Apologies if this kind of post isn't welcome here these days. It's not meant as financial advice, simply an account of my journey (along with my partner).
EDIT to add that I don't think any of this information is new to this sub, it's more about sharing the journey and almost a case study of these principles in action.
Also, please feel free to add your own 2c here. Have I missed something? Could I have/can I do things better overall to improve in the future?
The Beginning
4 years ago myself (now 30M) and my partner (now 31F) were absolutely terrible with our personal finances. Typical 20-somethings I guess. More interested in that shiny new TV, alcohol and basically enjoying life than we were financial stability or even financial responsibility.
The problem was that over the years, living beyond our means caught up with us steadily in the background until buying another bottle of alcohol or a shiny new appliance meant skipping a bill (and sometimes we did).
It reached a point where one day we were at the grocery store and realised we didn't have enough money left to buy anything substantial. We got home, looked at our (then-separate) bank accounts and the penny dropped... we were in some serious amounts of debt and had no clue how to deal with it.
We had no idea what bills we had coming so each one was a surprise. We had absolutely $0 in savings and just lived week to week. It was stressful and depressing and we had to do something about it, but what?
First Step - Reality Check
The first thing we did was sit down for about half of our Saturday that weekend with a laptop, working out what all of our bills were, roughly when we thought they'd be due again and approximately how much they were going to be.
We then broke this down to a fortnightly average and determined that on these calculations we'd have about -$20 /fortnight on average. So that was the end of our fun for a little while. We had to figure out a way to fix this because at that point in time, my only real solution was to sit there and panic, trying not to throw up.
For context, my relationship with my family wasn't/isn't great and I was stupid enough to borrow a large amount of money via several types of credit for them which I never saw again. I accept that it was my own fault and my penchant for alcohol and the YOLO approach to life at that time took it from a horrible situation to a total crisis.
Step Two - The Plan
Now that we at least had a rough schedule of outgoings and a solid grip on reality, we stopped going out and just bought the bare essentials for a few weeks so we could try to catch up on the most outstanding of debts.
I used this time to consume as much information as I could possibly get my hands on for free or close to it so I could put together a way out of this mess. I spent countless hours in this sub reading through so many posts, the entire sidebar and of course the relevant comment threads. I read as many books as I could find that seemed relevant and had good ratings and essentially used a combination of various bits and pieces to work out exactly what to do.
Once a month had passed and we'd kept track of the due dates of the frequent bills, we then had a proper schedule of exactly what was due when and how much. We could also add up our spending on necessities like groceries and challenged ourselves to push that number even lower.
We started selling possessions we didn't need and contacted creditors to advise of our financial hardship and surprisingly some were quite helpful in setting up payment plans that allowed us to pay reduced amounts which helped a lot. This was obviously at the expense of an extended repayment duration and ultimately more money but we needed an opportunity to get started.
With that, we sorted our bills from smallest to largest and applied the "Snowball" tactic, paying as much as we could possibly afford onto our smallest debt of a few hundred $. With that gone, we then had one less repayment to make so all the money that had been going into it was now put into the second largest and so on.
Now that we could actually see a list of debts being canceled and slowly but surely, the amount we were able to pay off each fortnight being increased, it was a rewarding feeling, though we were literally years from being out of trouble yet.
The Mental Aspect
For us, so much of this journey was about getting our mind in the right place and having some visual representations to look at.
I'm not going to lie, there were entire months in there that were such a struggle. Friends were having birthdays and weddings or going on amazing overseas holidays or even just buying upgrades relating to some of my own hobbies while I used old or sometimes even broken equipment because I just couldn't afford the minor cost of fixing or replacing it. I don't think I bought a single new item of clothing for ~18 months so my wardrobe looked pretty ratty.
Combine that with the peer pressure from friends saying "come on, it's only $20, just do it!" and it was often really tough. It sounds absolutely silly but once you've been living like this for so long, you're so mentally worn down, it doesn't take much to make you feel like giving up.
Our snowball schedule was plotted in a spreadsheet accompanied by a graph. This was updated fortnight with planned progress vs real progress so it almost turned into a game to see if we could beat our own plan. It also made us feel bad on those weeks we wavered slightly and didn't quite hit out target. In a sense, we slowly traded pressure from creditors to self-imposed pressure to hit our own goals.
Bank Account Separation
Once we finally got to a point where we were no longer behind in payments, we'd hit our first milestone and we could at least see a tiny light at the end of the tunnel.
