Debt $ense

Aside from an odd look from the bank teller yesterday morning, the $5 bills and pocket box budgeting is going well. I tweaked my initial ratios among the categories and that seems to be helping.

Not only that, but when I pulled it out to get money at the coffee shop while talking to a job candidate today, she asked about it. When I (briefly) explained, she thought it was a cool idea.

For those who didn’t come here from my personal blog, a brief explanation is probably in order:

A few weeks back, I decided to try a new way of handling my money so less of it “disappeared,” as cash has a tendency to do. I get my $100 for two weeks out in $5 bills, and divide them up into six categories: food, vacation, savings, fund, crafts and household. Food gets half the money, and then I divide up the rest. To keep it organized, I spent $1.39 on an index card holder from Target with six section. The bills are the perfect length to fit in and the “box” is only about 1 1/2 inches thick, so it fits in my purse fine.

In case you’re confused, the savings pocket isn’t for my weekly transfers from checking, but a place to stash “extra” money so I can collect it and put it toward an extra CC payment each month. It also holds checks waiting for deposit and deposit slips so I always have those handy.

Now that everybody knows what my “pocket” system is, here’s the rest of the update.

I’m not always keeping my spending exactly from the pockets it’s supposed to come from, but the categories are making me think a lot more about not only what I spend my money on, but also if I even should spend it. This is especially true in the food category because eating out has to come from there and makes me realize what a big impact that has on my cash flow. ($100 for two weeks, not including gas, has to stretch pretty far.)

Purely from making me think and consider my spending, it’s a success. It’s also making it much easier to save smaller amounts from my weekly money, which I hope will translate into paying my credit card off faster. It also has made me think about where money for things like running sneakers will come from, so I’ve started envelopes at home to stash money into from its category so that’s “off-limits” when I’m in a store.

Two conversations with co-workers this week have me musing on what I call selective indulgence.
Basically, it means building in a little splurge to make the tight budget required to pay down debt palatable. And when I say little, I mean little. For my co-worker buried under student loan debt, it’s coffee from the coffee shop instead of his kitchen once a week. One friend vowed that once she finished grad school, she would only drink real diet Coke, even if it meant cutting expenses other places. For me, it’s my collection of Republic of Tea flavors instead of generic black or green tea.
Now, while those all revolve around caffeine, your splurge doesn’t have to. It can be almost anything inexpensive that makes you happy. The key, it seems, is choosing something that lets you say, “Hey, I can handle brown-bagging it while everybody else goes to the Mexican place for lunch.” It seems that by giving yourself permission to not scrimp and save in one area, it makes the other sacrifices easier to bear, which means you’re less likely to splurge on something that really will bust the budget. And that means a lot more money saved in the long run.

I was reading a post from this week’s Carnival of Debt Reduction about motivation, and I figured I’d mention a few ways I manage to stay motivated.

1. I like seeing progress. When I log into my credit card account online each week and see a lower balance, it reminds me how great I’m going to feel once I’m not putting almost half my salary toward paying off debt.

2. To take advantage of that, I have an Excel spreadsheet set up that has each week’s payments, plus interest charges, new balance and weeks to pay it off. I spend a little time each week considering how I can increase the weekly payment, then running the number to see how much earlier I can pay the balance down. That also helped me decide that eliminating my United Way donation next year isn’t worth it - I’ll be fairly close to paying it off, so the extra $10 a week only cuts a week or two off - but that getting rid of internet at home might be, depending on how a couple things develop at work, including my annual evaluation/raise.

3. I pick up the free real estate section we publish every two weeks and look at houses. Planning to buy a house is ultimately what pushed me to get serious about paying off debt, and window shopping reminds me how good it will feel when I can finally pick up a copy and plan to buy one of the houses inside it. A new(er) car also is on my list, so I try and plan at least one route a week past the dealer.

4. I try and build in little indulgences that make the bigger sacrifices not so painful. For example, my cereal comes out of the dented bin at Kroger (89 cents a box last week!), but I splurge on Republic of Tea for my office tea collection so I’m not tempted to run out to one of the many downtown coffee shops.

5. My 401(k) balance is available online, and when it finally got higher than my student loan balance, I celebrated. It should be higher than my credit card balance by the end of next month, which is another benchmark to celebrate. And I’m looking forward to the end of the year, when my net worth should finally be positive.

6. I blog about my progress and keep one friend up to date. Knowing I have to publicly own up to backsliding makes me much less likely to do it.