The Stress that Debt Built
Posted by Gail | Filed under Debt Traps, Take Control
Very often people decide to go into debt without realizing that they’ve decided to go into debt. It begins simply enough. You go out for dinner and put the meal on your credit card. You also put the new suit, a pair of shoes, and the tickets to the game on your card. Then the car blows a tire, so you add the cost of the new tire. And while you’re waiting for the tire to be fixed, you stop in at the store, pick up a couple of cards you need for up-coming birthdays, along with some wrapping paper and a magazine to read while you wait.
Thirty days later the bill arrives and you open it. You’re a little surprised. You remember the tire, but you forgot about the cards, magazine and wrapping paper. Well, it’s only $27.36, no biggie. But when you go to pay off the card, you realize that you also had to pay the kids’ soccer fees this month, so your account is a little short. Well, you’ll just pay half the balance on the card and take care of the rest next month.
Short of cash one month, you decide to cover the difference with credit, and slowly but surely that credit balance grows. Now you’re carrying a couple of thousand dollars, so you decide to pay off the card using your line of credit on which the interest rate is much lower. Smart move. So you do the deed and stick a sparkling clean credit card back in your wallet.
The kids need new shoes for the summer, and the barbeque is a wreck. There’s a special on at the grocery store, so you put the new barbie on the credit card so you can afford to pay for the kids’ runners with cash. But when it comes time to pay the credit card bill, you realize that this is the month the house taxes come out. And next month the car insurance is due. That’s okay, it’ll just be a couple of months and you’ll be back on track.
When you look at the amount you now have to pay on the credit card and on the line of credit, you realize that you’re spending a couple hundred dollars every month to just stay even. If you try to pay more, you run short of money during the month and have to use your credit card to cover the difference. It’s your son’s birthday next month and you’ve promised the kids a trip to the amusement park with four friends as their “party.” It seemed like such an easy way to have some fun without a mess!
Your husband comes home and tells you that he’s planning on going fishing with the boys for a weekend and you yell at him because you can’t figure out where you’re going to come up with the money for one of his damn weekends. He yells back. He busts his ass all week, and the one time he wants to take a weekend for himself, you’re all over him. So now you’re not only feeling discouraged by the drain the debt is on your finances, you’ve added emotional conflict to the mix.
Coming up with the minimum payment is getting tougher and tougher. Maybe if you put off fixing the crack in the driveway, that’ll buy you some time. Or you could call your sister and tell her that you really don’t think you’ll make it to the family reunion because your husband just has to work.
Or maybe you need to find a better job. You hate your new boss, but with the debt hanging over you, you’ve been afraid to make a move in case that ends up not working out. At least you know where you stand at work, even it it’s knee-deep in crap from your stinky-faced new boss.
Now that your debt repayment is eating up $450 a month in interest and service charges, you’re going to have to stop those automatic savings for both your retirement account and the kids’ educational savings plan. Once you get things straightened around, you’ll start them up again. Maybe. If you can ever get out of the mess and get back on an even keel.
And then the news: Your company has taken a big hit and you’re being asked to take a 15% cut in pay. It’s that or 35 of people are going to lose their jobs. And you’ll be in that 35 because your boss hates you. How will you cope? How will you keep things in check? How did you ever get into such a mess?
It’s really easy to get into debt. It takes no effort at all. And when you do, you narrow your options because the debt becomes not only a stressor, but a major consideration in everything else you do. Falling into debt is as easy as falling off a horse. Both hurt. And both can be avoided if you’re prepared to pick up the reins and take charge. If you’re one of those people to whom all sorts of unexpected things happen that “force” you into debt, maybe it’s time to stop and ask yourself “why?” What’s the lesson you’re NOT getting? And how can you change your behaviour to change your outcome.
Or you can just go on living in misery, falling off the horse. Ouch!
March 27, 2009 at 6:58 am
Wow! So true, so true! It is just that easy and just that stressful! Those banks don’t make millions on our debt for nothing, they are the smartest marketers out there! Beware!!!
