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I watched about five minutes of Til Debt Do Us Part the other night. In the segment, the father banged up his credit cards to put on a lavish Christmas for his kids. Unfortunately, he was overspending by thousands each month so really couldn’t afford the spread. The host said to him, “You’re just feeding your own ego doing that.” Gosh, I thought, that’s harsh. But I watched the expression on the father’s face and it really hit home.
The dad chose to wow the kids with gifts rather than pay his mortgage and food. Would his kids love him less if he chose security over the holiday flash? Should that even be a concern?
My mother raised four kids on her own. Good Dutch sensibility. We always had a good time together and she got what she could afford. Every year, without fail, we received a huge tin of maple syrup from our old aunt in Vermont. “Wonder what this is?” we’d say as we looked at the wrapped tin under the tree.
Don’t compete with your friends and live within your means. It’ll mean you’ll have a roof over your head and food to eat and you’ll be able to sleep at night.
A hundred wagon loads of thoughts will not pay a single ounce of debt. - Italian Proverb
Credit buying is much like being drunk. The buzz happens immediately, and it gives you a lift. The hangover comes the day after. - Dr. Joyce Brothers
Some people use one half their ingenuity to get into debt, and the other half to avoid paying it. - George D. Prentice
Never spend your money before you have it. - Thomas Jefferson
I watched a few episodes of Til Debt Do Us Part which is a show in Canada on the Slice Network and in the US, it’s on CNBC. Some of the featured couples and their stories are just cringe-worthy. Most of them spend like drunken sailors. I noticed that spending problems create marital problems. Apparently, 90% of marriages break up because of money problems.
Try out her budget planner. On page 4, there is a test for couples on money. It looks at your spending habits but it also addresses your goals. Gail Vaz-Oxlade (the host) has a 12-step program for getting your finances in order.
Her suggestion for breaking down your expenses:
(These are percentages of your net pay)
- 30% housing/utilities/taxes
- 14% auto
- 11% food
- 7% entertainment
- 5% insurance
- 5% debt
- 6% clothing
- 5% savings
- 8% misc
- 5% investments
- 4% medical/dental
Vaz-Oxlade gets the couple to use jars with cash in them. When the cash is gone, that’s it until the end of the month. I don’t necessarily agree with the percentages but it’s a starting point for many people. With a jar, you can see what money you have to spend. This way, you can’t spend more than you make.
I went to the bank today and I always have a little chat with the teller. We started talking about how many people live paycheck to paycheck (or in Canada, paycheque to paycheque). She said it is staggering how many people live on the edge.
Let’s say you barely make enough to survive on. I have found that many people, even when they make more money, still live paycheck to paycheck. They would claim that there’s very little they can do to change that situation.
One of the things you can dump is cable. Cable is a clue as to where people are at with their finances. If you owe a lot of money and still spend $50 to $100 for cable, you’re not changing your situation. You could argue, “Well, it’s the only entertainment I get.” You should not only get rid of cable and perhaps sell that honkin’ big TV but might also use that time to get a second job to pay your bills and get ahead. Make good use of your time. Learn to change your car’s oil, clean your own carpets and do your own maintenance around the house.
Our two biggest monthly expenses are usually our house, with either the rent, or mortgage, and our car. Most people tend to borrow to purchase a car and roll it over every 3 years or so. While it’s difficult to affect your mortgage or car payment it is possible to save some money on the interest. If you’re unable to re-negotiate at a lesser rate (and watch for added costs if you try), then you can cut interest costs in the long term by paying a bit extra each month. It’s not always possible to make double payments but even an extra $50 to $100 per month can make a difference. That extra money you pay comes right off the principal balance, so that when they calculate your interest it is done on that lesser balance. It might seem that a small amount won’t make much difference but if you figure it out over a 20 year (or more) mortgage it can take years off, and you may be able to be debt free far sooner than you’d think.
For renters, make sure that when your lease is coming up for renewal that you at least try to re-negotiate. A few years back we were renting an apartment and they just wouldn’t budge on the price, so I said, “well, if we sign a new lease today will you throw in a free month?” They said yes, and amortized it over the 12 months so we ended up with our discount anyway. I’m not sure why they’d do it one way and not the other, but hey, I ALWAYS ask for the discount.
