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

February 23, 2015 By MelissaB 4 Comments

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?

MelissaB
MelissaB

Melissa is a writer and virtual assistant. She earned her Master’s from Southern Illinois University, and her Bachelor’s in English from the University of Michigan. When she’s not working, you can find her homeschooling her kids, reading a good book, or cooking. She resides in New York, where she loves the natural beauty of the area.

www.momsplans.com/

Filed Under: budget, Frugality, Saving, ShareMe Tagged With: budget, debt, debt plan, debt repayment, Saving

Creating a Debt Plan: My Dollar Plan Reader

June 24, 2008 By Shane Ede 2 Comments

One of the readers over at My Dollar Plan want’s to eliminate his debt and My Dollar Plan has opened it up to all of us to give it a go at creating a debt plan for the reader before he announces what he has/will suggest.

Here’s the basics:

The reader has approximately $14,000 in debt.

  • Personal Line: $3,500 balance @ 15% – $7,000 limit
  • Credit Card #1: $2,300 balance @ 9.6% – $5,000 limit
  • Credit Card #2: $6,600 balance @ 8.5% – $8,000 limit
  • Credit Card #3: $1,900 balance @ 18% – $2,000 limit

According to the post, he’d like to keep using the 3rd card as it gives him cash back on certain purchases. If you’ve been following the Beating Broke Rules, you’ll know how I feel about Credit Cards.

The other factors we are given are that the persons income is in the high 5 figures, so for this exercise, we’ll assume  about 75k.  He’s currently paying $210 on the personal line, $0 on the first card, $1200 on the second card, and $100 on the third card.  We don’t get anything about living expenses which makes it a little hard to nail down a very good debt plan, but we can give it a try.

We’ll use what he’s currently paying as his total income that is usable for this purpose.  He’s also got some company stock, but we won’t be using that as selling stock can sometimes carry a pretty hefty tax bill.  Sidenote: Company stock plans are great, but some thought should be given to diversifying.  That’s another article though.

Let’s get the reader started on creating a debt plan.

Current payments: $1510

As you can probably tell by the byline of this blog (The borrower is Slave to the Lender), I don’t like debt.  I especially don’t like credit card debt.  And Personal lines are not much better, but have the added benefit of not normally being as easily accessible as credit cards.  I also think that cash back cards are a waste of time.  If you miss even one payment, you’ll pay more in interest to the card company than they paid back on your purchases for the whole year.

Here’s how I would go about creating a debt plan.

Pay the minimum payment on everything but the 3rd card.  That should pay it off in just over 1 month.  Now, if you insist on using that card for the cash back, you must also insist on paying it off every month.  I suggest taking your receipts home each night and making a bill pay payment for the amount.  If you can live without the cash back on the credit card, you might look into finding a bank account that would give you a cash back on debit card purchases.

After the third card is paid off, start on the personal line.  Pay minimum payments to everything but the personal line.  With a balance of about $3400 at this point, it should take just under 3 months to pay it off.  That gets us to October.  I really don’t think, unless you can find some more disposable income, that you’ll make the November cutoff.  One way would be to sell your stock, but you should be very sure of the tax ramifications of doing so before selling it.  If you do, start with the first item here and work your way down until the money is gone.

Once we have the third card and the personal line paid off, we are left with just card 1 and card 2.  Both have similar interest rates, but the balances are different.  Card 1 has about $2300 in balance and could be paid off rather quickly, so I think that would be a good place to start.  It would take just under 2 months to pay that one off.

That leaves you with only the ~$6000 on Card 2 at the end of the year.  If you are diligent and continue paying the $1500 a month, you can have that card paid off in 4 months.

It will take longer than November unless you sell your stock, but when you are done your financial picture will be so much better for it.  The more you squeeze out of your budget (you do have one right?) now, the faster the debt gets paid off and the sooner you can start planning for your future instead of paying for your now.

Good Luck!

Shane Ede

I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.

You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.

www.beatingbroke.com

Filed Under: Debt Reduction, ShareMe Tagged With: budget, creating a debt plan, credit cards, debt, debt plan, Debt Reduction

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