March 27, 2009 at 7:30 am
ahhh…the “BANKERS”…we really are not so bad…we do good too…not evil…lol…when I do a consolidation loan I diligently cut up the client’s credit cards and send out the closing letters to the companies that issued them…I listen without judgement on how they got into this “mess” etc…BUT when they are back a year later in the same mess it is very rarely due to the banks…the banks are getting stricter and stricter with their lending policies…BUT, how many times a day to you see an ad saying you don’t need to worry if you have crappy credit or no credit they’ll lend to you anyway…(those are not banks!)…or the retail stores…you just have to make eye contact with them and bam! you have a shiny new card…and usually with a riduculous limit to boot…and then there is the ever popular buy now pay later!…again, not the banks…we are the ones folks come too when they are in trouble…and we are the ones that try to consolidate them again…and again…and again….
March 27, 2009 at 8:55 am
Great post Gail. It hits home in two very strong ways (minus the kids and husband).
The first way, I did the line of credit and credit card swapping of payments. Over the past 8 years I have accumulated a huge debt. I’m glad to say I just paid off my one and only credit card this morning (just before reading this post). I know I may get some interest charges next month but they will be minimal. Now I can tackle the truck loan and the huge line of credit debt. You’re right, it’s very easy to fall into the trap of using credit to pay off day to day needs (on top of the unnecessary wants). Now I have a savings account that is starting to build up for emergencies and monthly living expenses.
The other way it hit me hard is, yes, I have fallen off a horse and it hurts like heck. But I got back on and took control of the reins. Just like I have taken control of the reins on my budget.
March 27, 2009 at 9:14 am
Wow! What a great post illustrating how “innocent” and “ordinary” actions can create such stress. I don’t know anyone who would not be able to relate to this.
I think there can be a stigma surrounding people in debt and you have shown that how easy it is to be “one of them” too.
March 27, 2009 at 9:33 am
I am on my second consolidation loan; only a small part of that from consumer debt. It certainly is easy to walk through that bit by lil bit scenario and see myself in there wondering how the heck the balance got so high. I’ve seen my husband’s card get to where the minimum he had to pay is $100-$200. It’s craziness.
When I went for my consolidation loan last March they also offered me a line of credit at lower rate than was on my credit cards of course. I thought long and hard about it and then declined. Given the lil bit by lil bit, I could easily see myself up to my elbows in both the loan payments and the line of credit payments. Too much disposible income at my fingertips, right now in my life. is just not smart.
March 27, 2009 at 9:37 am
This is almost exactly how it happened to me. A little purchase here, a little purchase there, sometimes not having enough money to cover my butt this month. You get your credit card bill and wonder how you’re ever going to pay it? So, you pay the minimum. Next month you need this or that, you use up whatever is left over from your payment that wasn’t eaten up by the interest. The bill goes higher. They offer you more credit that you say “I will NOT use the extra credit, I’ll only keep it as a buffer”. Uh huh. You use that up and suddenly you owe more than you would ever thought you would. “How did this happen?” and of course, you have nothing to show for it.
Without a budget (and STICKING TO IT!!!) and planned spending, this is always going to happen. Without tossing your credit cards and living on cash, you could be stuck in this vicious cycle forever.
I am currently living on a budget and on cash *Thanks Gail* and working an extra part-time job on top of my full time job to pay off my credit card as soon as I can.
I want out of the vicious cycle.
March 27, 2009 at 10:01 am
Funny our problem is not credit cards but debit cards. We were always good about paying our credit cards, we usually only used them for big purchased that we planned for or monthlies that for some reason couldn’t be set up through the bank. And luckily all 3 of them are empty. But the debit cards. Man! Swipe, swipe, swipe, bank account is empty. Having actual cash dollars on hand is so much better, don’t think the debit card is ‘just like cash’ it’s not!
I declared this year my year of personal non-spending. A challenge. For one year, no new shoes, clothes, bags or other ’stuff’. It has not been anywhere near as hard as I thought it would be. The time I used to spend browsing stores I now devote to mending, rotating and refurbishing things I have – hey the expensive faded jean look actually happens if you wear the same jeans all the time
So our existing debt is solely based on home reno’s. I know Gail has said that’s asset building, and yes, the reno’s have been worth it, made home life more pleasant and easy, absolutely increased the value of the home (but we’re not planning to move, so that’s sort of moot at the moment). But it’s still a line of credit. We paid tons of interest on it last year, it was shocking and a real wake-up call. The day when our only debt is our mortgage – which is ironically really low for a place in a desirable downtown Toronto neighborhood because we bought so long ago – will be a happy happy day. Heigh ho.
