Fiscally Fit

Last night I had a dream that I was explaining my budget plan to…someone. Who I was talking to wasn’t clear, but what I was saying was very detailed and I woke up thinking about finances. I’ve been meaning to write about my financial journey for a couple years now, dating back to the time when I had a goal to focus on physical and fiscal fitness. (btw, I'm definitely looking forward to the day that there will be space for a yoga room again!)

While my physical fitness regime seems to fluctuate based on geography, the season and the amount of free-time I get, I have learned that my fiscal fitness doesn't have to. Gaining financial independence became a driving force in my life and thanks to a very supportive husband (supportive not enabling), I'm on track to paying off a hefty debt by Christmas (a debt that doubled over five years due to compounding interest and then sat stagnant for several more years as interest only payments were made just to keep things afloat). I know too well the feelings of bondage, anxiety and low self-worth that accompany overwhelming debt. And like anyone in recovery, I am all too enthusiastic about sharing what I've learned over the last fifteen years of my adult life.

I gratefully realize that part of my success with what I often refer to as "the super skinny debt reduction plan" has to do with a somewhat unique situation. We are a dual income household and even though the Captain is technically a student, we are able to live off that student income because it is supplemented by the G.I. Bill and he moonlights like a champ on his days and nights off. This makes it possible for all of my take home pay to go straight to the bank (and to God—He still gets 10%). My past bad choices are greatly benefited from the Captain’s good choices. Another part of that success is due to hours and hours of emotional and psychological work overcoming a deep seated shopping addiction. Our relationships with money can be so emotional and powerful. My attitude towards money has completely shifted (I’m more than happy to write about that process too, if anyone is interested, or maybe I'll write about it anyway).

We are making sacrifices all the time. I sacrifice my desire to eat organic, free-range chicken and eggs and grass fed beef, for example. I try not to think about the GMO crops my meat was fed on or the hormones it was likely pumped with. Ugh. I'd probably do better to go vegetarian for now. The Captain's watch broke on our vacation and I could see the sadness in his eyes as we discussed its replacement. Buy a crappy watch now and start saving your slush fund, my dear!

With that said, now we can get to the good stuff. What to do.

*Note: there are a gazillion theories and programs on money management. I'm just sharing what seems to have worked for me. I've also included a few books at the end if you'd like some help finding a new frame of reference.

1. Know where your money goes. The first thing I did was start tracking my expenses. I was incredibly meticulous. Kept all of my receipts and entered them into a spreadsheet, that way it didn’t matter if I used cash or not. You don’t have to purchase expensive software to do this. (Keep in mind this was before free online applications, which I’ll talk about later). Then I started categorizing my expenses to see what I was spending money on. What an eye opener! I never realized how much money I was spending on little things here and there and how those little things added up. For example, I was working at a naturopathic doctor’s office at the time and we sold Lara Bars and Xocai chocolates at the counter. As employees, we could keep a tab and pay out at the end of the week. Dangerous! Those little chocolate nuggets were $2 each and do you think I could eat just one?? Even if I could have exercised restraint and had one a day, that’s $10 a week right there (or as the Captain likes to think of it, eight burgers a month).

2. Create a budget. You may think this step is out of order and it should be first. I needed an idea of what I was working with first before I could make a responsible and realistic budget. Via step one, I learned what categories I needed in my budget, the categories that were fixed (like my phone bill) as well as the areas that I could focus on reducing my spending (like gas by limiting the number of unnecessary car trips, which has a secondary benefit of reducing spending in general. Fewer trips to the mall = less temptation to spend). I can get pretty detailed and a little obsessive so I kept adding categories and getting really specific.

Back then my budget categories were different than they are now. Your budget categories will depend on your individual/family needs. There are so many budget theories and I’m just sharing what worked for me. Based on my findings from step one, I estimated how much money I could set aside for each category. Then I took my total income after taxes, tithing and other charitable contributions and started subtracting those subtotals. It was easiest for me to start with the “fixed” categories. Things I knew weren’t going to change, like set payments and other bills. Food is important to me, so that came out next. Anything else really fell into the “wants” arena. I kept finding things that I could do without. I decided to cancel my gym membership and start working out at home and learning to like running outside (still working on that one). I had to think about things and plan ahead. If I had an errand I wanted to run up in Salt Lake (which was about 45 minutes away from where I lived), I made sure that I coordinated a social event to couple it with. For the first time in my life I made myself prioritize. Holy empowering! Just thinking about it gets me a little emotional.

