Like most people – I’ve had a roller coaster relationship with debt and money. I never really understood money – or the real value in it until my twenties when I got married. Before then I always seemed to be getting into debt and I felt like that was “normal”. Well it may be “normal” for most people – but it isn’t the best way to live. Who wants to be “normal” anyways?
Growing up I never had to worry about money. My parents weren’t rich, but they weren’t struggling either.
I have a distinct memory from when I was a kid, probably in 5th grade, of going to the bank with my father and I saw my his bank account balance. I can’t remember how much it was but I think I said something like “I thought you had a lot of money.” (or whatever that value was for a 5th grader in the eighties). My dad was a little embarrassed as the bank teller remarked that she wouldn’t mind having as much as my father did. Like most kids I saw my parents use money but they never really taught me the value of it or what to do with it when you earn it. Money always felt like a taboo subject.
All of this of course made me a perfect target for credit card companies in college.
Every year or so I would run up a balance of $2k or $3k on my credit card and my parents would help me pay it off. I really wish they didn’t looking back – I didn’t learn the lesson about credit when they did that. I should have bit the bullet then. But no, I would buy a computer for “ONLY”$90 a month on credit from Dell. Good one there.
I also traded in my beloved Jeep Cherokee (good lord what was I thinking – I loved that car) for a brand new Saturn because I was sick of getting the Jeep fixed all of the time. But that $16,000 car loan was much more expensive than getting the Jeep fixed every once in a while – but since I only focused on the monthly payment – it “seemed” cheaper.
I remember talking to my parents when I was thinking of buying the new car and they said that they always bought their cars in cash. I laughed and said “That’s impossible for me!”. I wish someone handed me the The Total Money Makeover then. Oh well.
It wasn’t really until I got married that I got myself in gear.
My wife came from a single mother family with 4 other siblings. She very early on learned the value of money. Her mom would tell her, “When you don’t have money you stay home.” or “No money! No fun-ey!”
She didn’t live on credit at all and it took a while – but she knocked some sense into me.
After we got married I went on a personal finance kick, reading Smart Couples Finish Rich and Your Money or Your Life (which is a fascinating book btw). Reading these taught me more about the value of money – but I still found myself struggling.
See – I was (and still am) self employed with a variable income and variable pay periods. I go a month or so without getting paid sometimes. I thought I was saving a lot – I would always “pay myself first” and transfer money to a savings account but I found that I ended up transferring back more money than I put in to be able to pay the bills. It really felt like I was treading water and slowly sinking.
My best friend sold me on the idea of charging everything on a CC “to get the points”. So I got an Amex Gold charge card and bought everything on that card and then paid off the balance. I sure got a lot of points – but I seemed to be not getting anywhere.
Then 3 things happened that finally got me on track:
- I discovered YNAB. (<— That’s a referral link… use it to buy it and we BOTH get $6) YNAB is simply the best financial and budgeting software out there. Period.
- I discovered and listen to the audiobook of Dave Ramsey’s The Total Money Makeover.
- I read All Your Worth: The Ultimate Lifetime Money Plan by Elizabeth Warren (the new Senator from MA – written in 2006)
I could write an entire post on YNAB – and I probably will. I love this software but really it’s a “method”. It literally changed my life and this is a not one of those times where people use the word “litteral” incorrectly. I went from worried about money all of the time to not really worrying much at all. Of course I still think about it – all the freaking time – but before when I thought about it I had that horrible feeling in my stomach.
I found YNAB because I was searching for an alternative to Quicken. Quicken on the Mac is horrible and they kept on wanting me to upgrade every year so I searched the web and found a very favorable review for YNAB and I checked it out. Then a whole new world opened.
The whole concept for YNAB is that you budget the money you HAVE and not the money you THINK YOU WILL HAVE. This was a huge life changer for me – especially on my variable income. Basically the goal is to live off of LAST MONTH’S INCOME so you’re always a month ahead – which is awesome for someone like me and for anyone really.
If I lost my job today, just by using this software I’d have an automatic one month buffer built in. It’s really amazing. AND – my savings went through the roof. My net worth has literally (again the correct usage) increased by over $50k since using this software.
2. Dave Ramsey’s The Total Money Makeover
YNAB has a great forum community so I found myself on their forums quite a bit trying to figure out the best way to use the software and people kept on mentioning Ramsey, DR, Baby Steps, and I was intrigued. Being an Audible member (an awesome way to get through your morning commute) I downloaded the audio book and I was blown away.
The whole idea of debt as a form of slavery really got to me. I’m really glad that I got the audio book because it had such a great affect on me – probably more-so than the book (which I bought used later). The whole book is extremely inspiring. He blows away money myths that should have been self evident to anyone… but they aren’t.
I immediately started my debt snowball and was soon able pay off the remaining car loans and my wife’s student loan a year after I started the Baby Steps. More on this in another post I’m sure.
3. All Your Worth by Elizabeth Warren
This is also an absolutely amazing book. It’s kind of like a kinder, gentler Total Money Makeover and had some other concepts that work extremely well with the Baby Steps and YNAB that pushed my savings even higher.
This book brought home another concept that always eluded me:
CASH. And by cash I mean actual dollar bills – not a debit card.
Every financial book recommends using cash for purchases to save money. I really didn’t believe that it would. Even Ramsey lives by it for purchases but I just didn’t buy it.
That is – until I read this book – it really puts it into a concept that you can understand.
The whole idea behind the book is ratios. Your spending should be 30% WANTS, 20% SAVINGS, and 50% MUST-HAVES (meaning shelter etc).
And your WANTS will be spent with CASH.
I never believed cash would work and I never tried it. I was still using my AmEx Gold Charge Card (charge card! – not credit card but I’m sure Ramsey still cares) for all purchases and happily winning points. I believed that it was the same as cash because I was budgeting everything so perfectly in YNAB and still saving money. But I kept on overspending in my various categories and I had to shuffle money around all of the time to keep the savings where I wanted it to be.
So I decided to try Elizabeth Warren’s cash method out for a month. I figured what could it hurt?
I was simply blown away by the results – this method works! It was finally a cash method that made sense to me. Now, I no longer worry about how much money I can spend this week – I just look in my wallet and if I don’t have the cash I don’t spend it. My savings went even more through the roof. (if that was even possible)
Basically you work out what comes to 30% of your income (minus other “wants” paid via check like cell phone and internet) and you withdrawal that much in cash each month. Basically every Friday I go to the bank and withdrawal a set amount and split it between my wife and I. We then use that money for EVERYTHING from groceries, dining out, clothing, etc.
This method not only reduced our spending but reduced our marital fights about money even more. Now we both know how much we can spend just by looking in our wallets. She no longer feels like she has to check with me and the budget if she needs to buy something. Life is much more simpler and our savings have been climbing even more.
Bonus YNAB tip – split your budget line items into three categories (NEEDS, WANTS, and SAVINGS) – that way with a glance you can see if your getting close to the ratios that you need.
So this was a long post – but in short, apparently the secret to financial happiness is:
- Buy and use YNAB.
- Read and follow the Baby Steps in the Total Money Makeover.
- Read and incorporate All Your Worth: The Ultimate Lifetime Money Plan to the Baby Steps and live on CASH for your WANTS.
That’s my plan at least. I hope you enjoyed this long post.