A Story About Paying Off Debt and the Obstacles Along the Way

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Emergency Funds and Medical Bills and Teacher Strikes... Oh My!

My current thoughts on April:


And also


With a little bit of this thrown in:


Thanks for empathizing, rocker panda.

Yes, I'm being a little dramatic - just part of my charm! - but April 2018 shall henceforth be known as The Month That Our Debt Repayment Plan Hit A Wall. Part of it can be blamed on our medical bills from The Infamous Appendectomy of March 2018. We're still in the process of tallying up the total, but the bills have started to trickle in, and looks like we'll owe several thousands of dollars when all is said and done (I'm hoping I can finagle a payment plan that will allow me to cover it all via my HSA).

Part of it has to do with the teachers' strike here in Arizona. As a teacher in Arizona, Fortysomething is currently on strike. Teachers don't get paid if they walk out. We completely, wholeheartedly support the strike, but it's made us realize we want to tuck away more money into our emergency fund - if not for now, for potential future interruptions in pay. We plan to set aside $3000 before returning to a more aggressive debt repayment plan. ($3000 isn't really enough, either, but it would get us through a full month if one of us wasn't getting paid.)

It's fine. We're fine. It could have been a lot worse. We're meeting all of our financial obligations. Between the emergency fund and our investments, we're even managing to sock away some cash. But it's hard to have to slow down on the debt repayment. I feel so impatient to be done with it, especially the credit card.

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The $76K Guide To Making A Simple Budget

You may have noticed that unlike many other personal finance and investment blogs, this blog doesn't offer much in the way of advice. Frankly, that's in large part because I feel unqualified. "You have student loans and a credit card balance," says the little voice in my head. "Nobody wants advice from you." 

So I usually stick to telling our story, figuring that we can start doling out suggestions and strategies once we ditch our debts.

But the other day, someone on Twitter asked me for advice on making a budget. Taken aback, I burst forth with an array of word vomit that boiled down to, "We didn't know what we were doing so we sort of just tried a bunch of different things and finally after like half a year our budget magically worked. Voila! Good luck!"

Later, when I gave it more thought, I realized that there's more method to our budget madness than I'm giving us credit for. Yes, it took us a long time to iron out the wrinkles, but our general approach was solid. And now that we do have a workable budget, I feel at least somewhat justified in sharing our approach in the hopes that it might demystify the process for others, particularly those who - like us - are trying to claw their way out of debt and need a budget to help keep them on track.

So here it is (drumroll):

The $76K Guide To Making A Simple Budget 

Step 1: Before you make a budget, track your expenses for a month.

This may sound like a drag, especially if you're raring to go, but you can streamline the entire budget-making process by keeping a month-long record of how you're spending your money. Either in a notebook or in a spreadsheet (or with software like Mint that tracks your spending for you, though I personally find that this puts too much mental space between me and my spending habits), write down every single thing that you pay for - bills, rent, mortgage, insurance, random fun stuff, going out to eat, etc. - including the date and the cost down to the penny.

At the end of the month, group your expenses into categories and calculate the total for each category. These categories might include the following:

  • Rent/Mortgage
  • Utilities
  • Groceries
  • Phone
  • Insurance
  • Internet
  • Pet Needs
  • Household Items
  • Miscellaneous/Fun 
And so on. 

As you'll see below, having this record on hand will take some of the guesswork out of your budget. It will also help keep you honest about what you're actually spending (and when it comes to budgets, being honest with yourself and how much you're likely to spend on various items is crucial to your success).

Step 2: Commit to being flexible.

Don't feel like you have to come up with something that you're going to use indefinitely. Especially at first, budgeting is an iterative process. There's a very good chance it's going to change, and you're going to want to be okay with that. Don't get too attached.

Step 3: Figure out how much take-home income you're bringing in every month. 

You might know this number like the back of your hand, but when we were getting started, I did not. If you earn a regular salary, use your paycheck stubs to tally your take-home income. If you work as a contract employee and your income varies each month - which was initially the case for us - you'll have to estimate your expected income based on your past experience and current contracts. Be conservative when making those estimates. (I'd be happy to talk more about budgeting with contract income if anyone's interested.)

Then record your total projected income. We use a spreadsheet in Excel for this purpose (see example at the end of the post).

Step 4: Identify your recurring fixed expenses.

Fixed expenses are those that recur every month in the same amount, and their predictable nature warms my little Type A heart. Our fixed expenses include our rent, phone bill, insurance, Netflix subscription, and debt repayment. (Calculating the amount you can devote to debt repayment is a topic for another post; for the purpose of brevity, I'm going to assume that if you are making payments, you've already figured out what you'll pay each month.) You can include savings here, too, if you're committed to saving a specific amount.

Use your bank statements, bills, and/or your spending record from Step 1 to determine which expenses are fixed and how much they cost each month. Write them down. (Again, see example below.)

Step 5: Identify your recurring variable expenses.

