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Posts tagged ‘Debt’

Baby step it

So I’ve set an audacious goal this year. I’ve decided that I want to be out of debt by the end of the year. I don’t have credit card debt because quite frankly I don’t like credit cards. However, we had a business and over the last couple of years we just couldn’t compete with the “large companies” so we closed its doors. That’s all good but it has taken my husband two years to get back to paid work. 

He has been working, helping a friend renovate a very old building into a restaurant and lounge. Pay will come eventually but in the mean time we were barely making ends meet with my income supporting a family of 5 and 2 business expenses. To say we got behind is downplaying our finances….. BUT….. 

Things are radically shifting around with my husband back in the workforce which of course is why we have set a goal to get out of debt. But as I said yesterday, goals require action steps. I believe you have to take baby steps toward your goals. So here is my example of how to set baby steps toward a bigger goal. 

Baby steps toward our goal:

  1. Menu planning, it’s true that planning out your weekly meals and shopping once a week for your grocery items saves you money and that money can go towards bills.
  2. The little splurges add up so cutting coffees from coffee shops makes a difference. You can literally save hundreds in a year if you are a major coffee drinker as long as you get smaller sizes, get refillable cups, or cut them out altogether.
  3. This one may sound crazy to some but setting a fun money budget works for us. We have a set $ amount that my husband and I split from his pay checks ($100) that we can spend any way we like. Why is this important? Because if you are working your ass off to get out of debt and stick to a budget, if you don’t plan for fun money you will eventually give it up because you are working to please everyone else and you feel like you get nothing for all the hard work. Keep it realistic and allow for some fun and you are likely to keep at it. 
  4. It may be counter-intuitive but I focus on paying the bigger bills off first. Most people like to pay off the small bills first so they fee like they are really accomplishing things. I want the biggest bills gone and then I use the larger payments from the bigger bills to quickly pay down the smaller ones. 
  5. Payments- I may be a bit defiant but I look at my budget and decide what I can afford to pay toward bills (outside of power, water, etc), then look at what bills are my primary focus and divide what I have to pay by the number of bills. I figure out how long it will take me to lunch off those bills and I accept it for what it is. Sound funny? Well, debt didn’t happen overnight and I can’t assume it will clear up quickly.

There are many other little steps that I am using and putting into place but this gives you the idea that you can chip away at a large goal by breaking it down into smaller, actionable steps. 

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There is no quick fix

Just before the economy took a huge dump on everyone my husband and I both thought we were doing the wise thing by becoming entrepreneurs and small business owners. We both bought pre-existing companies with good histories and reputations in their perspective communities. It was a giant leap of faith and one that sadly, due to the economy, left us in a horrible financial place.

We discovered, after the fact, that one of the companies (my husbands) actually had around $8000.00 in debt to vendors and I cringe to say it…the Department of Revenue.  Who the heck wants to be under scrutiny from a governement agency? NOT US!  Then what little money we had as operating capital was taken right out of bank account by Child Support Services. Why? Well…when my husband walked away from his good paying job his automatic child support payments stopped and in the month between when he left his job and we actually started receiving payment from the new business they decided to just take the money. (Side note here…we have paid child support every two weeks for years.) Who knew they could arbitrarily just do that? WE DIDN’T! Then we discovered that the clients for this long established business were used to paying whenever they wanted. We could never count on money coming in from them on a regular basis. That is not a way to operate a business let alone support a family.

Then we discovered that in the other company (my business), our third partner was embezelling money, had completely screwed up the accounting books, racked up $133,000.00 in credit card debt and penalty fees with several government agencies for not submitting reports and payments on time. We terminated her as a partner but as of January last year I have been unable to take any kind of pay from the company even though I need to work it full time just to pay it’s debts.

So with last year’s economic crisis I decided I should take a serious look at our income vs. expense ratio and how best to fix it.  In other words, I wanted to figure out how to get rid of some of our debt. Overnight we went from a two income household to a single income household and the financial repercussions were, to say the least, devestating. We lost our car because we couldn’t amke the payments. We lost out home and had to live with family for almost two months because we couldn’t pay rent. We got behind on all of our bills and most things had gone to collections.

What I discovered by reading several books on the subject of getting out of debt was that we got ourselves into this financial mess and no amount of wishful thinking or prayers for quick fixes was going  to get us out of it. I guess this is where the secret hope that we would win the lottery needed to face the light of day and die a quick death so we could focus on the reality of our situation.

Did you know that according to several sources I read that it takes the average american two years to get themselves out of debt? Now, that isn’t two years of inaction. That is two years of hard work and diligence. That is getting rid of all the excesses in your spending. I mean do you really need those Starbuck’s latte’s? Then you have to create a payment plan to pay off all your debt. The most recommended way of doing this is by listing all your bills, total owed, minimum payments, how many months to pay it off etc. Then prioritize them by the fastest ones to pay off to the longest. Take all the minimum payments and add them into your budget. Of course one would think it would go without saying that you have to stop spending on credit cards, lines of credit etc. but not everyone realizes they actually have to start living without those fast track to debt options.Worse yet, not everyone thinks they can.

We had no other option then to face the bleakness of our finances. So here we are a year later taking a look at how much further we need to go but proud of how far we have come. My husband’s business has supported us for a year even with losing our car and house.  We have often had to humble ourselves and “fall on our swords” begging for our vendors and debtors to work with less than minimum payments just to get by. We’ve cut excess things out of our budget. We moved into a smaller house for less rent and cheaper utilities. We are sharing a car until we can save up enough money to buy a second car cash and believe me it isn’t going to be fancy.

We eat at home (with the rare exception) and we look at every penny that comes in and goes out making sure we are adhering to our financial plan. That being said, we have managed to buy a new television and a new washing machine and things are starting to feel like we have a handle on them financially. I don’t think we are even close to being out of debt anytime soon but at least I can see progress from the disaster our life has been. I think we are going to be okayas long as we remember that there is no such thing as a quick fix and that we got ourselves intothis mess so we can get ourselves out of it too.

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