Wednesday, February 9, 2011

Spend Less: Month 1 Complete

The bottom line? $312.31. That's the total I spent at Target and Starbucks this January, which is just over $200 less than I spent at those places in January 2010.

And while I'm pretty thrilled with that and even more thrilled that the first of the month (and 75% of our bills) came and went and I didn't have to stress at all about money, I know we've still got a long way to go. We did our taxes already (a first for us to get them done this early) and for the first time I can ever remember, we're getting both federal AND state refunds. This is a mixed blessing of sorts because getting a refund is superior to owing the state, which has always been the case before. However, we changed our tax exemption status last year which created this upcoming refund but also contributed to some of our money struggled because it meant we both paid more taxes out of each paycheck. Sadly, those refunds are already earmarked for paying down our two highest interest credit cards. My sweet husband did the taxes, and when he saw the size of our refund, he turned to me and said, "This is awesome! We can put this all to one of our credit cards!"

Awesome was not how I would have described using the money to pay down debt, but when I told him that, he gave me The Look that told me he's the grown up when it comes to these things. And then he smiled devilishly and said, "Look, the sooner we pay that off, the sooner we can think about another baby." If you know me, you know 'think about another baby' is a phrase practically guaranteed to win my approval of almost any suggestion.


I've had some friends ask me to explain the 'how' of this financial makeover. And while I'm definitely no money management expert, here's a short run down of how we got here and how we're getting back out.

The story's not that interesting. Until we had Luca, we had almost no debt. When I was 30 weeks pregnant, we bought our current home in a housing market that was coming out of a bubble. We felt a bit rushed to buy, and looking back we both wish we'd rented for a year or so and given the market time to finish its descent and ourselves time to figure out the real costs of having a baby so we could better budget. But, we didn't, and as a result our mortgage is affordable but more than we wish we had to pay. Luca's daycare was 3 days a week, so we managed fine with just her. Even with my 'awesome' health insurance, we ended up paying close to $3000 out of pocket for her birth (no one tells you you pay your deductible, your co-pay which for me was 20%, PLUS a co-pay for baby in the hospital).

Right after Luca turned 1, I got pregnant again. My husband and I don't live/work/take the kids to daycare in an area where it made sense to take public transportation, and we had a car that was on its last tire. We sold it and used the cash as a down on a desperately needed new car. With a pretty high monthly payment we could totally afford at the time. The key here being: at the time. This was before we had 2 kids. We had private insurance with no maternity coverage and we were leaning toward a home birth anyhow, so in addition to our normal expenses, we were now paying  a few hundred dollars a month toward our midwife's fees and other pregnancy/baby expenses. Homebirth actually cost us less out of pocket than hospital birth had, and we had it paid off before I was 36 weeks, which was nice. It was a relief not to have outstanding bills for his birth while living in the new baby zone.

Once Rohan was born, we added him to insurance PLUS added the cost of his daycare 3 days a week. A year later, Luca moved to preschool (5 days a week + $80 more a month) and I had major dental surgery, which I paid for partly out of pocket, partly with insurance, and partly on a 0% interest credit line intended specifically for medical/dental bills. The 0% is awesome, but it comes with limitations, meaning we HAVE to pay a certain amount every month in order to get it paid off within the alloted time frame or the interest gets tacked on at the end. We ended up changing insurance plans as well, as I went back on my employer's insurance and Rohan needed a different plan because of his Mastocytosis. That added a little to our monthly budget as well.

All this came together to create a perfect storm. The next thing we knew, instead of living without credit card debt we had rung up several thousand dollars in charges. And we couldn't get back on top of it. It's embarrassing to admit this, for sure, but it's freeing as well. It was only through talking honestly with other people that we realized that many, many young families starting out like us faced issues like we had. People don't talk about it, so I had no idea how to deal with it. We were making it, and enjoying our lives, but hanging over our heads was this debt that was spiraling higher and higher due to interest rates.

We started small but sensible. My husband changed our car insurance, harassed our health insurance company to lower our rate for Luca due to both her age and her good health. He transferred 2 small balance/high interest credit cards onto 1 with a 0% APR for 6 months and a 9% thereafter as long as you kept current with payments. We put everything on auto pay so we couldn't ever miss a payment and our credit would be safe in that sense. We refinanced our car to a longer term at a lower interest rate and lower monthly payment (this is not usually recommended when considering the rapid loss of value new cars face, but we evaluated it from every angle and it made sense given the resale value of our car and our monthly budget). And, on top of that, we not only automatically transfer to savings and 'skim' from the top of that account to help pay down debt faster (i.e. we have a balance threshold, and when we had exceeded it at the end of the month, we skim the excess off and put it toward a debt), we also use money we get for things like selling items, birthdays or holidays, and tax refunds toward paying down debt.


It's still not enough. I mean, it IS in the sense that we're paying our bills, not accruing new debt, and making ends meet. But it's not in the sense we're not getting ahead. We had no plan and no direction and we were paying and paying and spending and then worrying every month. So I decided it was time to get serious.

I've talked at length about not spending money on things we don't need. I desperately want a new kitchen table, but until I can thrift one (or find one online, used) that fits my needs and is a price I can rationalize, I'm not buying one. I want new clothes, but I tell myself that when I hit X pounds lost I'll buy them, and that buys me time to save for them. But the other piece I haven't talked about much is food. Prior to this shift in our financial goals, it wouldn't be unusual for me to go out for lunch 2-3 times a week at work, for us to go out to dinner 2-3 times a week, and for us to grab breakfast and/or lunch on the run on weekends. On top of all that, we were spending a good chunk of change at the grocery store every 2 weeks on food we often ended up not eating.

Combining financial goals with health goals helped us curb this spending, big time. We made it a point to grocery shop once per week, changing our venue from a big chain to a smaller, farmer's market type store in our area. That change alone meant the bulk of our grocery budget was being spent on produce, dairy, meat, and bulk foods like dried cranberries and oats. Because our shopping choices were limited somewhat by a smaller selection, we aren't spending money on frozen foods, packaged foods, soda, and other things we don't need but bought for convenience sake. The reality was this: those things didn't look any more appetizing at home than they did at the store, so that $8 frozen pasta dinner sat getting freezer burn night after night while we chose going out to eat over eating it. So we were spending less because of the selection, eating healthier because of the selection, and going more frequently to replenish our fridge with the perishables we'd polished off within the week. I didn't tally up our grocery spending for either January 2010 or 2011, because in the long run we probably spent about as much each month. What I do know is we spent less on going out to eat (I didn't total that either, but a quick review of my bank account statement says it's true) and we're eating much healthier than we were before.


We're 9 days into February, and I'm happy to report we made it through the start of the month bill gauntlet without having to freak our or stress over money. I'm down almost 10 pounds, we spend more time cooking and eating together at the table, and I'm happier over all.

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