March 27, 2009 at 10:25 am
Parts of this scenario ring so true with me….I only used my cc for ‘emergencies’, and paid it off right away. Well, that worked for the first couple of years. Then I was laid off. Of course I had no backup, so I used the cc. Then the bank introduced me to a nice, low interest LOC–I always felt so proud of myself for transferring my cc debt to the LOC; after all, look at all the interest I was saving! But hey, I was going to tackle that debt…next month. Oh wait, the alternator went…oh okay, well, maybe in two months after I pay off the alternator next month. And so on and so on…for years.
After watching Gail’s show for about a year, and FINALLY discovering the website, I’ve slowly been able to get the debt down. Stopped using the credit card, period. Focused on paying off the car loan (paid off in November!) and am now tackling the LOC. Got it down to JUST under 10k, from 13k+ in January. I even put my first payment to my RRSP fund last week, and have been building an emergency fund for several months now. It’s slow, yes…..but infinitely more satisfying, and so much less stressful, to have the debt going DOWN as opposed to UP.
March 27, 2009 at 10:39 am
Boy did this hit home. A little here, a little there. Thanks to Gail, the show and the website, I finally get it at 47 years of age. I have already begun teaching my kids about money, I want them to learn NOW. Light at the end of the tunnel – mortgage paid at the end of July, braces at the beginning of September, one credit card with the income tax refund. We will still have the line of credit, but as soon as one thing is paid off that money will go to the line of credit so that should be wiped out by the end of December. The only bill left is on credit card that I did the old, get the lower rate for now thing. It is now at a regular rate, but I’m diligently paying that off – goal before I’m 49 to have it paid off.
Thank you Gail for your no-nonsense approach – it ain’t rocket science and my blinders are off!!!
March 27, 2009 at 11:38 am
So true – I feel like I’m at the top of a very slippery slope. It’s so easy to slide down, and so hard to climb back up.
March 27, 2009 at 12:00 pm
Thank you, Gail. It really takes a lot of hard work to plan ahead the upcoming expenses both known and unforseen; and stay organized and on top of the paperwork/and bills on a daily/weekly basis. When we didn’t maintain this, this is when the credit card had come out because we didn’t plan ahead and set aside savings. So very stupid! Speaking of stupid,
Two weeks ago we paid off a balance of $2407.90 on a 28.8% card(furniture store) to the very last penny! It makes me sick to think one year ago we were so stupid and really convinced ourselves that we could pay off the amount(higher at the time) within the 6 month time frame. We didn’t, and immediately came the whopping $576 interest right off the bat in the 7th month! The interest has held us back & slowed us down on how fast we wanted to pay it off. Month after month I’d be sick over the interest they took for “free” from us because we walked into their store like a couple of idiots. I finally scrimped to pay it off in full and now I’ll never have another penny owed to the card.(Yay for scissors). So stupid to agree to such a high interest %! But we’ve learned our lesson…and we now own our really nice furniture. If we don’t have the cash on hand, we don’t buy it. All thanks to Gail who has inspired us & been a great source of motivation!!
March 27, 2009 at 12:21 pm
So easy to blame the banks…
They did not force us to TAKE the credit card.
They did not force us to USE the credit card.
We swiped and we signed! Think of all the steps you have to do before you put money on credit!
(I’ll admit that I don’t like the unreasonable credit line amounts which means that people can’t seem to get out of debt, so people do consumer proposal/go branckrupt, and then the credit companies want to increase the user fees to the merchant to recuperate on stupidly high credit limits…) Had to rant!
