Today, I turn 35. Over the past few weeks, I’ve been thinking of the past as I set goals for the future. Thinking back to some wonderful memories and some not so wonderful ones, I often think if there is anything I would have changed along the way.
There have been times along this journey where I have questioned my decisions and cursed myself for some of them. I have been frustrated with things that have happened in my life and tried to wish them away. As I turn 35, I realize that all of those things have made me the person I am today.
Every decision, every trial has shaped me, has put me in the spot I am at this moment. Even my cancer diagnosis eight years ago threw me on a new course in life. It made me realize how much I loved the man I married. It opened up a new career path which I truly love. It put me on a course to start my business, to teach people all over the world through my YouTube videos, to mentor students and change lives, to start this blog.
Most people would think, at the very least, I would wish to erase cancer from my history. But even that is so tightly woven into the person I am today that, even though it haunts me, I would not erase it from my life.
I would not erase our debt either. I’m not sure who I would be if we had not had to dig ourselves out of the massive debt we created. Has the journey been less than pleasant at times? Oh hell yeah, but it has also been an amazing experience.
Over the past 17 years, I’ve learned that I am stronger than I ever thought possible.
I quit a good paying job when we had mountains of debt because I put my health first.
I held my bald head high in a room full of business people as I started my accounting firm.
I stood in front of a classroom, scared to death, to share my knowledge and experience with students, some of whom older than I was.
Together, my husband and I have paid off over $155,000 in debt when it would have been easier to just give up and declare bankruptcy.
We stayed together and fought together when many times it would have been easier to just walk away.
As I sit back and reflect on all those moments and wonder how things would be different, I realize that it’s not worth the chance. Even changing one small thing might make everything else completely unrecognizable. It’s just not a chance I would be willing to take.
I am a product of ALL of life’s experiences: the good, the bad, the amazing, and the pretty damn crappy. Here’s to looking back in another 35 years and still being at peace with all those life experiences.
When we are slogging our way through paying down debt, we often forget to see the light at the end of the tunnel. We just see debt starring us down and it seems like we will be in this stage of life forever. I’ve been feeling that way for the last few weeks. Today, I am intentionally taking a few minutes to search for that light with a little help from some friends of mine.
Sometimes fate kicks me in the butt when I really need it. Today, my friend Camilla at No More Hamster Wheel wrote a post about looking ahead five years. She asked “If Nothing Changed in the Next 5 Years Would You Be OK with That?” It got me thinking about what I want my next five years to look like financially. It also inspired me to rewatch Kevin Buchanan’s video about your #next5 years.
So what do my next five years look like financially?
1. Pay off our non-mortgage debt in 18 months.
When I look at it that way, the road doesn’t seem that much longer. We’ve been at this for a long time and seeing that we are 18 months away from that goal is huge for my motivation!
2. Build up a nice, beefy emergency fund.
After we finish paying off the debt, I can’t wait to have more cash in the bank. This will allow us to weather most storms that come our way.
3. Pay cash for a nice trip for our 15th wedding anniversary.
Our 15th anniversary is May 18, 2016. We should be able to pay off the rest of our debt, build an emergency fund and save up for our trip. I’m not sure if we are going to go back to Las Vegas, where we got married, or go back to Italy. Either way, it’ll be awesome and paid for with cash.
4. Move to a lower cost of living location.
Connecticut is a very expensive place to live and with that high cost of living comes restrictions on what we can do with our dreams. Moving to a lower cost of living location would allow both of us to spend more time, if not full-time on our dreams.
5. Be completely debt free.
I currently have a five year plan to be completely debt free if we were to stay in Connecticut. If we do end up moving, we will do so in a way that I can still be completely debt free by 40. Hitting this goal would give us an incredible amount of freedom going forward. I can’t wait to have a payment free life!
Of course, we have a lot of other financial goals, like saving more for retirement and purchasing a newer car for my husband, but these are the five that keep me going. These are the five that get me through those months when I’m tired of living on such a tight budget.
What are your #next5 financial goals? How can I help you get there?
This morning, my husband and I were running errands and chatting about our hustles. Jeff is working on a podcast, new website and finishing up his first book. I am working on this site and my new site, Accounting In Focus. All this is in addition to our day jobs and side businesses. We were sharing ideas and updates when something struck me.
I don’t think we could have done this five years ago.
Five years ago, we were drowning in debt. We could barely breathe, let alone dream. We were at the bottom of Maslow’s Hierarchy of Needs.