Recurring variable expenses are those that appear every month but that are not the same every month. Ours include electricity, groceries, gas, and pet needs. Our "miscellaneous fund," the money we use for fun stuff like going out to eat or getting random home supplies, is also included in this category. (Other people have a different approach to this, but for us, we learned we were more successful when we gave ourselves some leeway in this area and didn't try to break it down too much.)

For me, this was the most challenging part of budgeting when we first started: recurring variable expenses have a nebulous quality to them. With experience and careful record-keeping, though, dialing them in has become easier.

You can use your spending record to identify what these variable expenses are and ballpark how much you need to allocate for them. Again, be honest with yourself: if you spent $500 on groceries last month, allocate $500. Don't try to convince yourself that you're suddenly going to make do with $300. In future months, you can fine-tune the numbers and try to cut costs a bit. For now, though, set yourself up for success by being realistic.

The good news about recurring variable expenses is that it's here that you'll have some wiggle room to cut costs if you want to - like finding ways to save on the energy bill or slice the fat from your grocery budget.

Step 6: Add in your one-time expenses.

Every month is different. Sometimes your cat is due for her yearly checkup or the car needs an oil change. Sometimes you'll need to buy new clothes. Sometimes you'll need to purchase school supplies. Sometimes you'll be hankering for a sleek new haircut. Again, be realistic about what your needs (or wants) are in a given month, and accommodate them in your budget.

Step 7: Calculate the total and make adjustments

Time to tally it all up and make sure the numbers work. Compare your budget total to your income. If your sum exceeds your income, you're going to have to make cuts somewhere. Your variable recurring expenses - particularly your miscellaneous or fun fund - would be a good place to start. Other folks have found ways to reduce their grocery bills by tens of dollars every month. You can also take a look at your one-time expenses: perhaps some of those can be put off for now.

If your income exceeds your budget, you get to decide how to deploy the extra moolah! For us, any surplus goes towards debt, but if you're debt free, consider socking it away into savings or an emergency fund. Don't create random frivolous line items because you feel flush with cash.

Step 8: Continue to track your spending.

It may seem like a pain, but keep recording your expenses down to the penny. As you pay your bills and make purchases, compare the reality of your spending with your budget. I handle this by creating two columns in our budgeting spreadsheet: one for projected expenses, and one for what we actually spent. Then I compare the two at the end of the month. If I find that we spent more on a certain category than we'd planned, we take note of that and adjust accordingly in the following month.

Here's an example of what the budget looks like:

So that's how we budget. And although the tracking process may seem arcane to some, it really helps us stick with it.

One last thing: for me, budgeting felt completely overwhelming at first, but the longer we've done it, the easier it's become. In our first few months, we had to make repeated big adjustments to the budget. Now the adjustments we make a relatively minor, and mainly for one-time expenses. The moral of the story: it's a messy process at first, but don't give up. Refine, refine, refine.

What about you? What's your budget strategy? What tips would you share with newbie budgeters?
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Our First Year of Debt Repayment In Review

One year ago, we decided to finally get our financial house in order. I can't remember what, exactly, prompted our shift in mindset: there was no single crisis or issue that brought us around. But the balance in our bank account was persistently paltry, we worried constantly about unexpected bills, and we really had no idea where our money was going. We would buy things and just hope we had enough to cover the purchase. It was scary.

Around the same time, I started watching re-runs of Til Debt Do Us Part and Money Moron. While I didn't want to put myself in the same category as the people being coached/yelled at by Gail Vaz Oxlade, the truth was that I could fully relate to their choices, experiences and fears. I saw myself in them. I devoured as many of these episodes as I could, taking note of the advice on budgeting and debt repayment plans. Then I announced to Fortysomething that I was ready to make some changes.

Last April, we finally started the long, slow process of turning this ship around. We've made an enormous amount of progress since then. Here are some of the highlights:

April and May 2017:
  • We took a full inventory of our debt.
  • We made a debt repayment plan.
  • We opened a savings account.
  • We finally made a budget. Here's what it looked like:

    (At the time, our debt included our car loan ($300/month), our student loans ($600/month), and three credit cards on which we were paying the minimum, for a total of $700/month).

June 2017: 
  • We started this blog as a way to track our journey, record our story, and engage with the personal finance community. Check out our first post: Introducing the $76K Project.
July 2017:

August 2017:
September 2017:
October 2017:
November 2017:

December 2017:
January 2018:
February 2018:

March and April 2018:
So there it is: one year of persistent, sometimes frustrating financial work! I'm amazed at our progress and by how much we have learned, and I can't wait to see what we can accomplish in another year.

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Debt: Nobody Said It Was Easy

Money in the $76K household is tight. We're awaiting medical bills related to the Kiddo's appendectomy, and although it's possible that the total cost of surgery won't be as high as I'm expecting it to be, I'm still very much on edge about it and want to keep a tight grip on the budget until we know where we stand. At the same time, we're determined to make a significant credit card payment this month ($1000) and plan a small but fun birthday celebration for the Kiddo.

