As well-paid, young professionals in the transportation industry, my husband and I were enjoying the typical lifestyle of the demographic nicknamed “Generation Y”. We “went out on the town” often, threw elaborate (and expensive) dinner parties, and bought things that we could almost afford at the time of purchase, but felt confident would be paid off a month or two later. The mounting credit card debt and increasing interest rates didn’t make us flinch- retirement was a long ways off, and we had decades ahead of us to generate income. We justified infrequent large purchases with a dismissive comment along the lines of “Well, that’s the one and only one of those we’ll have to buy for at least ten years!”
As it so often does, Life happened. I became too ill to work as his workplace suffered a managerial shakeup that affected his salary- and naturally our income was swiftly curtailed. In what felt like an instant, all of our bad financial decisions came down upon us, and the money wisdom shared throughout the years by our older peers suddenly made a lot of sense. Our comfortable lifestyle had turned into a survival situation. We both recognized and accepted how it happened, and vowed to never let it occur again.
But how does one go about preventing a financial catastrophe? The answer: you simply can’t. It can, and does, happen to even the most fiscally responsible. My goal was simply to form a system of managing our money, and I couldn’t accomplish that unless I knew where and why every dollar was spent.
It all started with a simple, computer-based spreadsheet. Although I was aware of how much we spent per month on the usual bills- utilities, insurance, gasoline for commuting- we had previously felt no need to determine how much was spent on groceries, entertainment, clothing, and random incidentals. Into the budget ledger I programmed every category of expenditure I could possibly think of, leaving additional fields blank to reflect future categories. Due to the lack of information regarding our past expenses, I decided to wait and observe our purchases over the next two months before assigning monthly budgeted amounts to each category. What I found was unsettling.
As an avid home cook, I was shocked (and embarrassed) to discover how much we were spending per month on fast food- so when the eight-week fiscal observation period was over, I budgeted the fast food section a dollar amount much lower than we had been spending. This self-restriction in one single category had a nearly immediate reward: not only were we saving cash as we began eating more home-cooked meals, we both started feeling better as well!
Next, I was alarmed by how much money we spent during “shopping sprees”. Mind you, we didn’t raid electronics stores for the latest gadgets, or stuff our closets with the latest fashions. Ironically, our one shared shopping vice was second-hand goods. We visited local thrift shops multiple times per week. If there was a garage sale, we’d be there. Again, we fell into the trap of justifying our purchases contrary to our intuition: “But this vinyl album is listed on eBay for $50! It’s an investment purchase!”. Our collection of vintage and antique goods was quite big enough: the habit had to stop. With a new budgeted amount, we found ourselves visiting shops and sales only a couple of times per month, and making deliberate rather than compulsory purchases.
Other categories received a drastic overhaul. Payments to creditors were increased as our overall cost of living decreased. Knowing exactly where every penny allowed us to make truly educated decisions: the key was not just delineating where the money went, but why it went there. Our household finances had finally crossed the line from a passive/reactive approach, to a powerfully proactive stance.
Two years later, we’re healthier, happier, and genuinely confident about our financial situation. Not many people our age can say they’re six months away from being debt-free (along with having a nicely padded savings account)- and it’s all thanks to spending a couple of hours per month typing numbers into a little spreadsheet.