Abraham Maslow studied individual’s needs. His research is the basis for the Hierarchy of Needs. In short, Maslow’s research stated an individual’s needs must be met in a certain order before moving to the next level. A person will strive to meet the level of need and once those are fulfilled, he or she will naturally move to the next level.
First we must fill basic needs: food, shelter, and other basic survival needs. Then we move on to safety needs, like security and stability. I believe debt falls into this second stage because debt typically hurts our security and stability. It causes risk in our lives. While we have debt, it is hard to move on to the higher levels of the Hierarchy.
Esteem needs are those like achievement, mastery and self-respect. This is typically where we start to dream. Self-actualization is the point at which we start to realize our full potential and seek to grow. If dreaming and realizing those dreams is in the top two tiers of the pyramid, could debt be crushing those dreams?
In our case, I believe it’s true. As we have paid off our debt and have more security in our lives, we have less stress. Stress is tiring and sucks up a lot of our mental capacity. I remember how tiring the stress was. I remember the all consuming nature of it. It zapped my energy.
While we have not paid off all of our debt, the fact that we can now live on just one income has really helped us feel more stable and secure. It has helped us open our minds to creative projects and personal growth. My husband is writing again. We are both creating again. We are taking in knowledge and improving ourselves. Even though the days are generally long, we are both excited about our projects rather than exhausted from the stress of debt.
Is stress overwhelming you? What is stopping you from dreaming? Have you begun to dream again? What got you dreaming again?
Has someone approached you about cosigning a loan? Maybe it was your child, a sibling, a parent or a really good friend. You want to help but you shouldn’t. You may not realize exactly what you are on the hook for. Here are four reasons you should never cosign on a loan.
1. The loan affects your credit
When you cosign for someone else’s loan, the loan affects your credit from day one. This affects your credit in a number of ways, even if all the payments are made on time. The loan will affect the amount of debt you have outstanding, your debt-to-income ratio, and your debt-to-outstanding-credit-limit ratio. The loan can lower your credit score even if the payments are made on time. Even if you don’t borrow money, this could affect your ability to rent an apartment and your car/homeowners/renters insurance rates.
If there are late payments on the loan, those late payments will appear on your credit report. If you cosign on a mortgage or for a car and that asset is foreclosed on or repossessed, you now have a foreclosure or repossession on your credit report.
2. The debt is your debt
When you cosign on a loan, that loan becomes your loan. The reason the borrower needs a cosigner is because the lender does not believe the borrower is creditworthy. Either the borrower doesn’t have sufficient credit or has bad credit. When you cosign, the bank is using your credit to make the borrower creditworthy. Cosigning means co-responsibility. Therefore, the bank has the right to go after you for nonpayment. You can be sued, garnished and have assets confiscated, as if you were the primary borrower.
If you are not prepared to make the payments for the duration of the loan, do not cosign.
3. Your obligation doesn’t die with the borrower
This is the worst part of cosigning. Typically when you take out a debt and pass away, the debts you have would be paid by the assets you have. If there are no assets, then the debts are forgiven. This is not the case when there is a cosigner. The bank will go after you as the cosigner.
At least once a year, I read a story about a family who lost a child and are now drowning in student loan debt while grieving the loss of their child. In the most recent article, the family is struggling with $200,000 in debt while trying to raise their three grandchildren after their daughter passed away. This story is just heart-breaking. I can’t even imagine what these families are doing through.
4. The relationship changes
One of the consequences that we often forget when discussing this topic is the effect that cosigning has on the relationship between the borrower and the cosigner. I have seen relationships torn apart. Thanksgiving dinner just doesn’t taste as good when debt is a side dish. There is a tension that forms, especially if there are late payments or worse. Do not let this happen to your relationships.
We all want to help people we love, but cosigning is not the answer. There are other ways to help. You might be able to work with the loved one to see if there is another option. Many people run to borrowing as the first option but there may be other ways. If you want to help financially, you could give a gift or match funds saved by your loved one.
If you start to feel guilty about saying no, just remember how cosigning can affect your life. Cosigning can burn your credit score, your budget and your relationships. I urge you not to sign on the dotted line.
That is the question when trying to pay off debt. This is a question we battled with when I started working again. The financial experts are all over the place with this question. Some folks are adamant that you should not contribute while you are trying to get out of debt. Others say you should. So what should you do? Let me take you through my thought process.
Most people think about time. How much time can I afford to not make retirement contributions? For me, it wasn’t so much about time, since I knew how long it would take to pay off our debt as long as we stayed intense. For me, it was about other benefits and our ability to keep traction on our plan.
Can you pay your bills?
