Is being debt-free really the be-all and end-all to financial well-being?

Maybe.  Maybe not. 

It really depends on the interest rate.   Conventional wisdom says that you should quickly pay off debts with interest rates higher than 5% above the 10 year T-note rate (which was around 2% as of yesterday afternoon).  So, pay off anything above 7% should be a priority after your emergency fund and getting any company match on 401k contributions.  That’s kind of a no-brainer.  The average return of the stock market is 7%, so absolutely take the guaranteed money saved by paying off high-interest debts quickly.

Lower rate debt is an entirely different beast.  I’m pretty debt averse.  I don’t exactly have Dave Ramsey levels of debt-hate, but I don’t love taking it on.  And if I do take it on, I want to pay it off ASAP.  And credit card debt is a HUGE no-no unless it’s a calculated purchase on a zero-percent interest and I can commit to paying it off at least three months before the interest-free period ends.

Along that line, I did take on a fair amount of debt last year.  In March, a tornado dropped a couple of trees on our house.  The insurance took care of a lot of things, but for various reasons, we decided to go ahead and pull the trigger on some renovations that we’d been wanting to do and borrowed some money to do it.  In November, my husband was in a wreck that totaled the “family car.”  It was paid off, and the insurance covered the loss.  But we ended up replacing it with the same exact vehicle, only with 60k fewer miles.  We borrowed a little bit to make up the difference.  Were these expenditures necessary?  Not really.  Did it make me happy?  Yeah, it kind of did (well, I didn’t really want to replace my car…I loved her…but maybe I’ll get a few more years out of this one with the lower miles).  Both loans are very low interest, around 1-2% (I love my credit union).  The reno loan was also a 12 year loan, so payments are super low.  I never intended for it to take that long to pay it off.  My goal was 4 years and at one point it looked like we might do it in two, but OT has recently dried up.  We’ve been throwing every extra cent we have towards those for the last 10 months and have cut four years and more than $1000 off the interest that we’ll wind up paying back.

The math says that I should be maxing out my retirement accounts before paying these off.  With the extra money we’ve been throwing at them, we still have 7 years left if we only made the actual payment each month.  We have budgeted $1500 per year of base income (i.e. non-overtime or side gig income) to extra payments.  Over seven years that would save us $826 in interest.  But, if instead we made the actual payment and put that $1500 into retirement accounts, assuming that 7% return, we’d earn nearly $2500 in interest over those 7 years.  So we’d earn about three times what we’d save. 

This is where the psychology of money comes into play.  I absolutely know that following the math is the “right” thing to do.  But I hate, hate, HATE being in debt and I keep trying to convince myself that paying off debt is the “guaranteed return.”  I don’t want to make a payment every month (actually every paycheck since it’s a bi-weekly payment).  I want the liabilities column on my net worth spreadsheet to be $0.  But at the same time I want to do the thing that’s most efficient based on the math.  All that to say that I’m having a really hard time pulling the trigger on making this change.  It’s not going to make or break retirement.  By the time I can retire, that extra money should really represent only a small portion of my portfolio. 

The Fiscal Year Cycle

I can’t be the only one who has a defined cycle of my fiscal year, right?  Right?

For me, the cycle starts in about September.  September and October are when we first start getting word on stuff like how much money do we get to shelter in TSP/IRA/HSA accounts and how much the insurance company is going to screw us this year.  If we’re lucky, we’ll know whether or not we’re getting a COLA and whether or not that’s going to cover the screwing by the insurance companies (hint, it usually doesn’t).  If we’re not lucky, we get three or four more months of fuckery by Congress while they try to pass an appropriations bill. 

November means open season.  This is the time of the year where we realize that hindsight is a bitch and we’ve been paying too much.  But, there’s still time to right the ship.  In this vein, we’ll likely be switching to a HDHP with an HSA this year.  November is also the time that I realize how much I hate mindless consumerism.  And the mall.  The mall sucks. 

