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.

I was checking my various accounts online last night and realized I’m just a few weeks away from getting my CC balance under $8,000. In the grand scheme of things, this is still a lot of debt, but it means I’ve managed to knock about a third of my balance off in the last few months. It’s been a long time since that balance has started with a 7, and I’m looking forward to the day when it does. It will be a day to celebrate.

Why?

Not because it means I’m done, or I’m in good shape. But because it’s a milestone, a point at which I’ve made noticeable progress. Round numbers are good for marking progress because they’re “pretty.” So even though it’s no more progress than any other month, it’s something I can point to. Dropping below $10,000 and staying there was one milestone for me, as was $9,000.

Breaking $5,000 on my 401(k) was a milestone. I’m about to break $8,000 (going to other way) on that account, and I’ll be ready to celebrate that too. Not only will it mean I’ve passed a round number, but also that I will have saved more than I owe.

$7,750 on my CC is another milestone because it means I’m below the 50 percent mark against my CC limit. I’m on track to hit that in early June.

Other milestones I hope to celebrate this year:

mid-July: less than $7K on my CC
late August: more than $9K on my 401(k)
early September: less than $6K on my CC
late November: less than $4K on my CC and more than $10K on my 401(k)
Year-end: My net worth finally becomes positive!

I don’t know what I’m going to do for these milestones to celebrate. It might be as simple as giving myself a free day without work or chores or any responsibility. Maybe a trip to the coffee shop instead of making my own tea. Or maybe a ball of the cool yarn I’ve wanted to try. As long as it doesn’t undo the progress I’m celebrating, the sky’s the limit. All that matters is I reward myself in some small way for taking enough bites to swallow a noticeable portion of that elephant so I remember I’m that much closer to the day I can make that last CC payment and celebrate my freedom from “bad” debt.

Now that will be a milestone worth noting!

My boss has a saying about big tasks: Eat the elephant one bite at a time. In other words, break big tasks down into little ones. It sounds a little goofy, but I’ve found it works.
It’s a good way to handle saving for big items. Just put a little money aside each week and you’ll be able to pay cash, not add to your plastic. Now that I’m running again, I know I’ll need to replace my shoes in a few months, so I took $10 from this week’s paycheck and put it in an envelope. If I do that each paycheck, I’ll be able to save about half the money from my weekly budget and only need to take half from my “pinch-point” savings account. (That’s the one that handles irregular expenses like car insurance.)
It’s also a good way to think about paying down debt. If I think “I have to pay $8,500 to my credit card company,” it seems overwhelming. But when I break it down and say “I’ll pay $137 each week,” it suddenly becomes much less so. It also makes me more vigilant in searching for places I can take another “bite” out of the debt because I know smaller amounts will make a difference. $4 here and $10 there has gotten me $77 in the last week for an extra payment. An extra morsel like that each month will make for a nice debt-free dessert this time next year.

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.