March 27, 2009 at 12:35 pm
Not blaming the banks or bankers for debt at all. And I certainly know there are good bankers out there… however.. there are some not so good bankers out there too. I’m just saying that the banks are brilliant at marketing. How else would they have all the fancy buildings and all??? I’m know there are lots of other companies out there that suck us in and charge high interest rates. But banks aren’t out there to help me in my opinion. They are looking to make money just like all the other companies. And no they don’t force us to take the card and use it but lots of places certainly make it easy enough to get the cards. Just beware when you sign up for one and make sure you know what you are getting into cause like Gail has written its easy to get into the debt and lots of hard work to get out of it.
March 27, 2009 at 1:22 pm
Pay yourself first rule applies here…Every pay, I put away my 10% and then go on about my daily life. When the incidentals and accidentals hit, I’m prepared with my own money, not credit.
Mind you, I do collect Air Miles and charge things. But as soon as can, I will transfer money to the cc (before I get the bill)…it doesn’t hurt as much.
March 27, 2009 at 1:44 pm
One thing I have learned from reading Gail’s blogs are that I am not alone in my credit mistakes and bad decisions, and that makes me feel better somehow.
I too was, up until very recently, caught in the cycle of charge on credit card, pay off card with line of credit, make minimum payment on line of credit, and so on and so on. But thanks to the TDDUP show and this website I have finally got my act together and am living on cash, saving money and not using credit any more! I wish I had done this years ago.
No matter how much I resolved to do it I could not buckle down and pay off the LOC. I finally decided to pay it off when I renewed my mortgage and now I am not only contributing 10% to an RRSP but in a few short months I have a $4K emergency fund, a cash savings account and no consumer debt other than my car lease, which is done in less than an year.
Thanks Gail and everyone else for great advice and for sharing your stories!
March 27, 2009 at 2:09 pm
What a great post!! This is dead on with how I had gotten into debt.. a little here and there added up to ALOT. Thankfully I am almost debt free now (done by June!!) thanks to Gail and the show.
@Elizabeth – this year was the first time that I have ever paid myself first putting 10% of my income in a TFSA and I have never slept better. I love the feeling of knowing that I won’t have to pull out my credit card if something comes up. It’s so freeing!
@Yvonne I don’t believe that its the bankers fault at all.. everyone needs to be responsible for their own financial well-being. Most bankers really want to help. My personal bank and banker have been a valuable tool to me throughout the years. Especially when I was first setting up my own business.
Have a great weekend everyone!
March 27, 2009 at 3:31 pm
10% – I know this is off-topic, but I have questions about how other people handle this.
We used to be in a very bad financial position – debt up the eyeballs, couldn’t live day-to-day because we were paying off debt, no extra cash ever, etc. We’re in a much better position now, although we still have debt from toys, but we also have a six-month plan to get out of debt.
Then a friend of mine convinced me to start putting away 10% of my paycheque in a savings account, no excuses, no exceptions. I loved watching the amount build up, but I didn’t really have a goal for the money, and I have to tell you the 10% of my gross income really stretched the budget for day-to-day living to the point it really stressed me out. So I gave myself permission to put it away if I could, but if something came up, I could use that pay period’s savings to pay for it (car repair, other unforeseen expense, future planned spending that came on sale, etc.) I finally named my savings account our emergency fund, and hope to build it up to six month’s living expenses (right now it’s at three). I saved other extra money that came into the house for planned spending (home renos and a big trip that I have just finished pre-paying). I also paid off credit cards and my car loan.
I also have a pension plan that I contribute 13% of my gross income to, as well as just having started an RRSP with very modest amounts. So I feel like I have long-term savings covered (or is that a little naive?). I still need to get an RESP going for my daughter, and on top of all that, I still need to save for planned spending I want to do like renovations to the house, our motorcycle insurance and accessories, some investing outside my RRSP, etc.
So, how do you divide your 10% between the six-months living expense funds (that don’t get touched unless there’s a dire emergency), planned spending and extra surprises that life throws at you? I feel like with all the saving and portioning up of my money, there’s very little leftover feel free with. I make a great salary, have little debt, a small mortgage and still couldn’t come up with $200 on the spur of the moment without touching my savings. Does everyone feel strangled by saving like I do, or is this a leftover of my old bad habits?
March 27, 2009 at 5:24 pm
Perfectly illustrated, you didn’t even need to put in a surprise pregnancy or thrown out back that has you off work for weeks, or a busted hotwater tank, or an at-fault fender bender, or a teen that racks up the cellphone, or, or, or…..