At this stage we realised that it really was worth all the effort and stress if we wanted to truly fix this and we needed to keep ourselves on track.
We took a big step for our finances and relationship by opening up a joint bank account along with some others for a very specific structure. Our accounts looked like this:
- Personal Expenses
- Shared Expenses (Joint Account) *Bills
- Savings
- Emergency Savings
From our respective fortnightly incomes, we decided on budgets for various things which went into their relevant accounts, kind of like a digital version of the envelope approach.
Of our income, we'd "pay" ourselves $70 /week for personal expenses. This could be literally anything we liked but once it was gone for the week that was it. Spend $70 at the bar the day I "paid" myself? Looks like I'm sitting at home and taking a packed lunch to work for the rest of the week. This was separated too, so I had my money and my partner had hers.
The shared expenses account was pretty much the same thing and we put $150 /week into this too. It was there to cover the costs of shared things. Groceries, cleaning products for the apartment, maybe dinner and a movie... same deal though, when that money was gone there was no more left until the following week. Ultimately the aim of both accounts was to have some money remaining at the end of each week which we be put into savings.
The bills accounts were kept separate at this point and we'd look at our schedule of bills, putting the exact amount into this account that was due to come out of out, using direct debit wherever possible.
The savings and emergency savings accounts are pretty self-explanatory I think. Anything left over after the above accounts were satisfied went into Savings and each week we'd move a set amount into emergency savings that was treated as though it wasn't there. I think we started with just $5 /week initially then as we progressed down this path it was steadily increased. It's not $50 /week and continuing to climb.
This account actually saved our asses big time. We were visiting my partner's family and there was a mistake in the airline's app. Long story short the app showed the times and dates we booked but their system had us scheduled to fly home a day early so we showed up to the airport to be told that if we wanted to get home, we'd have to pay the $550 there and then and sort the rest out through the week. I have no idea what we would have done without this account since it was a Sunday night and our other accounts had <$20 each in them at that point.
Recent Progress
This continued on for about 4 years and in December I stumbled on an exciting milestone... for the first time in my life, my pay day came and went and I didn't even realise it. I wasn't counting down the days till my next pay, I'd completely forgotten it was coming!
We've paid so much of our debt down now that we can actually breathe and have a social life again, though we're very cautious and maintain the same structure. The only differences are that we now share more accounts (bills, savings and emergency savings) because we only have a handful of bills between us. We've also slightly increased how much we "pay ourselves" each week since we have more money to play with in a controlled manner.
Of course, over this time we've increased our income as well, working better jobs, working hard enough to receive good pay increases etc. If we were to just pay the minimum on our last few remaining debts, we'd be able to save a bit over $1100 /week!
We've since been able to comfortably fund an overseas trip for the first time since we started all of this and it felt fantastic. As of a few weeks ago, I'm also officially a pilot! From counting silver coins to see if we could afford a loaf of bread to this in just 4 years!!
Personal Rules to Protect Us in Future
Now that we're comfortable and just focussing on cleaning up the remainder of our debts, we've had to stay just as strict on ourselves to avoid making the same mistakes we've seen ourselves, friends and family make over the years of spending what's in the account and not thinking about anything beyond that.
We'll always continue to allow ourselves only a portion of what comes in, we don't make impulse purchases (if we really like/want some fancy new appliance we'll do the research, shop around then sit on the idea for a few weeks to see if we really want that thing or if we'd rather have that much more paid off a debt) and any future purchases will have no more than 50% financed.
Ultimately new things will be paid in cash but if we wanted a new car and it was $60,000 we'll have to be disciplined enough to put $30,000 cash aside so we're only financing $30k on a $60k car. All the while, still contributing to our usual savings and emergency savings accounts.
I'm aware of the concept of being comfortable with debt and using it wisely to increase your net income but buying depreciating assets is not the way to go about it :)
We're proud of what we've been able to achieve in this time and enjoy knowing that we have money in the bank if we ever need it. The prospect of investment and using this money to make more money now is both new and exciting to us both. We're also very weary of the old advice of never lending money that you can't afford to lose. Aside from two particular friends and one specific family member, the answer to everyone else is "sorry, we don't have any spare".
We avoid talking about this with anyone unless they raise the topic of managing personal finances. Even then, if they're specifically asking for advice we'll share our structure but never how much we have. Money changes people but it also changes how people perceive you. Money can change your life for better or worse, how you manage it is what ultimately determines the outcome.
Submitted March 03, 2017 at 02:04AM by Atheizt http://ift.tt/2mkDXHn