3. Find a program to track your budget. I’ve tried manual and electronic programs and I like both. When I was first starting out, my mom gave me one of these little budgeting books she found at Deseret Book in Utah. They are the size of a check register, but inside they have columns for your different budgets. So, like a check register used correctly, you start with your allotted amount for the month at the top of each column and subtract each expenditure from that budget. For example, say in one day I filled my car up with gas, ate out for lunch, purchased two chocolate nuggets, and went to a movie with friends. Regardless if I used cash, check, debit or credit, I would write in the expense in its column: gas under the “transportation” column, lunch under “food”, chocolate under “fun money” (because let’s be honest, chocolate is a luxury), and the movie under “entertainment”. Then subtract from the running balance and voila, I know how much I have left in that category to spend the rest of the month. I ended up creating something very similar, but smaller so that it was about the size of my debit card since I don’t use checks. This was extremely successful for me.

Now with the smart phone, I use Mint.com, which does the same thing, only faster. I LOVE that I had to do it manually at first though. I forced me to really LOOK at my spending in the moment. It help me make better decisions because I couldn’t say, “I’ll spend now and categorize later” which I can do now with Mint. I love Mint now that I’ve created healthy financial habits and recommend it to everyone.

4. Get inspired. I could not have done this without some serious motivation. Mine was the Captain. All the sudden I had someone to answer to, someone who expected more from me than had been expected before. We were just dating at the time, so I don’t recommend this form of motivation for everyone, but for me it worked. We joke now that he created a monster because I am so much more anal about our budget than he is. After I started seeing results, my motivation changed. It felt SO GOOD! It must be something like my hero Alma experienced (as recorded in the Book of Mormon) when he said his joy was as exquisite as was his pain. I used the word “empowered” earlier. Think of the complete opposite of bondage, anxiety and low self-worth and there you have it. Freedom. Joy. Love.

5. Watch your debts shrink. There is nothing like logging on to an account or getting a paper statement and watching the balance get smaller and smaller. Say it with me. Freedom. Joy. Love!

6. "Stay committed to your decisions, but stay flexible in your approach." --Tom Robbins. A budget needs to be somewhat elastic. As our lives change, so do our needs and our finances. Jobs come and go; families grow and shrink; cost of living changes from city to city. Example: when we moved to Brooklyn, our food budget was based on what we spent in Virginia. There’s a pretty BIG difference in cost of living here, not to mention the Captain ate breakfast and lunch on base for super cheap. I was continually going over budget on groceries each month. I had to fight for it, but we finally found a way to increase our grocery budget. For the sake of our family sanity, it is worth sacrificing a little cushioning to be able to buy those “extra” few food items each month.

*If you’ve got more than one loan you’re paying off, here’s my favorite way to attack them -- the snow ball method. There are a few versions of this, but my favorite version focuses on your balance rather than APR. I like this one because you can see faster results.

In step two above, create a “debt reduction” budget. This is the amount that you can optimistically (and realistically) afford to pay toward your debts ABOVE and BEYOND the minimum payments. List all of your loans with the outstanding balances. Only make the minimum payments on all but the one with the lowest balance. On that one, make the minimum payment PLUS the total of your “debt reduction” budget. Now you’re paying down the principal too.Once it’s paid off, you can take the total of your debt reduction budget PLUS the minimum payment you were paying on that debt and start paying that amount on your debt with the next smallest balance.

Example (these numbers are not exact calculations): you’ve got 4 debt accounts including a credit card with a $1,000 balance and a minimum monthly payment of approximately $20, a bank overdraft account with a $500 balance and a $15 minimum payment, a car loan owing $13,000 with a $250 minimum payment, and a student loan for $2,000 and a $50 minimum payment. Say you’ve got an extra $100 a month because you’ve decided to limit your clothing allowance (you already have enough clothes anyway). So you pay an extra $100 a month towards your bank overdraft account in addition to the $15. Because you have a budget, you’re not going to add debt to your overdraft account because you’re tracking your expenses and will never overspend your checking account again! You’ll have that one paid off in about 5 months. Starting in month 6, you’ll pay $100+15+20 on your credit card. In another 7 or 8 months, your credit card will be paid off. Now you can put $100+15+20+50 towards your student loan each month. In my rough estimation (I am not a numbers girl) your student loan will be paid off in less than 10 months. After that you’ll have $100+15+20+50+250 to put towards your car payment. From start to finish you’ll be debt free in about 4 years. That’s so much better than being tied down by those monthly payments for the rest of your mortal life. And because you’ve trained yourself to live on less, you don’t really need that $435 a month and you can put it into your retirement account. Invested wisely, you’ll appreciate that money when Social Security has dried up and the government has nothing to offer you.

A few favorite resources:

The Millionaire Next Door by Thomas Stanley and William Danko

The Gone Fishin' Portfolio by Alexander Green

The Money Book for the Young, Fabulous and Broke by Suze Orman