Late December is the time to shake off the holiday spending hangover and start making changes to my contributions, withholdings, and allotments.  By this point, I have a number in mind that my net paycheck should hit.  From there, it’s just a matter of tweaking things until I’m in that ballpark. 

January is the beginning of tax season!  I’m a total tax geek.  My first job in high school was as a tax preparer.  I was 18, and looked 15 on a good day.  I’m sure that it was unnerving to have a little girl doing your taxes for you.  I’ve considered going back and doing that as a side gig.  For my own taxes, I’ll start filling in what info I have by the first or second week of January based on last paystubs and whatnot.  But, it’s usually the middle of February to early March before I’ve got all the paperwork I need to actually file.  This gives me plenty of time to look over my taxes and see if there was anything that I could have done better and make those changes going forward. 

April and May is when I start fine-tuning my budget for the following year.  My budgeting method can best be described as zero-sum budgeting on steroids (or crack, according to my husband).  I try to have my budget forecasted out 12-18 months at any given time, so I start working on my upcoming budget right after tax season ends.  My first goal is always to cut 1% off of expenses for the year.  Some years I’m able to do so and some years….not so much.  Every cut in expenses is balanced by a cut in net pay.  Remember how I said that I had a number in mind when determining contributions and withholdings and shit?  This is where that number comes from. 

Once the budget is balanced and I’m satisfied with it, I run the working plan for the upcoming year.  This worksheet is part checking register, part spending plan, and part to-do list.  It generates a list that looks an awful lot like an old-fashioned checking register.  The transactions are all hypothetical at this point.  I juggle transactions around, as needed, until everything is being paid during the correct pay period.  Nothing’s late and I know if and when I’m going to have a cash flow crunch.  It allows me to keep as little excess cash in my checking account as possible.  I try to have that done by 1 June at the latest. 

That brings us to the doldrums of the fiscal year.  From June until September there’s really not a whole lot that needs to be done other than to just keep on keeping on.  For someone who loves playing with their money this part of the year is EXCRUCIATING!  There’s only so much planning one can do without concrete numbers.  Running a thousand different what-if scenarios will drive one up the wall.  This year, I’m passing the time by researching ways to cut down or eliminate single-use plastic and paper products at my house or at least pay less for the ones that I can’t convince the rest of the family to give up.

Grocery Shopping....Part 2

So, last week I explained my process for meal planning and grocery shopping and I mentioned that I was going to see if going out of my way to shop at Aldi was going to add value to my life.  Well, the results are in.

First of all, Aldi is a long way from my house.  Twenty miles to be exact.  It's also in the most congested part of the county.  This is a big reason why I haven’t embraced Aldi.  I lived in a third-tier city for nearly a decade during and right after college, but I’ve really started to hate traffic since moving back here.  I also drive a big honking SUV (but I love her and she’s paid off).  At current gas prices, it costs me ~$5 and, most importantly, at least an hour round-trip to make the trip.  If I go after work, Google Maps tells me that it’s only 4 miles out of my way to stop on my way home.  It sure feels like it’s a lot further than that, but whatever.

Armed with my “reusable” bags (i.e. the handful of plastic bags left from the last Walmart trip), my quarter, and my shopping list, I set off.  Of the 35 items on my shopping list, 13 were less expensive at Aldi than Walmart.  Ten items were either more expensive or came in packages that were larger than I needed.  The Duke's mayo (one of the few things I'm brand specific about) was the same price and there were 11 items I couldn't find or were out of stock. In some cases, this is an imperfect comparison due to package sizing.  For example, I had initially ordered three lbs of carrots (I swear my kid’s going to turn into a bunny), but Aldi only offered them in 2 lb packages.  And it was actually cheaper to buy four lbs from Aldi than 3 lbs at Walmart.  And some of it was a no-brainer, like milk and eggs.  It took nearly an hour to get everything and check out/bag my groceries.

However, my total savings was about $8.50, not including the watermelon and pancakes-on-a-stick that were not on my list.  When you add in the aforementioned impulse purchases, I came out more or less even.

