught me how to truly handle my money.
If we just tighten the belt, multiply payments, then we'll get out of debt, and live happily every after. To me this is good training for putting our heads into a serious state of deprivation, and then after we get in debt, it is only a really short trip to some really substantial debt. I know because I've paid off my debt twice with the old methods, and guess what I'm back in the same boat again. My salary is nearly twice what it was and still I'm in debt. I'm going to take the points of her article one by and give you a differing version. I know it will sound incredible. How does this work? But, it does. It stops the debt cycle once and for all.
1. Can you afford to save for retirement?
Tiara's answer was No. My answer is Yes. Retirement comes upon all of us way too quickly. We can never afford not to save for retirement. Were we saving too much? That might need to be scaled back, but in a total perspective of our spending habits. I have done a couple of calculations on retirement calculators. According to what legislators say, if there is NO Social Security, which is looming over us all, I must have $800K in the bank to keep my present life style. Currently my lifestyle costs me $25K a year. I'm not even thinking about inflation. To have enough in savings to use my savings, use the interest to live on, I must have that $800K. Scary no? So can I afford to stop preparing for retirement? A resounding NO. I must find smarter ways to save, but not stop my saving.
2. Double UP
I always love this one. Most people can afford to double up some of the time, but not all the time. I pay the same amount on my debts every month, unless I get a windfall. Yes, that's right I spend the same amount. I started out with 43 separate accounts. I now have 25 accounts. I've paid off 18 and I did that without doubling up in the traditional manner. In fact, I paid less than the minimum payment to my creditors. Of course, to do this I had to give up the idea of a credit rating. But, credit is NOT a necessity of life. That is, unsecured credit. Still, my credit will end up smelling like a rose, and I won't use that rating. My method takes a long time. It takes 10 years, but when I'm done, I'll have savings, retirement, insurance, and no debts. My life will be not full of deprivation, and I probably won't get into debt again.
So what is the answer. First, find out what you spend by tracking your expenses for a couple months. Make a spending plan. (Not a budget). Tracking all the things you realistically need to spend on each month to keep your sanity and charity toward the human race. The first need we all have are Food, Shelter, and Clothing. Do we all wonder why we spend so much money on clothing? Well, it's a natural survival instinct. A little blown out of hand by the advertisements thrown at us every day, but it is natural. So the first thing I write down is my Food expenses, ($310) a month, $10 a day. That includes groceries and going out to eat. Just me. I've been tracking for months and when I go under that I go into deprivation. Shelter. I'm lucky. I live in Silicon Valley and I spend only 1K a month for my rent. Clothing. I'm lucky that I work at a semi-relaxed place. But, if you look in our parking lot it is full of Jaguars, Mercedes, Volvos, brand new Saturns, etc. You get the picture. So, my clothes can be casual, but must be good quality. At home, I wear other things. At work, I wear decent clothing. So my clothing budget is $75 a month for clothes, $15 a month for shoes. You get the picture? There many more categories, include them all: Pets, Health care, Utilities, entertainment (you heard me, entertainment). Then after you have completed this, what is left goes to debt retirement.
In my case that meant $5 a month on each bill, a total of $215 a month. Impossible you say. Well, I did that. I paid $5 a month on each bill without fail. And the key to this is that when I paid off the lowest debt. I took that $5 I had been paying on the 1st debt and paid it on the second debt which paid that debt off faster.
When I get a windfall, I apply the 1/3, 1/3, 1/3 rule. I put 1/3 to the past (old debts), 1/3 to the present (present needs), and 1/3 to the future. I divide that amount equally between retirement, and a contingency fund.
A contingency fund? What a concept. I am building three months living expenses into a contingency fund, so when my car breaks down, or some other unforeseen emergency, such as a death in the family; I have the money in the bank to take care of it without creating new debt.
I know this isn't traditional wisdom, but I say it works. Because slowly unsecured debt goes away. And it will go away. Mine is. And I don't have holey underwear. I have nice shoes, a decent car that is repaired, etc. I always have enough money to last me to the end of the month. And when an emergency hits, I'm more or less ready for it.
3. Take advantage of your taxes
That money I apply the 1/3,1/3, 1/3 rule. The 1/3 I pay to my debt, I divide equally among all my debts and all of them get a little bonus that month.
4. Go card surfing
My answer here is forget the card surfing, cut up your credit cards, and send them back. If you really think you need a credit card, get a secured credit card backed by money in the bank. Then, your money is collecting interest, and you have that credit card for car rental, hotels, etc. But I have managed to rent cars, hotels, and many other things without a credit card for the last 4 years. I don't even have a checking account. I use strictly cash and have a savings account that I have my paycheck deposited into. I remove enough money for living expenses each month and every so often transfer the balance except for $50 into money market funds. I never bounce a check, and I always know my balance.
5. Borrow money
Boy that's rich, borrow money. Your parents or your brothers deserve value for their money just like anyone else. Why should they, the people you love, lose interest while they lend you money, while you send the money to the creditors, who they don't know from Adam. More debt never solves debt, no matter how one looks at this. Gifts are another story. If your relatives want to give you a gift, then that's great. Say thank you and divide that money 1/3 to the past, 1/3 to the present, and 1/3 to the future.
6. Empty your Savings
Oh folly. So what are you counting on to get you through emergencies, your good looks? More unsecured debt? More handouts from the relatives? Get real, shall we? What if you lose your job? Then what will you do? What if you have an extended illness? A really dumb, dumb plan.
7.Don't reward yourself
Reward yourself, yes. Include that in your spending plan. That's right, include mad money. Money to buy the crazy things in life. I put $30 a month into mine, and every couple months, I do something fun just for me.
With my plan, I'll still be saving and building after my debts are paid, I won't have to relearn how to handle money. I'll have ten years of handling money in a responsible way.
Thanks for listening.