My darling sis got herself in deep (to the tune of nearly $50G) in little bits and pieces like that. She has it as a home equity line of credit now, so the interest is low, but YIKES!!!! (In her defence she also has a vehicle in that same lump.)
PS: I just found out today that our house insurance rates have gone up by 25% this year…. same house, just more expensive to replace these days (I already have the highest deductable they’ll let me get away with so there is no way to lower it). Now I have to tweek the budget a bit because it comes out monthly. They got you over a barrel there!
March 27, 2009 at 5:56 pm
We also put 10 to 15 % away each month into savings. We put this into 4 separate savings categories. We have two ING tax free savings accounts and an RRSP account and I keep track of what is what with a simple spread sheet.
Our savings consist of LONG TERM (for RRSPs and such) THE TROUBLE FUND (for when the dishwasher doesn’t wash and such) THE EMERGENCY FUND (for a plane ticket when my Mom was dying and such) and THE SIX MONTH BACK UP FUND (for when things are as bad as they can be).
We also have a separate fund for PLANNED SPENDING (a new couch and such. The amount put into this varies but I try to put in a minimum of $50 per month). We also have a VACATION FUND (which because we live in the Far North is money that is actually paid to us by my husband’s employer.) Lucky us – but this is the first time we have plans to actually use it for a vacation as opposed to spending it on just staying alive.
When we first started saving we spread the 10-15% out evenly amongst the savings categories but now that we have a comfortable cushion in Trouble and Emergency we are putting more into Long Term and Six Month Back-up.
We also have a plan for DEFLATING INFLATION: When we set up our budget it worked for a while but then I had to constantly tweak it because I quickly found out that as far as inflation goes it is hard to get ahead and stay ahead unless you actually plan for it. We have done this because we don’t want to touch the Trouble Fund, Emergency Savings or the Six Month Backup just to keep up and because as one of the world’s great pessimists I know that if the light at the end of our tunnel isn’t ever again another self inflicted train wreck it is surely going to be another stray bolt of lightning.
I didn’t know how to do this, so kind of “winged” it by creating a new line on our budget sheet in the savings section – and setting 2% of our net pay aside each month (I hope eventually to be able to set 5 % aside) which will just get transferred into the appropriate fixed expenses columns and discretionary jars as needed until our incomes catch up to reality.
I have also found that a little bit of free ranging money is handy to have. An amount that you can transfer into any part of the budget at any time when you mess up. For instance putting it into telephone expenses to pay for that rather expensive long distance phone call you made to your sister because you are time challenged and called her after 8:00 a.m. when the price reverts back to the regular $5000 per minute rate.
I call this line INFURIATING INFLATION AND MESS UPS – which pretty much says it all.
We are fortunate in that we receive a cost of living increase every year but although it is better than nothing – just barely – it sure doesn’t equal how much the true cost of life changes every other day. When the price of a jar of Mayo can go up 39 % in one month and our city utilities (sewer, water, garbage) 9 % every 3 months (just to mention a couple of things and heaven help us if oil goes up again) you can see how we see our 2 point something % salary increase as more of a teaser than a joy.
March 27, 2009 at 8:41 pm
Maureen, that is very helpful! If you don’t mind me asking, how did you determine when you had “enough” in the trouble and emergency funds? I think my problem is, I have more than I’ve ever had in my life (grew up eating discards from the local grocery store my father cleaned at night, so about as poor as we could be without being homeless) and I don’t know when enough is enough (hmmm…this could explain my food addiction and weight problem too!). If I could figure out what’s “enough” for just-in-cases, I would probably feel better when I reach that goal and feel like I could direct more money to other categories. Right now I feel paralyzed by What-Ifs and feel like I can’t stop contributing to emergencies, but I also have to put some into this…and that…and another thing… and my savings plans are feeling overwhelming and more unachievable than my debt did!
March 27, 2009 at 8:43 pm
God, I sound like a Depression survivor who hoards stuff, don’t I? Perhaps some therapy to treat PTSD from growing up poor is in order!
March 27, 2009 at 10:44 pm
Great post Gail – you hit the nail on the head.
