Uphill Battle

14 Feb

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2010 was a tough year on us financially.  Even though we did it the cheapest way possible, moving to Alaska was expensive.  We had two months where we were paying our mortgage payment in Texas and our rent payment in Alaska with no rental income to cover it.  This was not part of our original plan when we decided we could afford this move.

Also, living in Alaska is expensive.  Especially when you can’t seem to stay out of the ER.  When I had Kaelin, ER visits with insurance were $75.  Now they’re $200, and that doesn’t include medication, physical therapy, and additional work they might have to do on, say, a shattered elbow.

There’s also the little matter that our insurance company (United Health Care) has a reputation for refusing to pay claims that are owed… which is exactly what they did to us.  Consequently, our hospital has filed a class action suit against them, which means that we will probably get our claims paid eventually, but that in the meantime they aren’t submitting any new ones and all the bills come to us in full.

In November, I took a hard look at our finances, something I had not done in several years.

Let me just say that I do not recommend “Negligence” as a financial management strategy.

Bills were getting paid, so at least we didn’t have any creditors breathing down our necks, but savings was nonexistent and credit card debt was horrendous.  I shocked to discover that the financial “portfolio” (a term I use loosely) I had in my head was just a myth.

At first I freaked out.  Then I went through each the Five Stages of Grief (no kidding).  Eventually, I emerged with a determination to get things under control.  While money is tight right now, we at least have a current financial plan, are able to pay what needs to be paid, and are making progress toward being debt free once again.

Here are some steps we have taken:

  1. Reduce spending. There’s not a whole lot to say about this, other than we’re more intentional about the things we spend money on.  For instance, we rarely eat out anymore, and when we do, it’s often McDonalds instead of the nice seafood restaurant.
  2. Increase income. Jens has been taking on additional work projects and working a lot of hours to help meet our needs.  When we move back to Texas, I will likely be re-entering the world of employment as well.
  3. Pay bills with real money. We weren’t really aware (or had somehow lost track of the fact) that we had several bills being charged automatically to credit cards instead of to our bank account.  This created a false sense of wealth because the money that should have been used to pay those bills sat in the bank account (and of course, got spent on other things) instead of being applied to the credit cards.  The debt kept accumulating because the payments we were making to the credit cards did not cover the bills being charged each month.
  4. Compartmentalize income. As I’ve mentioned before, this is a trick we have always done, stemming back from when we got married and each had several bank accounts.  It’s like a modern day version of the Envelope Budgeting system.  We have different bank accounts for different types of expenses (mortgage/rent, bills, food/gas), so it’s much easier to keep from exceeding your budget because when the money’s gone, it’s gone.  You have to actually make an effort to transfer additional money in from another source.
  5. Remove the option to use credit cards. We each used to have several credit cards in our wallets.  Oddly, those cards tended to get used on many occasions, with the idea that we would pay off the balance after the next paycheck.  HA.  Now, they’re all in my desk drawer, except one card for emergencies.
  6. Switch banks. With our multiple bank accounts, we were spending about $24/month just on bank fees with Bank of America.  We have switched to Capital One, where all accounts are free, do not require direct deposit, and have no minimum balance requirements.  In addition, some of our bank accounts earn “rewards” – I just got a $50 gift certificate to Amazon.com from “rewards” we have earned.
  7. Pay Attention. I used to wander through the aisles of the grocery store and just put whatever I needed (or, in many cases, just wanted) into my cart.  When I got to the checkout lane, I had no idea what the total of my groceries would be.  This created some anxiety because I wasn’t always sure if the balance in my bank account would cover the grocery bill, so I often opted to just use a credit card to avoid any embarrassment.  Now, I bring my calculator.  I may look like a dork punching buttons as I go along, but I know exactly how much I’m planning to spend and it helps me make choices. I have been known to put back one item so I can afford two others.  It also keeps me mindful of comparison shopping.  I evaluate prices before throwing the brand name into my cart.  We actually spend hundreds of dollars less per month on food than we used to.
  8. Pay bills first. We use Online Bill Pay through the bank, and schedule all bills to be paid on the same day Jens’ paychecks are direct-deposited.  It’s easier to keep track of a bunch of bills that way, and then we know immediately what we have left as disposable income.
  9. Balance transfers. Ok, applying for another credit card when you’re head over heals in debt already is RARELY a good idea.  But in our case, it made sense.  We had a couple of cards with really high interest rates – well over 20%.  I applied for a Citibank Platinum Select card, which has a 0% interest rate on balance transfers for two years.  We transferred the high-interest balances on it and have set up payments so that we will have the entire card paid off before the interest rate kicks in.  In the meantime, we’re saving a lot of money on interest, that can be used to pay down the debt faster.
  10. Don’t buy stuff.

Well, there you have it.  Our tips and lessons learned the hard way on achieving financial comfort.  It sucks when you have to dig yourself out of a hole, but it sure does feel good to see those looming debt numbers drop.

Now, if we can just stay out of the Emergency Room…

  1. Grandmommy

    February 14, 2011 at 9:36 am

    Applause for a valuable lesson only life can teach one.

  2. Thomas C. Meneley

    February 14, 2011 at 3:16 pm

    This is a very well written article with many important business principles as well as down-to-earth common sense thinking about personal finance. Keep up the good work and keep writing!

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