So the final verdict is that I want to like Aldi.  I really, really do.  And if the grocery gods would see to it that one were built near my house, or at least on my way home from work, then I'd hit them up all the time for coffee, milk, and vegetables.  For that matter, I'll probably hit them up if I'm in the area anyway.  I like the smaller store format.  I love the less-is-more philosophy when it comes to everything from packaging to employees.  It's just not something that works for me right now.

Grocery Shopping.....Part 1

Can we talk about grocery shopping?  This has always been my go-to category when I needed to really tighten the belt.  But I've kind of reached a point where I'm not sure I can reasonably cut this budget down any more without resorting to my college diet of ramen noodles and Cheerios.  Between meal planning and buying in bulk when I can, I've pretty much got a system down where I can feed three people for $75 a week, though the boys do tend to bitch about not having "good" snacks.  Plus, I'm eating low carb, so that poses an additional complexity.  Here's how I do it:

The process usually starts with figuring out what the heck we're going to eat for the next two weeks.  I use an app called Pepperplate to organize my recipes and menus.  It even generates my shopping list.  I can also plan which meal to make on which day so I plan to make the meals with the stuff that's likely to go bad sooner earlier rather than later.  The "what's for dinner?" question is solved quickly as well.  It's pretty awesome.

I try to plan ten dinners for every two weeks (plus a few breakfast type things and lunches for the kiddo).  Of these ten , two of them will be meals that can be made in batches and frozen.  This week I'm making a creamy, spicy chicken thing for the crockpot.  I'll make three or four of them, eat one this week and put the rest in the freezer.

Freezer Number 1.  I've just stocked ground beef apparently

But wait, why only 10 meals?  That's 5 meals a week.  This is where the freezer meals come in.  I've built up quite the stock of freezer meals, so one night a week we plan to eat something out of the freezer stash.  One other night is what we call "Open Night."  That means that everyone, including the 6 year-old, can open the fridge, open the pantry, or (rarely) open the car door to go to the store/restaurant.  That can mean leftovers, or a freezer meal, or we can get creative with what's in the house.  A lot of times this means that the carbivores who live in my house have some kind of noodle-y creation or cheapo frozen pizza.

Next, I let Pepperplate create a shopping list for me.  I go through the house and check off anything that I already have.  This usually cuts my list in half and mostly prevents me from doing stupid shit like buying onions every time I go to the store because there was that one time I was out of onions and now it's stuck in my head that we need onions....or is that just me?  I take my shopping list (and Alexa list because I've finally trained the rest of the members of my house to put things on the list as we run out) and I plug it into an online grocery shopping portal.  I have a confession to make.  I love, love, love being able to order by groceries and then pick them up without having to go into the store.  I'm an introvert who just doesn't want to people, especially after a long day at work.  It also cuts impulse spending down to nil.

In addition to avoiding humanity, having an online order also allows me to establish a baseline price for my shit.  Because something might seem like a good deal until you realize that you'd be going out of the way to save a quarter.  It's at this point that I finally check the other stores for their weekly loss leaders.  I know this is kind of backwards from how a lot of experts say it should be done, but hear me out.  If the loss leaders are a great deal and it's something that I can store and/or use up before their expiration, I stock up.  I'll check these items against my online order and delete anything that I will be stopping for elsewhere.  If I decide it's worth it to stop for one thing, I'll also check everything else on my list.  It might not be worth it to me to stop at the little corner store that's a mile out of my way for 20 cents off lemons, but if I'm going to be stopping for $5 off ground beef, I might as well get the cheaper lemons too.

So all this is to say that, for me, it doesn't necessarily matter if chicken isn't on sale when I'm planning my meals because chicken was on sale three weeks ago and I still have a ton of it in the freezer.  I'll replenish it when it goes back on sale.  I try to keep, at minimum, a working supply of chicken, beef, and pork on hand.  Having the bulk of my groceries already ordered means that I have a good idea of how much I have to work with that week for bulk buying.  If my budget is $150 and my regular order is $117 then I know I have $33 to spend on loss leaders.  And some weeks, the loss leaders suck.  In that case, I'll either see if I'm running low on something and buy the family pack for a slightly better price or stick the surplus into a sinking fund so that if there's a smoking deal a few weeks later I can really cash in.  It pays to know your local sales cycles to know when certain things are likely to go on sale.