Sounds like everyone has experienced this scenerio, but, also because of Gail everyone is working hard to correct their finance problems. Some excellent ideas! Keep plugging away everyone!
March 28, 2009 at 5:22 am
I struggle with the concept of finding more dollars to put in the new categories. IF my current budget balances to my disposable income, and I realize that I need a new bed, where on earth am I supposed to come up with the ‘planned spending’ savings amount? All my budget categories are at ridiculously low amounts already, and there is nothing left. I know that Gail would say “make more money”, but sometimes there are physical limitations involved, and working full time hours is as much as a body can handle. If I were to divide my designated savings dollars into: Emergency, Trouble, 6 month emergency back up fund, etc. , it would take me 10 years to build up that 6 month fund!! I don’t know how people do it, although I am sure that most are making more than $2K a month. It seems that all I can do is keep on keeping on. I have already declared 2009 my ‘buy nothing unnecessary’ year, so other than groceries, housing, and insurance, all I can do is try to sock something away. My long term savings are covered by employer matched pension deductions at work. At least one base is slowly growing. Only way to eat an elephant is one bite at a time!!
March 28, 2009 at 7:17 am
Suzanne”
I make 2K a month, but I don’t have a house that ties me down. I pay rent and instead have a student loan that I’m paying off as quick as possible. My budget is as follows:
Rent – 550 (I split the $1100 rent with my boyfriend)
Shared expenses – 250 (internet, cable, phone, groceries, laundry, toiletries, movie rentals, etc – we plan to use around $500, and whatever I don’t use I put back into my budget – it tends to be between 200 – 250 that we spend )
Entertainment 150 (this is for buying lunches, drinks, spending time with friends, meals out, etc)
Transportation – 100 (I buy a metropass)
Student loan – 255 (minimum payment), I normally pay an extra 250 mid-way through the month (to make it 505/month), and now that I’ve maxed out my TFSA, this is being bumped up to $750-800 a month being paid against my loan
Other savings: $175 (RRSP and normal savings)
That gives me around $80 to play with, whether it’s for new clothes, being saved for a planned purchase, gifts, paying for medical, etc – any leftover in my budget at the end of the month gets sent directly to my ”
“$$ to be used for me” savings – i.e. dance classes that cost a lot, but allow me to stay healthy and have fun.
Some months I have more expenses than others, and for those months, I just back down on my aggressive student loan payment. I only have to pay $255 a month, not $800, so once in a while, I’m ok with using the money for something else.
Also, when using my tuition credits/loan credits, I use those to get money back on my income tax return (they’ll be used up after next year’s return), and that money back goes to savings and loan repayment.
When I get an “extra” paycheque, 1 goes to loan, the other goes to vacation.
You mention that you have a house – is it perhaps possible to rent out part of it to make more $$?
I was living in a basement with a great guy as my landlord (he was living in his house) – my rent was $750 and he included internet and phone for me (I wasn’t able to pay as much against my loan/hit up my savings as easily when living there, but I made it work). Perhaps you could consider exploring that as an option for you to make more money?
March 28, 2009 at 11:39 am
Building an emergency fund in less than 10 years…….
- make more money (the expected statement): kid sitting?
- tax refunds
- read tax filing details for deductions
- unexpected money (gifts) / GST refund
- leftover money from jars
- use half to complete after-tax pay increases
- sell stuff (especially hobby stuff)
- cut back in budget (cable, phone plans, entertainment)
- if you make enough money (doubt it at 2000) CPP and EI equivalent at year end for which you do not have to contribute
- rent part of house
anyone else?
March 29, 2009 at 4:28 am
Sorry if I confused anyone, when I said ‘housing’, I meant my accomodations, which is the main floor of a house that I rent, at $650, all utilities included. Lots of good suggestions, ladies, thank you. My tax refunds, GST, and any other government monies are taken at source for my student loan debt. I am slowly building up my TFSA with leftover monies. I actually applied to two seasonal tax prep businesses this spring, to no avail. And with a night shift job (10 hours shifts, on a very interesting rotation) I could not with any certainty offer to babysit for anyone! So, I will just plug away, continue to take in my sewing, sell my crafts, and designate that money to my new bed….. I just wondered how every one else did it, when something big is coming up, and money needs to be saved from an already maxed budget.