You should never invest if you can’t pay your bills. It doesn’t make sense to borrow money to pay your monthly bills so you can put money into your retirement plan. Too often I see people do this, just to end up taking money out later to pay off debt. If you take money out of a retirement plan, you will pay a 10% penalty plus your tax rate. Now you are further in the hole than you were before!
Does your company match 100%?
If you work for a company that matches your contributions, you are missing out on part of your compensation package by not contributing to your retirement plan. When a company determines how much to pay you, the company factors in the maximum cost of benefits (health insurance, retirement, life insurance, etc). Any benefits you do not take advantage of are savings to the company. I hate leaving that money on the table.
I have been very fortunate to work in an industry with incredible retirement matches. Over the last few years, if I put in $1, the organization puts in $1.60 or $1.80, up to 5% of my pay. That’s some serious money to leave on the table. I’m making 160% to 180% on my money instantly.
Are you making good progress paying off your debt?
If you are having trouble getting traction on your debt payment plan, would stopping your retirement contributions help you make some traction?
If you are putting $100 a month in your retirement plan, you would probably have an additional $85-$90 per month after taxes to put toward your debt. That may be the extra boost you need to start getting some traction, especially if you have a lot of smaller debts.
Making the decision to stop your retirement contributions means you need to get a fire under your ass. Generate some extra income and slash your expenses so you can get some breathing room and get that debt paid down. This should not be a 10 year plan. This should be a 2-3 year plan, depending on how much debt you have. You need to get the mess cleaned up so you can start saving for your retirement and living your dreams. No cable. No vacations. If you are willing to sacrifice your future, you need to sacrifice right now.
We have slashed our expenses and both do side work to generate extra income. Each month, 50% – 60% of our take home pay goes to debt repayment. The contributions that I make to my retirement plan (after taxes) is 1% of our take home pay. By making that retirement contribution, I decrease our debt payoff by $116 per month. That also means that I have $455 per month going into my retirement plan (including the match). The $116 is not going to move our debt free date but the $455 will move up my retirement date.
Is there a correct answer for everyone?
That’s the easiest question of all because the answer is no. Everyone’s situation is different. You need to look at your situation and determine what is right for you. If you need help making this decision, leave a comment or send me an email at firstname.lastname@example.org.
Are you contributing to retirement while getting out of debt? Does your employer match your contributions?
Do you ever feel like you don’t know where you money is going? A budget can help you do that. The first time you make a budget, it’ll take you about an hour. Now my budget takes me about 10 minutes. Most things don’t change month-to-month so there is very little that changes each month. Once you work out the kinks, creating a new budget is pretty quick. Is financial security worth an hour a month? You could do your budget while watching TV.
2. Making a budget but not living by it
When you make a budget and stick it in a drawer, you might as well not make one at all. You just wasted 10 minutes of your life. Managing your budget doesn’t have to take long. I spend about 15 minutes per week updating my check register and paying bills that are not set up automatically. I have a spreadsheet set up in Google spreadsheets that I use as my check register so I can access it from anywhere.
3. Not having a goal
It’s extremely difficult to stay on budget if you don’t have a goal. Set a goal. It could get getting out of debt, saving an emergency fund, saving for retirement, saving for a car or a vacation. Whatever your goal is, get it down on paper. Put it on your wall. Keep that goal in the front of your mind. It makes it so much easier to stick to a plan.
4. Not working with your spouse
When we got married, the official said, “And now you are one.” We went from “his” and “hers” to “ours”. We made decisions together. If you can’t share common dreams and goals, how can you develop a plan to get there? Don’t start with the budget. Start by discussing what you want your life to look like. Once you agree on that, it’s easier to develop a plan to get there, together.
5. Planning for tomorrow when you can’t survive today
I see this all too often and it frustrates the crap out of me: people who are saving for retirement or purchasing company stock but can’t pay their bills. The argument I always get is “well I’ll need money for retirement!” You bet your life you will because you are going to need it to pay off all that debt you are accumulating today! If you take a few years off from retirement saving to get your mess cleaned up, you’ll easily be able to put 15% of your income into retirement each year. You’ll free up cash flow and end up with more money in the end. Don’t cut off your nose to spite your face!
6. Creating a budget so tight you go insane
This is often the one that kills budgeting for most people. The reason that people think budgets are restrictive, terrible, horrible, no good, very bad things is because they make their budgets that way. How do I know that? Because my husband and I did that when we first started. Our budget was so tight, after a few months we completely fell off the deep end and bought anything we could get our hands on. I’m talking stupid with zeros on it. Budget yourself some BLOW money. Remember that you make this budget. You can put what you want in it. Don’t build it the way I think you should or the way someone else thinks you should. You need to build your budget the you can live with it. The first goal is to track your money.
