There are a lot of reasons why I am methodical about how we are paying off our debt. Firstly, I’m kind of obsessed with keeping everything organized so I can spend time doing things that are productive and help keep us moving toward our goals instead of spending my time making decisions.
Paying off debt before getting our basic emergency fund funded.
I got so excited last summer about getting out of debt that I took what money we had in savings and paid off all of our smaller debts and wiped out our savings. While it got me really fired up and excited about getting out of debt, it was really hard to build that savings back up after that and more than once we wished we had had our savings. Lesson learned, keep the basic emergency fund in place, or you’re asking for trouble.
Not setting up payments properly
I felt so stupid when I realized all of the payments on my student loans that were above the minimum payments were prepaying my monthly payments instead of being applied to the loan principal. I was wondering why I wasn’t seeing a bigger decrease in my principal so I called to check and sure enough, I had to have them fix it. Overnight my balance on my loans went from $10,440.45 to ___ when I had them correct that. Not a huge difference, but considering all my payments are automatically drafted and I don’t get paper statements I could have paid a lot more in interest if I hadn’t checked on that.
Not paying into our savings as if it was a bill
While Dave Ramsey doesn’t recommend putting extra money in savings (besides your $1,000) while you’re working on your debt snowball, we are. We’re planning on moving in the next 6 months, so when we sat down to get on the same page financially we knew we would need money in savings for deposits on utilities, a new rental house and then just general moving costs. When I added our savings into our list of “bills” every month and took it just as seriously as keeping the lights on and food on the table, we started seeing a huge increase in our savings and in our peace of mind too. Definitely something I recommend to anyone who is trying to add some financial stability to their life, even if it’s just $50 a month! Every little bit you don’t spend keeps your family that much more financially secure.
Not budgeting for variable bills correctly
During the winter time we kept the house a lot cooler and our electric bills were between $80 and $90 a month. In the summertime they are closer to $140 or $150. If had been wise I would have been budgeting for higher rates so when the higher months came it wouldn’t have been a big deal. In the lesser months we could have turned that extra money into debt payments or savings very easily instead of being surprised in the summer when our bill went up so much.
Not keeping regular and irregular bills separate
I have a few weird bills that get billed quarterly and I regularly forgot about them, so when it hit our bank account it caused us to be tight. That stank, so I setup our “irregular bills” checking and that solved that problem. I was able to break up our bills that are billed at different intervals into monthly amounts and just let them sit there. It’s easier to think of paying my trash bill $10 a month instead of trying to remember that it’s $30 every third month. It actually also helped my business expenses too, for programs like Aweber that I use for my email newsletter.
Trying to keep my bills in my head
For a while I set all of my bills to be paid on the 15th of the month, to simplify things, but there are some things like Netflix and Dropbox that I don’t have control over when they bill, which meant I had complete chaos happening. I tried to remember what came out when, but that just didn’t happen.
- Use PayPal to organize small miscellaneous bills was a great way to keep those little transactions from being a nuisance. I made a list of anything that gets paid monthly that’s less then $50, all of those items totaled to $120. Instead of keeping track of all those little things I just put the $120 in PayPal each month like it’s one big bill to pay and then I know they are all taken care of. Of course, then I use the 1% cash back for debt payments, which doesn’t hurt any!
- I got a printable monthly bill chart and added it to one of the front pages of my planner so I could easily keep track of what bills had been paid when. Ian can also see them, which makes it easy for us to know where we are financially at all times.
Keeping emergency savings attached to my checking account
It’s too easy to transfer money when you want to spend “a little extra” when you have your emergency fund the same place as your checking accounts. So I have tried a few different thing that worked well for me at different stages that all helped me keep my emergency savings accessible without being too easy to use for non-emergencies.
I switched to Simple banking for our emergency fund. It’s fun because I can keep my savings all in one place but I can also keep them “separate” as if they are in separate accounts. The card stays in my Family Management Binder unless there is an emergency, when I can take out the card and use it without issue. But otherwise I don’t have access to spend the money, I’m not tempted to spend it if the card isn’t in my wallet and I can’t see the money when I login to Mint or my banking app.
Keeping a budget on paper
Paper budgets are nice for scratching out the basic budget, but unless you feel like counting pennies I suggest you use a program like Every Dollar or Mint.com to keep track of your every transaction for you. At the end of the month if you have ‘extra’ (like from budgeting more than you needed for your utilities) then you know how much you have to put towards debt or your savings goals. Every Dollar is great and has a beautiful and uncluttered interface, but it’s paid if you want to have your bank transactions synced, which was a must for me. Mint has all the same features for free, like budgeting and goals, but it does have ads… so yeah. I am perfectly happy with Mint, having used both services to manage our budget.
I’m sure we’ll keep making mistakes along the way, but these have bene pretty simple and easy to fix. Where have you had struggles with your budget, or your debt-free journey?