Now it's just a matter of ordering everything else and picking it up.  And prepping everything for storage.

BUT......................

This week I thought I'd give Aldi a real try.  It's not that I hate Aldi or think that it's icky.  On the contrary, I have liked it every time I've been in.  I really like their coffee.  But the closest one is 20 miles from my house and on a really congested intersection.  It might as well be across the world most days.  Even going after work when I'm already sorta, kinda in the area seems like it's a long way.  However, Google Maps tells me that it's really only 4 miles out of the way.  Even with my big ass SUV, that's like 50 cents worth of gas.  So, this afternoon I'm going to give it a try.  I've got my reusable bags.  Okay, it's actually a bunch of plastic bags from other stores that I'm going to reuse for this...that counts right?  I've got my quarter.  I've got my shopping list already loaded in the Walmart app so I know what my target prices are.  I'm very curious as to whether or not it will end up being worth it.  Stay tuned for part two...

Playing Poor

I just finished a book called Two Dollars a Day.  It's part of the Prime reading library.  I highly recommend it.  Honestly, it wasn't what I was expecting it to be, but it was fairly eye-opening.  The book follows the experiences of a handful of families in the United States living on $2.00 per day per person.  For the record, that is the threshold that the World Bank uses to classify someone as living in "extreme poverty."  It’s the kind of poverty that you don't expect in the modern US, but exists in shadow economies in big cities and small towns and rural areas.

It kind of hit home for me because I’m only maybe two generations out from that kind of life.  My grandfather told stories of life as a boy on the farm during the Great Depression and how it didn’t matter because they were poor before the Depression, they were poor during it, and they were poor afterwards.  He did manage to work his way out of that and into a decent mid-century, middle-class life.  I wish I’d paid more attention to some of the skills that my grandparents tried to teach me instead of having to learn them from YouTube videos.  I live in one of the 10 poorest states in the country, so the kind of rural poverty that the book talks about is something that I’ve grown up seeing in the countryside.  

That got me thinking about how I'm handling my finances.  I've been following the FIRE (financial independence, retire early) movement for a while now.  I don't know that I'll ever have the RE part down, unless I am offered an early out, but the FI part intrigues me.  I think it’s a natural extension of budgeting, especially for a numbers geek that enjoys budgeting and playing with my money.  

If you only count what I spend on non-savings expenses (i.e. don't count what I save each month even though those are listed as expenses in my budget), I'm spending about 75% of what is considered average in my state and only a few hundred dollars a year beyond what the expanded Medicaid cutoff would be if my state had opted in.  All that is to say that I live quite a bit under my means.  I was a broke college kid for basically my entire 20s, and I never really grew out of it.

But I'm just playing poor.  What does that mean?  It means that while I often feel and live like I'm living paycheck to paycheck, an unexpected emergency is not going to send my life into a tailspin because my entire paycheck isn’t being eaten by the daily necessities.  It means that I don't have to sit up at night and worry about money, and when I do it's because I'm trying to squeeze another 1% into savings.  It means that my kid won't have to suffer because he's sick, but the only pediatrician in town that takes his insurance is closed and I can't afford to private pay anywhere else.  I will price compare everything to get the best deal, but he will have all the school supplies on his list.  His clothes might have been bought at thrift stores and consignment sales, but he will have an overabundance of them and they will be clean.  It means that I will have what is apparently a tiny grocery budget and eat out very, very little.  But there will be more than just ramen noodles and beans and rice.  For that matter, I'm able to do that because I can afford a working fridge and freezer and stove.  And if one of those goes out, we can buy a new one, but I can guarantee that we will do everything we can to fix the old one first.  