-Phil
Imagine someone came to you and said they would give you an 18% return on your investment. You give them $10,000 and they will give you $11,800 at the end of the year. Wow, where do I sign up?
You can do it now. Cut up your credit card and pay it off.
According to Credit Canada’s debt calculator, using fixed payments of $920.00 per month, it will take you 12 months to get rid of your debt, and you will pay $998.27 in interest.
The scary part is if you just make the minimum payments. Plug in the numbers and if you decide to pay the minimum of $250 a month (and that’s assuming you aren’t charging anything further on that credit card), using minimum payments of 2.5%, it will take you over 300 months to get rid of your debt, and you will pay over $14,271.74 in interest on that original $10,000.
We have this show here in Canada called “Maxed Out” which is about financially overstretched couples who get their finances analyzed and then learn practical steps to achieve a brighter financial future . They had two back-to-back episodes on last night so I watched part of both of them. Well, I confess, I had a shower in the middle.
Both were young, married couples. They owned a home, had two new leased cars, furniture on time payments, and they had lots of stuff and were continuing to buy more stuff. I felt like I was watching a slow motion car crash. The end result was inevitable; it was hard to watch but it was strangely fascinating.
Each couple had over $300,000 in mortgage debt and another $50,000 to $60,000 in credit card debt. In both cases, the couples were completely unaware of how much they owed. One wife, shown her car expenses that came to $1700 per month, said, “Oh, I don’t think so. Seems high.” The host pointed out that this included two lease payments, gas, licensing, insurance and maintenance. The woman did not look convinced.
As I was looking at this, I realized that there were probably loads of people in the same boat.
I looked on W Network’s website and although they have an expense calculator, the one at Frugal Living is way better. Just fill in the blanks and it adds it up for you. You can even print it off.
I found it interesting that once both couples confronted what they owed, worked out a plan and implemented it, they were happier and in better communication as a couple. They were also WAY less stressed out.
This year, let’s say you want to make a New Year’s resolution to pay off debt. 2009 is the year that you are going to make inroads on paying down debt. What a concept.
How do you get – and stay – motivated, you ask. The first thing I would do is to make a graph like the one below. Let’s say you have $15,000 in debt at 10% interest. Debt Payment calculator here.
According to this calculator, using minimum payments of 2.5%, it will take you 265 months to get rid of your debt, and you will pay $7,388.58 in interest. Using fixed payments of $700, it will take you 24 months to get rid of your debt, and you will pay $1,593.02 in interest.
Make a graph showing the debt on the top of the left vertical axis. Then mark off the weeks or do it by months. If you figure you can pay off $700 per month including the interest you will be charged, then make a line from the $15,000 mark at the top left and then slope it down to zero at the end of 24 months. See the graph for an example.
If you fall short, you’ll have to sell something on eBay/Craigslist to make your target or do something to make extra money. Try to negotiate a better rate with your credit card company. Stay on/below that line.
My brother and I were discussing the dreaded four-letter word: DEBT.
Here is what he had to say:
Look at what you are wasting in interest over the years.
If someone was carrying $10,000 in credit card debt, and just paying minimum payments or not much more, and keeping the balance up there, they are paying a lot out in interest over the years.
At 24% (and some are higher) that would be about $2,400 per year, or $24,000 over 10 years. I think the way they figure interest makes it even more but this is a basic way to figure it. There are a lot of people who have more than $10,000 in credit card debt.
Then you add in the interest on your car, your big screen TV, and other stuff (like car payments), you may be spending $50,000 to $75,000 in interest over 10 years. Go out 20 or 30 years, and invest that money and you’re a millionaire.
Credit Canada has a debt calculator here showing the interest you will pay.
I asked my step-daughter-in-law for her take on the subject:
Another point to bring up is those people who are saving money instead of paying off debt. They should just pay off their debts first because they are paying higher interest than they are earning on their savings. If you have more than one card, pay off the highest interest one first. Don’t get behind on the other cards. When you’ve paid off the highest interest card, cancel that card and start on the next one.
From my brother:
I once had an uncle named Harry,
Had mortgage and credit to carry.
He paid it all off,
while others did scoff.
Now debt free, cash rich is uncle Harry.
_______
There once was a cheapskate named Drew,
and his bank account just grew and grew.
He never bought crap,
and said credit’s a trap.
He had frugal ideas by the slew.
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