Welcome to Part 2 of my series on Debt-free Living.
If you missed Part 1 be sure to read this post, which describes the early years of our marriage. This week I'll give you the inside scoop on our money mistakes. Yep! We made a few. Knowing what we did wrong may help you avoid the same errors.
By early 1989 we were happily ensconced in our 550 square foot, 1 bedroom, 1 bathroom, 1 closet house. We were living within our means, writing down expenses, and saving money. But every single month, we were making two major money mistakes which would hamper us for many, many years.
Our Mistakes Begin!
Even though we didn't start married life in a hole of debt, we did begin by basically clawing our way through one month, trying to survive to the next! Eating out quickly became a distant memory. We drove by Starbucks just to smell the coffee and then went home and made our own. Every paid subscription went the way of the dodo bird. Attending plays, the symphony, or pretty much anything else that cost cash became a foreign concept. We took lots of walks and discovered that when we saved all the coins we found on the street in a special jar, we could amass enough to buy ice cream as a special treat about twice a summer. Believe me when I tell you that I went to unbelievable lengths to save a buck.
Mistake #1: We didn't give every dollar a job.
The error of our ways didn't have so much to do with how we spent money, but with how we viewed what was left over at the end of each month. We had no written short, medium, and long-term goals. We didn't give each dollar a job to do. As we lived lean, nickels and dimes did begin to add up to dollars. But, without any "labels" on that mound of cash it was all too easy to overspend when replacing a car or taking a vacation. It appeared that the money was there to do these things. In short, we were not being intentional with our money. So, we spent part of that big pile of money that should have been earmarked as a house down payment.
You see, after we had lived in our little white house for about three years, I got the "house-buying bug." I went to my first open house up the street from where we lived. I was bitten and smitten. It was old. It was spacious. It had character. It had potential! From that point on, I ate, slept, and dreamed of having our own home. This was when I discovered that viewing our leftover money as "one, big pot of gold" was a problem! That money was not separated into jars labelled: "car replacement", "emergency fund", "or "vacation" In my mind our savings was now one, big, glorious, green pile of H.O.U.S.E!
Mistake #2: We didn't divide our"pie" into smaller slices.
Much later, I figured out that we had to divide the "pie" of our savings into an awful lot of slices. Panic immediately threatened to ensue. But, it's like climbing a mountain. You do it one step at a time.
Approach your "short, medium, long term goal list" like you would attack debt. Dave Ramsey describes a debt snowball. His formula is also effective when saving for future goals. If you have a couple that are small and fairly easy to meet, save for them first. Throw all the extra money that you can find each month at those goals. When you meet the goals, it will give you momentum to reach toward the next ones on your list.
Then, combine the money that you were throwing at the two smaller goals, and throw it at the next goal. Pretty soon, in a systematic way, you will have saved for a number of future goals. Retirement is a "low and slow" strategy. Compound interest is your ally in this goal. If you are fairly young, even a little money, over a long period of time, will allow you to retire with dignity. Read my review on Retire Inspired , a fantastic resource on planning for retirement, no matter what your current age.
Here's what we learn from today's post:
Whether you are gloriously upper-class, comfortably middle-class, or challengingly lower-class, each dollar you make needs to be given a job to do. Pretend you cash your weekly paycheck and get a stack of $100 bills. You could take out $200 and label it "food" or $100 and label it "gasoline". That's giving each dollar a job to do! My very, very favorite FREE money managing tool is Every Dollar, from Dave Ramsey. There is a paid "plus" feature, which links directly to your bank accounts. I use the free version and simply manually type in my expenses. I can create a monthly budget, track each of our future goals, and see instantly how close we are to reaching them. I can tell my husband in about 30 seconds exactly how much money we have saved toward a new car or new living room furniture. I love it! Every Dollar gives every single dollar a "job". So, I will never again be in the position that I was in after 3 years of marriage, with a stash of cash, not knowing how much of it I could use as a down payment on a home.
Next week I'll tell you how we managed the house hunting and paying for our first home. We paid off our 15 year mortgage in 5 years!!
Until then, if you have any questions or comments, I'd be happy to field them.
Remember, do all to the glory of God,