Privilege is a hell of a thing.  For some reason, a lot of people have an almost visceral reaction when it's pointed out that they benefited from it.  Like, we get it, you work hard, but so do plenty of other people who are simply trying to keep their head above water.  They might even be working harder than you are because being poor, truly poor, is HARD.  It's expensive.  Simply acknowledging that you have been lucky doesn't take away from your accomplishments.  I fully admit that I am lucky enough to have a ton of advantages that make FI, and maybe even RE, a realistic and achievable goal.  It's great that you pulled yourself up by your bootstraps, but please acknowledge that you were lucky enough to have shoes to begin with.  

Confession Time

As much as I'd like to pretend that I've always had my financial shit together, I'm here today to confess that that's not really the case.  Now, I've always kind of been a saver. As a kid, I saved my allowance for months to buy the Super Nintendo and was livid when my mom made me share it with my brother who had spent all of his allowance. By college, I had managed to put up a small savings account, which came in handy when the store I worked at closed and I didn't have a job for awhile.

Then, because I was young and stupid, I married a man who was terrible with money.  There would have been fewer red flags in Soviet Russia than what he was waving.  He came from Old Money.  The kind that had long since dried up in his family line, but because he still carried the name he felt like he had to keep up with his cousins.  He thought that as long as there was money in the checking account, it was free game to be spent.  I went from having no credit cards and some savings to having no savings and a couple of thousand in CC debt.  I'm not blameless in this.  I didn't have the lady balls to stand up to him.  Any time I did, it turned into a full-on manchild tantrum and for awhile it just wasn't worth it.  

I learned a lot about budgeting and being frugal during this time.  I pretty much had to be frugal at this point in my life just to keep the balancing act going. I learned how to use coupons and stretch a grocery budget.  I knew how to work the CVS system because it was the only way I could afford milk every week.  I tweaked the budget spreadsheet into an early iteration of what became the cashflow tool.  It was the only way to juggle bills and make sure that nothing got cut off and that the mortgage got paid.

When I was 26 I left him and moved back home.  I walked walked away from the house, the mortgage, his car loan.  I figured that in seven years I could have a chance to be happier and have terrible credit that was getting better or I could be miserable and have terrible credit that was getting worse.  I knew that he wouldn't pay them and I was mostly right.  The mortgage payment I made before I left was the last one that ever got made.  The house was gone before the divorce was even finalized.  Luckily, this was at the very beginning of the housing crisis, so the bank was still issuing full-credit bids on foreclosures so there was no deficiency on it.  I suspect that things would have been much worse just a few months later.  

At that point, we had about $10k in credit card debt.  Half of it was on cards that were in my name with him named as the authorized user and half in his name with me as an AU.  The first draft of the divorce decree that his attorney sent over demanded that I cut a check for "my half" of the credit card bills and he would take care of paying them.  I'm not sure my attorney has ever seen someone laugh that hard in his office before.  Even if I could have conjured that kind of money out of my ass, I trusted him to pay my bills about as much as I trust gas-station egg-salad sandwiches.  In the end, we each got the ones in our respective names.  I had some late (very late) payments on them, but eventually got them paid off about four years later.   

He managed to keep his car for about 8 months, but it eventually went too.  It sold at auction and there was a deficiency, but I was never contacted about it.  He filed for bankruptcy a few days after the car was picked up, so it's likely that that helped me out.  I also spent several years under the radar.  On paper, I owned nothing.  I sold my car to my dad.  I lived with my parents or in my grandparents' house.  I had a checking account that was always empty because I went back to school.

I'm on the other side now.  My credit is awesome again.  I'm remarried with a kiddo.  My new husband is...better....with money.  But we still have separate finances.  He does have some issues with impulse spending that can be serious if not kept in check.  I know that if shit hits the fan that I can take care of myself and my son.  Life is good and getting better.  I'm never going back there again.

How I Got Here

It's pretty much a given that most people's financial education starts at home. Some people learn what to do with money. Some people learn what NOT to do with money. I learned a little of both.