7. Trying to do too much at once
I mentioned goals earlier. Some people have lots of goals. Saving for retirement while trying to get out of debt and save for a new car, while also trying to buy a house will get you nowhere. Pick a goal. Stick with that goal until you accomplish it, then pick the next goal. Rinse, repeat as needed.
8. Trying to create a one-size-fits-every-month budget
When we first started budgeting, we thought we could make one budget and then reuse it every month. That did not work. Things change. Life changes. Budgets should to. I start with the previous budget and update it for the current month. I add in the actual utilities for the month and add any items that might come up in that particular month, like the quarterly water bill or semiannual auto insurance payments. There are also things like weddings, showers and birthdays that might need to be added to the budget. Budgets are also flexible. If something happens during the month, sit down with your budget and adjust it. Decide where the extra money will come from. Remember, this is YOUR budget.
9. Believing that the only way to work your budget is to decrease spending.
Jeff and I have cut our budget a lot. We don’t have cable TV. We keep the heat down. If I cut the grocery budget anymore, Jeff’s going to start an anti-vegetarian protest. We realized that if we want to pay things off faster, we needed to increase our income. We both have side businesses that bring in extra money. Think about what you can do to make some extra cash. Walk dogs, mow lawns, shovel snow, do repairs for folks. Think about the skills you have and see how you can apply them to make extra cash.
10. Believing that it can’t be done
When I asked readers the first word or phrase that came to mind when they heard the word “budget”, many people responded with various forms of hopelessness. I remember that feeling. I remember thinking we could never get out of debt. I remember thinking we would be broke forever. I remember thinking that payments were normal and someday they would just go away, that credit cards were a way of life. I also remember how it felt when we built our thousand dollar emergency fund. It was like a 2-ton weight had been lifted. We made a lot less money then and that was a huge accomplishment. Then we paid off the first credit card. It wasn’t huge but that little win helped propel us to where we are today. Will it be easy? Probably not. But when the stress of payments is stronger than your desire for stuff, you can get there. We still have a long way to go in our debt-free journey and it’s not always easy, but we have so much more peace now. The financial stress is gone. We have a plan and we live by it.
What mistakes did I miss? Add your own in the comments.
There appears to be a stigma about budgets. It has become a dirty word to many.
People tell me budgets are restrictive. They can’t do what they want if they have a budget. A budget is limiting. It is controlling.
Who would make your budget? Your mom? The mailman? The guy next door?
YOU make your budget!
Since you make your budget, you can put whatever you want into it.
Yarn habit? Yup!
Action figure collection? Sure!
Want to go on vacation? You can budget for that too!
The only limitation on your budget is your income. Now for some people that might be a problem. For the vast majority of people I council, they make enough money to pay all their bills and there is money left over.
It’s time to take control of your spending!
Where did all my money go last month?
Have you ever asked yourself that question? Those of us on a budget never need to ask that question because we made a spending plan before the money went out the door and tracked our spending during the month to ensure we stayed within budget.
Can you budget for fun things? Absolutely, just make sure your budget aligns with your goals.
If you read the blog, you know our goal is to get out of debt. But that is really just part of a bigger goal. My husband would like to transition out of his full-time job at 55 and focus on his passion. In order to do this, we need to pay off our debt so we can ramp up our retirement savings. We have chosen to make this a priority so we made the decision to cut back on other things.
Do we still budget for some fun stuff? Of course, but that budget is very small compared to our total income. We each get $50 per month for blow money (some people call it mad money). We can spend this on whatever we want. We also budget $100 per month for entertainment. This two items combined represent about 2.5% of our total budget. Typically, we don’t even spend it all, but it gives us breathing room to have a bit of fun while we are on this journey to become debt free. It also doesn’t stop us from achieving our goal. Currently about 50% of our take home pay goes toward our debt snowball.
What are your goals? Does your spending reflect those goals? If not, a budget could help you get there.
You can read more about how to construct a budget here.
Just remember that a budget is just a spending plan. You design it. You control where your money goes.
Since we use a 28-day budget, we made a budget every 4 weeks. Our next budget starts on March 19th and will run through April 15. If you have never done a budget, or a 28-day budget, start your budget when you get your next pay check.
To create the budget, you’ll need a piece of paper or a spreadsheet. Either works fine. I like a spreadsheet because you can copy the worksheet so you don’t need to start from scratch and you can keep a history. It will also automatically calculate how much money is left over as you create the budget. The goal is to spend every dollar on paper before the month begins.