Although we're paying all of our bills on time and making progress with debt repayment, there isn't a lot of room for extras and non-essentials:
  • We still don't have a real kitchen table. We're eating off a tablecloth-adorned card table and sitting in folding chairs. 
  • We've had to delay the purchase of other furniture, such as bar stools for our kitchen counter. (The horror!)
  • We're not going out to eat as often this month.
  • We're being more selective about paid activities. The Kiddo's summer soccer league is a go. The running series is not.
I'm not complaining about any of the above items. The card table serves its purpose, we make tasty enough food at home, and I can walk out my front door and run for free every day. We're good.

However, we've come to the realization that our uncompromising budget will necessitate one difficult sacrifice: we'll likely need to cancel the trip that Fortysomething and the Kiddo were planning to take back east this summer. The original idea was to have them fly out, rent a car, and spend two weeks with Fortysomething's parents, siblings, and other relatives. It's something Fortysomething hasn't done in several years. The Kiddo barely remembers what his cousins look like.

Needless to say, nobody is happy about this, especially my son and his grandparents. But the trip seems financially ill-advised given the likelihood of steep medical expenses. The price of plane tickets will be in the hundreds of dollars, even if we're able to offset the cost with our limited Southwest points. Then there's the car rental, the gas, and the inevitable restaurant meals and kid activities. We just can't afford it, is the truth.

Fortysomething is fine with canceling. As usual, he's Mr. Logical: we don't have the money, thus we can't go, end of story. Me? I feel tremendously guilty. I know how much his parents were looking forward to seeing both of them, and as they're getting older, I want them to spend time with us. Life is fleeting, and we need to make time - and sometimes spend some money - for the people we care about.

But is it worth accruing more debt at this particular time? I don't know. I don't think so, but in this case, I'm not 100 percent sure. Either way, it feels like a risk. A part of me is holding out hope that the medical bills will be miraculously low and we'll be able to book the trip anyway.

As anyone who has ever tried to dig out of debt knows, this process is full of ups and downs, triumphs and frustrations, successes and setbacks. Life is damn expensive. Even though we have the  best of intentions, and even though we're armed with the confidence that comes with paying off $17K in less than a year, it would be incredibly easy to backslide - not because we're buying lattes, avocados, bar stools, and fancy vacations, but because life is unpredictable and full of gray areas. 

I'm not complaining, but I will say this: times like this emphasize just how debilitating debt can be. Debt sucks. I'm sick of the way it limits us. I'm sick of having to make sacrifices for it. Situations like this just stoke my determination to get out of debt as soon as we possibly can. I can't wait.

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Five Goals For April

I recently made a comment on Twitter that people need to live more in the moment and stop focusing so much on the future... but the truth is, I'm kind of a hypocrite in that respect. I find that I'm more grounded in the present when I'm anchored by some clear, achievable goals.

So in April, here's what I hope to accomplish:

(1) Write six blog posts. In March, I managed to publish five. Not bad considering that it was a hectic month, especially at the end. Writing is a valuable outlet for me (I'm writing this while on a much-needed mini-break from working today), and writing here keeps me motivated to pay off our debts. My longer-term goal is to move the blog to a different platform and expand on content, but for now, I'd be thrilled to simply hit the "Publish" button more frequently.

(2) Update my blog roll. I've been meaning to do this for weeks. Several folks on my current list seem to have disappeared, and I want to start following several of the PF bloggers I've met on Twitter. (Tell me if I should add you! I will!)

(3) Find a way to pay our recent medical bills without going further into debt. I have absolutely no idea how much we're going to owe on my kid's recent appendectomy. Between urgent care, the ER, surgery itself, anesthesia, and one night in the hospital, not to mention the toothpaste, socks, and breakfast the nurses insisted that we take (anyone who has ever been to a U.S. hospital knows you will be charged for every single item of this nature), I expect that we'll be looking at a total bill of a few thousand dollars, even with our insurance. My out-of-pocket cap is $4000, but we just don't have that much cash on hand right now.

Regardless, I am unwilling to put any of this on credit cards. We will pay what we can via my HSA, and then I will call each vendor to insist on a payment plan. Worst case scenario: I will ask my family for a loan.

No. More. Debt. The end.

(4) Drink more water. We live in an extremely dry area. When I don't drink enough water - and, well, I never drink enough water - my skin dries out and my running suffers. That's got to change. I'm not going to force myself to drink a specific amount (so, yeah, not a particularly measurable goal), but my water bottle is going to become my new BFF. I'm going to drag it everywhere with me.

(5) Do two strength training workouts per week. I have absolutely no trouble meeting my weekly running goals; I so enjoy being out on the trails that it's easy to motivate myself. That's not the case with strength training. Although I see it as a vital aspect of being a healthy runner, pushups and squats and the like just aren't that much fun for me. However, I think I can commit to two 30-minute workouts a week, especially if I schedule them before I start work in the morning.

We'll see how this goes.

What about you? What are some of your current goals, financial or otherwise?

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