My parents aren't exactly terrible with money. They made a lot of the typical knucklehead moves like buying a timeshare or refinancing the mortgage multiple times. They probably shouldn't have credit cards as they tend to go through the cycle of:

1.) Run up the credit card balances
 2.) Do something drastic to pay them off (see multiple refis above)
3.) Close all but one "for emergencies"
4.) Rinse and repeat

That being said, they've never been evicted and they've never defaulted, that I know of.  We never went hungry.  They didn't have to worry about saving for retirement because they both have pensions, though dad did a handful of part-time gigs starting basically the day after he retired from his full-time government job.

My maternal grandparents were great financial role models. They were stereotypical children of the Depression, though my grandfather was quick to tell you that the Depression never made a difference because they were poor before it happened and poor afterwards. They used everything they could and when they were done with it, they used it for something else. My grandmother made a lot of my mother's clothes when she was a child (and a few unfortunate outfits for me as a kid). They grew food and canned/froze it for the rest of the year. No lie, when I cleaned out their deep freeze in 2010, there was frozen corn that they had grown in 1998. And he would have insisted that it was still fine. They invested. My grandfather had a monthly ritual of calling around all the local banks to see who had the best CD rates for the one that was coming due that month. I'm pretty sure I get my love of playing with my money from him.

 My paternal grandparents were...not so great role models. Though it wasn't until they passed that anyone had any idea how bad it really was. I mean, as a kid you don't quite understand the reality of the absolute mountain of gifts at Christmas when grandma and grandpa are on a fixed income. My dad was the executor of the estate when we found out that they owed something like $40k on 13 different cards and had already taken out a loan against their house and land to pay them down. I still remember the calls, and the calls, and more calls. The scummy creditors who tried to convince my dad that it was his responsibility, as the executor, to pay them even if it meant paying them out of his own pocket.  I remember some of his very...colorful...replies to that request.  It took months to straighten everything out and, in the end, they weren't able to save the house.

From all this, I can say that I probably got my saver personality from my maternal grandparents. There are quite a few skills that I wished I'd paid more attention to, but at least I have YouTube because my mom paid even less attention than I did. All in all, I'd say that I was very, very lucky to be able to (mostly) learn from watching my parents struggle. I think that my paternal grandparents situation is the one that had the most impact on me. I was 15 when it all went down, so it was still fresh on my mind when I went to college. Because of that, I resisted the credit card companies who were set up outside the university bookstore pushing free t-shirts and pizzas for filling out credit card apps.

At the end of college I fell into the trap of being married to a super-spender.  He had both a drug problem and a keeping-up-with-the-Joneses problem.  I left that marriage with between five and six thousand dollars worth of credit card debt with a foreclosure and a car repo on my credit report.  In what is now a funny side note, when I got the first draft of the divorce papers from his attorney my ex demanded that I cut him a check for "my half" of the credit card bills.  We had similar amounts on cards in each name.  No joint cards.  Seeing as how he had never dealt with the checking account or bills while we were married and wouldn't even know where to start to pay my credit cards, I not-so-politely turned down his "generous" offer.  I'll post about the shitstorm that was that time of my life soon.

After that, I moved back in with my parents.  I took a shit job and then quickly moved on to bartending.  That was about the time I decided that I had to get myself back into school.  I saved up and paid for my first two classes in cash.  Because I already had a degree, most of my general ed classes were already out of the way and there were only a handful of my new major classes that I had the pre-reqs for.  I tended bar at night and went to class in the mornings, paying as I went.

Eventually, I landed a co-op position that allowed me, nay required me, to go to school full-time and work 10-32 hours a week, depending on my school schedule.  They paid books and tuition.  That job transitioned to full-time a week after graduation.  That was 7 years ago.  I still owe them 2 more years for all the tuition they paid, but I mostly like my job so that's not a big deal.  It's also a great paying job for my area with fantastic benefits and one of the best retirement plans available.

I'm remarried with a kiddo now.  He's not fantastic with money, but understands that and lets me handle everything.  I like it that way.