March 29, 2009 at 8:05 pm
Suzanne:
I seem to have a yearly emergency lately. Even though I pre-plan for some emergencies in my budget, something ELSE comes up. This is why ~2-3% of my take-home pay is NOT pre-assigned to anything specific. If I don’t need it, it goes in the EF (I used to spend it when I had a good year… bad). This 2-3% is also important to replenish the EF when you need to use it. I think Gail mentioned somewhere to leave 10% of your variables in the jar for emergencies in the various categories.
With a difficult work schedule, you might want to search the site for at-home jobs that were recommended (some you can do at your own pace). I sometimes sell some of my holidays and work afterhours.
March 30, 2009 at 1:01 pm
Hi Sandy and Suzanne
SANDY: You hardly sound like a crazy depression survivor hoarder at all. Ha! You just sound like someone who really knows what it means to be without. You actually sound a lot like me although I did not have the hard childhood that you had. The only hunger I have ever known has been that which is self inflicted through dieting but I have a food addiction and weight problem as well. Your food addiction and weight could very well be because of the past. They say that it is not what you are eating but what is eating you! But hey! What does not kill us does make us stronger.
Re-reading my post I see that it sounds like we have successfully accomplished all the savings categories. Not so. All of this is a work in progress and we have actually been working at it using Gail’s plan for over 4 years. We even started on our own – before the Til Debt show came on the air– not actually willingly but because we got forced into it because we were teetering on the edge and being pulled over by the weight of the debt.
The first and only thing we did was pay off our debts. That took over 2 years and was very, very hard. So all together we have been working on getting financially balanced for over 6 years. The day we paid off our last debt the van broke down on the way home and we had to charge the repairs back onto a credit card. That is when we realized that we HAD to start an emergency savings plan. But once your debts are paid off you can really start using that money for savings.
You should stop feeling overwhelmed and as if your emergency plans are unachievable because unless you are Oprah or Warren Buffet you will always feel overwhelmed and as if your emergency plans are unachievable so you might as well relax.
I say this because that is the nature of emergencies. No matter what you plan for, how well you plan or how much you save there could come a time when none of it is enough or matters. This is because (and this is just my opinion based on our experiences) there are 3 kinds of emergencies. The simple emergency (like when your husband loses his plane ticket because he wouldn’t let you pin it to his coat) is completely manageable but there are two other kinds of emergencies that always take you over the top. The train kind (like when the furnace has been making a growly shrieky noise for 2 years) where you can see it coming but you close your eyes and hope your luck holds because you just can’t find any more money to set aside and the lightning bolt kind where you didn’t see it coming at all (a family member injured in an accident).
The money for all of our savings categories goes into only 2 savings accounts to maximize the amount of interest earned so when you look at our savings the whole savings fund looks like one lump sum. To keep track of the individual categories I just keep a simple spread sheet with the headings at the top of the columns TROUBLE FUND EMERGENCY FUND THE SIX MONTH BACK UP PLANNED SPENDING VACATION FUND and distribute the money when I have it.
I forgot to mention that we have also started a HOUSE REPAIR AND MAINTENANCE FUND but there is no way that we can put 3% of the value of our house aside each month right now. If we have a real house emergency we will end up having to add to our mortgage which I know is against the Gail Principles. We also have a credit card designated for emergencies. We won’t use it until every last dime in all of our emergency savings is gone but if that day ever comes we will use it and not feel guilty. There is a difference between a real emergency and a shoes-on-sale emergency and we know the difference now.
How do you determine how much is enough? Well I use the example set by our last emergency. For instance the last emergency we had in the TROUBLE category was when the washer got sick. That cost close to $500 so my goal for the trouble fund was $1000. The last emergency we had in the EMERGENCY category was having to buy a plane ticket when my Mom was dying. This cost over $1500 so my goal for the emergency category was $3000. The SIX MONTH BACK UP is the biggest work in progress. So far, after all this time, we have only 2 months saved up.
