Living on What You Earn Can Make You Feel Broke, and That’s a Good Thing!

Living on what you earn can be a difficult thing.  For many, it seems like a little like a foreign language; difficult to learn to do, and backwards.  But, if you can learn it, and transform your life into one where you’re living on what you earn, it can make a whole lot of difference.  You’ve got to start somewhere, though.  I, like you, haven’t always lived on what I earned.

Almost all of my life, I’ve owed someone something.  When I was 19, I needed a car.  My parents, tired of having me call them late at night after my old, beater car had broken down—AGAIN!—, decided I should buy a new car.

I didn’t qualify for a loan yet, so my grandpa lent me the money, and I paid him back with a small amount of interest, which was less than I’d pay borrowing from the bank and more than he’d make in a safe investment.

Soon after, I went away to college and took out student loans and started running a balance on my credit cards.

By the time I finally paid off my student loans a few years ago, my husband had his own loans that we had to pay.

Can you see me, just like the proverbial hamster running on the hamster wheel?

Living on What you EarnI owe, I owe, it’s off to work I go.

Until one day, I said, “Enough!”

No more.

Time to live on what we make.

Time to stop borrowing.

Time to start saving.

And that’s when the real challenge began.

Our society is built on borrowing.  Borrow for school, borrow for a car, borrow for a house, rent to own, pay in 10 easy installment plans.

I’m done living that lifestyle, but in turn, I’ve picked a much more challenging lifestyle—living on what we earn.

Cutting Until There’s No Room Left to Cut

The first thing I did was develop a frugal, written budget.  That meant taming our grocery budget from $700 to $1,000 a month to $500 a month to feed our family of 5 with gluten, dairy and corn intolerances.  It isn’t easy, but we’re doing it.

The next step was to keep a record of everything we spend.  Honestly, I hate keeping this record, so that alone is incentive to spend less.

I spend an hour or so every week, reconciling the budget and making sure we’re on track.

I also started regularly saving for irregular expenses.  Every other week, I put $120 in an account earmarked for utilities.  In the winter, our utilities fall far below that, but I still keep saving the money for the expensive summer months.  This way our utility costs are the same all year long.

Handling Unexpected Expenses

While the new budget can feel somewhat restrictive, what I find most difficult are the unexpected expenses.  Just recently, I found that two of my kids have cavities (quite a few!), and the price for fixing them is around $400.  I have money set aside in a medical fund, but filling the cavities will just about wipe that money out.

The problem is that we have many other medical expenses–$188 for my son to get new glasses and an eye exam and a pending $3,300 expense for him to get braces.  I could put his braces on an interest free payment plan, but we don’t do payment plans anymore, interest free or not.

Instead, we had to make hard decisions like canceling our trip to see family this summer.

Living on cash is definitely not easy, but I know once we get through the next couple of years, as our income increases, it will get easier.

We are, as Dave Ramsey says, “Living like no one else so later we can LIVE like no one else.”

Do you eschew debts and payment plans, or do you use them in moderation to meet your goals?

Paying Down Student Loans with Smarterbank

There’s little question that student loans can be one of the more difficult debt burdens that a person can have.  The cost of tuition is rising each year, and the rates seem to be following suit.  Many college graduates are finding themselves with a degree that cost as much as their first house is likely to.  It goes to reason, then, that finding any means available to help pay that debt off is probably a good idea.

What is Smarterbank?

I was recently introduced to a product offering called Smarterbank.  It’s an online checking account that’s run by The Bancorp Bank.  It’s fully FDIC insured to $250,000 and, for most purposes, operates just like any other online checking account.  Much like some other online banks, Smarterbank has some perks attached to their accounts.

In the case of Smarterbank, they give a “cashback” that goes directly to your student loans.  For purchases under $100, they apply .5% of the purchase to your Smarterbucks account.  For purchases over $100, the first $100 gets you the same .5%, and everything over $100 gets you 1%.

Smarterbank Fees

One of the nice perks of Smarterbank is that it’s a relatively fee free account.  There’s a monthly “inactivity” fee if you don’t use the account at least once in a month of $4.50, otherwise, if you’re a smart user, you’ll never hit a fee.  And, by smart user, I mean you don’t overdraft, or do something else silly.  They’ve got fees that are associated with things like statement research, etc, but those are pretty standard and you’re pretty unlikely to ever use those services.  You also get access to over 40,000 ATMs in the STAR ATM network.

