Today D. and I had a Serious Conversation, one we'd been dreading for a while. It was on Finances, one of our least favorite topics, but it had to be done, and so we did it.
The problem is that D. and I have managed to accrue some debt in the last three years or so. Well, we bought a house, so of course we got ourselves all mortgaged up! But we've also gotten into some other debt, some of it for very good reasons -- especially borrowing money from my mom so that we could make some home improvements that have made the house more comfortable and energy-efficient -- and some of it for less good but still not entirely unavoidable reasons (such as the fact that we were living on only one salary for most of that time). The debt isn't out of control or anything, at least by what seem to be modern American standards, but any consumer debt is a bad idea, and we needed to tackle this problem.
And we really did keep meaning to do so, especially once D got a new job and our monthly financial situation eased tremendously. We took sporadic stabs over the summer, but something kept coming up; major repairs on each of our cars and the need to fix the roof leak kept using up each month's money that we'd planned to send to the credit cards. We actually had some money in our checking account that was earmarked to send to credit cards, but I was afraid to send it because we didn't really have any sense of a monthly budget and I was worried about losing those liquid assets in case we really did need them in the checking account after all. And we weren't actually sure how much we owed anyway, and it was all just so scary and discouraging to contemplate that we simply didn't contemplate it.
But there was a piece in the Oct. 11 issue of the New Yorker on procrastination, and although I was only mildly interested in the article itself, I did take seriously the information that many people are in worse financial situations than they would be otherwise if they could just stop procrastinating on filling out the paperwork to invest in their companies' 401Ks. That at least I have done, mostly because our HR person does it for us so that we just have to sign (I love her!), but we had definitely been dragging our feet on some basic financial steps. Clearly procrastination was costing us money each month, and we were going to have to think about money so that we could work toward our goal of not having to think about money.
So today was the day to have the conversation. Here's what helped: D and I each played to our own strengths and avoided the parts that we hate the most. So I spent two hours fiddling around with budgets and calculating debt and doing some basic math (and here's where I have to confess that I don't know how to use spreadsheets and so did our budget in a Word table and used a calculator to do the actual math -- but it looks pretty!), and it actually wasn't stressful once I made myself sit down and get started, and then D. got on the phone with the credit card companies (which is the sort of thing I dread) and transferred balances and negotiated interest rates and all the rest.
Here are the steps we took today that have now improved our financial situation:
- Of the money we had sitting in our checking account, I put $1,000 of it in our savings account to pay for a couple of house repairs needed this fall and to give us more of a liquid assets cushion.
- We sent the rest of the "extra" money in our checking account to the higher interest-rate credit card.
- We transferred the rest of the balance on that higher interest-rate credit card to another credit card for which we'd gotten a zero-percent interest rate for the next year; and after that year is up, it's still a significantly lower interest rate that on the original credit card. So now the consumer debt is consolidated -- much easier, and saving an incredible amount of interest each moth.
- I set up a monthly payment from our checking account to my mother to repay our loan at a faster pace than we'd been doing. We're paying her a crazy-low interest rate, but of course there's also the emotional interest (which has been entirely on my side, not hers, I should say), and I will feel much better to be sending her bigger checks each month. And once that debt is paid off, that money will go to the credit card debt.
- On the theory that one should pay oneself first: the budget that I drew up includes adding to our savings account and to retirement funds. I hope that this will keep me from fretting during my morning shower about whether we'll ever be able to retire (which, sadly, is often the sort of thing I think about as I'm waking up in the shower).
- Plus, we'll now be setting aside money each month so that we can have a proper vacation next year; I figure that we'll both feel much better about sticking to a budget when we know that there's a nice reward in it for us next summer, and I haven't actually had a vacation since 2007 -- I deserve one!
- I now know that all of the bits and bobs of extra money I make tutoring and proctoring SATs go straight to the credit card; no more letting them get lost in the checking account -- now I'll simply deposit the check and then immediately send that amount to the card. It's good to have a plan, and in some ways I'm a scrimper and saver enough so that I will actually take pleasure in the tutoring and proctoring. Actually, I totally love one of the girls I tutor, so it was already a pleasure just to hang out with her for an hour a week, but now I have a good destination for that money as well. The SATs don't pay well at all, but every bit helps when paying down a debt, and now that we're not paying any interest on the majority of the debt, those small checks should really add up. Tutoring, I'm embarrassed to say, pays ridiculously well; an hour of my time should really not be worth that much, but apparently the local market will bear the fee I'm charging (which is a standard fee for FGS tutoring). And it's all reducing our debt, which will make it easier to contemplate giving up two hours a week to tutor these two students.
- I'd been hoping not to teach summer school again, but a clear sense of our financial situation has shown me the wisdom of sucking it up and doing so again, at least for the next couple of years. But it's only three weeks a summer, and the director of the program has just approved a fun class that I proposed, so I'm hoping I can make the task of teaching in July less onerous for myself.
- This is also stewardship season at church, and I'd been avoiding filling out my pledge card because I really just didn't have any sense of how much money we actually had in a month. I've now made my pledge, and while I wish it were larger, I think it's a fine amount of money that is both more than I was giving up until now, before I became a member, and is still responsible given our get-out-of-debt goals.
- D. and I are going to try to set about the lifestyle change of avoiding using our credit cards whenever possible. Not that we go crazy with them or anything -- neither of us has a shopping problem -- but we use them for gas and groceries and everything else. I think using a debit card or cash instead will make us more aware of how our expenditures are fitting our budget. Much of that budget was guess-timation, since I don't really know how much we spend on groceries or gas or cat food, so we'll have to do some revisiting and tweaking in the next couple of months, and I think avoiding credit cards will help us do that tweaking.
- If all goes according to plan, we'll be out of debt (other than mortgage and D's student loan) by the end of 2012. And the "according to plan" has A LOT of wiggle room in it, since of course I know that there are always unexpected expenditures and things going wrong. I think that we've now got a reasonable goal and one that won't make us feel like we're scrimping in the meantime. (I budgeted in pizzas and restaurant meals and books for our Kindles and other treats so that we don't feel like we're being punished in the meantime.)
So the bottom line is: Big sighs of relief on the credit card front! and on the domestic budget front! and on the planning-for-retirement front!
This was hardly the most fun I've ever had on a Saturday afternoon, but it wasn't actually terrible, and I'm hoping that we will reap the rewards of the Great WN & D Get-Out-of-Debt Plan for some time to come.