All you can do is put aside as much as you can and accept that all of this takes time. Especially if you didn’t start young, as in our case. Earning extra money just for your emergency funds if you can do so is the way to feeling as safe and secure as possible considering the crap shoot that life is. We stick to the 10% rule but if we get extra money we divide it equally.
As for PLANNED SPENDING. Honestly for us that is the least important category. We are in our 50’s and are fairly well set up since we were very generous to ourselves while going into debt so we don’t need much and actually don’t want a lot now. We are boring. We just put any bits of extra money into planned spending. In fact right now we have nothing planned. As I mentioned we get vacation time and pay plus extra vacation pay because of our location. Otherwise I would be trying to find money for a vacation fund.
It is hard to save money – period. Even harder when the income barely meets the needs and if you are doing it on your own. SUZANNE– if you have started an emergency fund I would not worry about my fancy categories. Just keep socking as much as you can away until you get a fairly hefty amount – say $5000. Then you can get fancy. You will probably be doing a lot of adding and subtracting when you have little emergencies but the emergency fund will keep growing over time. Marie has some good suggestions on where to find extra cash and we have used all of them. The only one she didn’t mention which we seriously considered was bank robbery. Just kidding. Maybe.
July 25, 2009 at 9:55 am
Suzanne – we’re in the same boat – how do you save something from near nothing!?…I think the trick (and I’m certainly still learning this) is to ‘make do’ to buy yourself some time while that little bit of savings adds up over a longer period. I’ve just recently take advice from this blog and made an excel spreadsheet splitting my little contribution between a defined emergency fund and designated planned expenses…I feel like that little amount will actually get me there eventually…like I’m making progress.
I don’t know if the example of the bed was a hypothetical or a real upcoming expense for you but I’d comment that a few years ago we moved out of province and found it too expensive to ship our bed with us so for our 8 month temporary stay we borrowed a queen air mattress from a friend and purchased a $25 foam cover for it from walmart. It took a little getting used to but it really was quite comfortable and saved us some substantial cash. We now have a beautiful pillow top mattress set with 10 year warranty.
Also, our trendy stainless steel electric kettle (wedding gift and part of a set) gave up the gusto about 6 months ago…I started putting aside some money to replace it, but then realized that it takes only minutes on the stove to boil an ‘as-needed’ amount of water for a cup of tea or oatmeal…so the money for the kettle has gone elsewhere cause it turns out it was actually a frivolous expense even though I used it daily.
Good Luck!
March 20, 2010 at 5:21 pm
‘Thankyou, thankyou, thankyou’….Lord knows I HATE the word s-t-u-p-i-d BUT that’s exactly how I’ve been feeling!!! How could I slide down that slippery slope & not be able to climb back up?? After all, I’m a smart person…not extravagant by any stretch of the imagination…hard working…but it was all sooooo very simple to fall into debt! I have watched TDDUP & learned so much from Gail’s no-nonsense attitude BUT today is the very first time I have ever gone to Gail’s Blog. I feel so liberated…like I just joined a ’support group’ of people just like me & now I don’t feel like a fool any more. I feel empowered by ALL of your stories & maybe, just
maybe, I’ll be able to sleep tonight because I know what I need to do. I feel better about being ‘me’ & I have ‘YOU’ to thank for it!!! My sleeves are rolled up & here’s to a debt-free future in the works!!!
March 20, 2010 at 7:54 pm
@ Janie:
I agree — this is the best blog I have ever been on — well, it’s the only one, but it’s also the only one I WANT to be a part of.
Everybody is so motivating; they help keep us all on track. We’ve all been fools in the past, but we’re all on the road to recovery
Good for you for making this step forward!
Gail is truly the greatest for doing this for everyone. She touches many, many lives and makes us all better for it
June 4, 2010 at 9:14 am
I was getting that sick feeling in the pit of my stomach reading this blog posting, until I realized hey, that’s not me anymore! I have a plan, and I am on my way to debt free forever. The days of being so stressed I can barely breathe are gone. I’m fairly new to this commitment, and this commmunity, but it’s so good to be here. I have been going back and reading Gail’s blog month by month, and along with Gail’s wisdom I so appreciate the sharing of this entire community. Thank you.