The Smarterbucks Program

As I mentioned above, the “cashback” goes into your Smarterbucks account.  So, you’re probably wondering what the heck that is.  Smarterbucks is a rewards program.  Not unlike programs like Swagbucks, it rewards you for certain actions.  Things like shopping through their portal (“Smarterbucks Marketplace”) earn you cash back that is credited to your account.  You can also ask others to contribute to your account.  That option could be pretty cool to use as an alternative for people to give to you for birthdays, Christmas, or special events.

Once your Smarterbucks account reaches $15, they send a payment for that amount to your student loan.  At first, that might not seem like much, and, really, it isn’t.  But, every little bit helps.  And every $1 you pay off early is $1 that you aren’t accruing interest on for the life of the loan.  And that can add up in a hurry.

Would you switch to an account like Smarterbank for an offer like this?  Is the offer strong enough to make it worth the time?  What other offers have you seen that help with student loan payback?

See all the details on Smarterbank.

Knowing Your Debt is Key to Paying Off Your Debt

Any good anti-debt blogger (like me!) will be able to tell you all kinds of ways to pay off your debt.  There’s methods, and tips, and even a certain way to hold your nose. Ok, maybe I’m kidding about that tips bit.  Or is it the nose part?  I’m confused.  Seriously though.  There’s a debt snowball, made famous by Dave Ramsey, then a debt avalanche, then a debt blizzard, and so on.

But, the one key thing that you absolutely have to have if you want to pay off your debt is knowing your debt.  You’ve got to know the number, the type, and even the method of your debt.  If you want to overcome your debt, you’ve got to know it inside and out, upside and down.

How Much Debt

Just how much debt do you really have?  If you’ve do a budget regularly, (if not, start) take the time to write down how much you owe to everything you make a payment to.  Keep in in a spreadsheet and update it periodically.  Put a big bold total across the bottom.  Is it a high number?  Use that as motivation to pay it down.  Is it a low number?  Use that as motivation to finally get rid of it all!  Watch the total get smaller and smaller.  (If you’re an spreadsheet junkie, create a line graph for the total!)

What Kind of Debt

There’s a common argument over whether there is any such thing as good debt, or if it’s all bad debt.  I happen to think that argument is a little too black and white and that it really depends on your situation.  If you know how much debt you have (see above), now you can categorize it.  This really isn’t as hard or as complicated as it sounds.  We’re talking simple categorization here.  Is the debt on a credit card?  It’s credit card debt.  A mortgage?  Mortgage debt.  Car loan?  Car debt.  Put them all in a category, and total the categories.

How Did you Get Your Debt

This is going to sound silly, but now take a hard look at your debt and decide how you got it.  Some of it will be obvious.  You got that mortgage debt by buying a house.  The car loan by buying a car.  But, I also want you to go a bit further.  Did you buy that car (or the house) because you absolutely needed a car?  Or did you buy it because you had gotten bored with the old one?  Categorizing your credit cards this way will be a little harder.  It might be easiest to go through old statements and look at purchases.  What are those purchases?  If you’re buying groceries and other small priced consumables on your credit card, but not paying those charges off right away, that’s a good sign that you have a problem.  Determine why you’re spending the way you are, then find a way to fix it.

Now, Get Rid of Your Debt

someecards.com - Nothing gets me hotter than a man devoid of debilitating long-term debt

Now you know how much debt you have, what kind of debt it is, and how you got it. Let’s get rid of it.  If you’re comfortable sharing your totals (even anonymously), joining something like the debt movement can be a great help.  There’s tools out there that can help you, like Ready for Zero.  If you want to go it alone, here’s a simple method for starting.  Go back to the list of categorized debt.  Start with the category(-ies) that are un-secured (that means they have no asset like a car or house tied to them) and start paying those off with every spare penny you have. You can sort them largest interest rate to lowest interest rate, or smallest balance to largest, or however you want, really.  Just start paying them off.  Get them taken care of, then start on the smallest of the secured (tied to assests) debts.  Rinse, recycle, reuse, repeat.

If you feel like sharing, tell us in the comments below how much debt you have.  How much have you paid off?