In April 2006, I came very close to a complete financial meltdown. I had five figures worth of credit card debt, a pile of bills, and no money in my accounts to pay anything. It got so bad that I wound up spending most of a night holding my son, hoping something would change.
Roll forward about two years. We’ve paid off both of our vehicles, eliminated all of our credit card debt, moved into a house, and reduced our student loans significantly. How did we do that in such a short time? Here’s the full story.
We were making good money to begin with. We both had jobs, both above the average salary for a person living in Iowa. Combined together, we were making far more than my parents and almost as much as my wife’s parents, so income was not a problem.
The biggest problem was that we were spending money in completely idiotic ways. We’d buy five DVDs a week. I bought a new video game or two every week. I was constantly upgrading all of my electronic goodies – new computer equipment, new software, new gadgets, and so on. My hobbies were expensive, too, and I didn’t think much about just dropping cash on them – $500 for a new bike on a whim, hundreds on golf clubs and golf balls, hundreds playing Magic: the Gathering, a huge vintage baseball card collection, and so on. We ate out almost constantly, and not cheaply, either – we were familiar faces at some very pricey restaurants in the area. We’d buy expensive gifts for others all the time and not worry about it.
In a nutshell, our spending was completely out of control. The one area where I was actually making good financial decisions was with my retirement, where I was socking away as much as possible into a number of instruments.
My first step when things got bad was to sell off a lot of the stuff I had accumulated. Gone were mountains of DVDs and video games and gadgets and other stuff. I plowed through all of the items I’d accumulated through my hobbies and sold almost all of it. I cleaned out closets of stuff. I sold them fast, too, so that I could pay the bills at the moment and make some headway against the debt. This fire sale actually netted thousands of dollars and alone put a big dent into the credit card debt.
I spent some serious time rediscovering who I was independent of the stuff. I did a lot of reading from books from the library. I spent a lot of time at home with my wife and son. I found out about stuff going on in my community and started getting involved with that. I found out that I got a lot more fulfillment over the long haul going to the park with my son and going down the slide with him than I did from packing him up and heading to the golf course or spending a weekend out with the “guys.” I found that, in the end, I didn’t really miss many of the hobbies and the ones I did miss (like video games, for example), I found that I could enjoy them without a spending frenzy if I was careful. Instead, I tried a lot of different hobbies and discovered (or rediscovered) my passion for other things, like cooking at home and reading and, perhaps most important of all, writing.
At the same time as I practically eliminated my extra spending, I also tried almost every frugality tip I came across and I found that I liked it, especially from a creativity perspective. I like making my own laundry detergent, making my own beer, and so on. I got into environmentalism a bit and discovered that frugality and environmentalism overlap quite a lot. I liked calling places and eliminating pieces of my plans that I didn’t want, and also reducing my rates on my credit cards.
When I started to get a taste for watching my debts shrink instead of grow, I made some tough choices. The biggest one was cashing in one of my retirement investments, paying the tax penalty, and using that to wipe out my entire credit card debt, pay off the bit that remained on my wife’s car, and pay off most of what remained on my truck. I had been putting a lot into retirement and I judged that this would be a better use of my money, for better or worse. I will say that the psychological benefits of doing this were clearly a net positive – I am still far ahead of where I need to be right now in terms of retirement and that choice paved the way for where I’m at now.
By this point, our spending was actually around 60% of our income or so and we started saving it. I got rid of my truck debt and kept saving. We didn’t rebound, we kept up the discipline. We saved for buying a house and managed to build up enough to really help with the down payment. We didn’t build any more credit card debt, either – we started really using them as a tool than as free money, utilizing the convenience and the fact that the credit card rewards can really add up.
I also kicked my side businesses into high gear. I really started to work hard on developing web sites for people and for various groups. I did a fair amount of computer consulting and minor repair. Most importantly, I began to focus heavily on writing, and that’s why I started Money360, so I could have an outlet for the writing. At first, I was mostly writing Money360 to find my writing voice and blow off some creative steam – later on, it became an income stream itself and also a way for my writing to find people. All together, these things kicked my income up quite a bit.
By the time we moved, we were perhaps spending 35-40% of our monthly after-tax income. Our savings went berserk and I started seriously mashing through the student loan debt. We are in very good financial shape now and we still practice tons of frugality.
Eventually, we began to realize that the doors were opening in our lives, doors that led to things that weren’t really possible two years ago. We now have several income streams and a lifestyle that can survive losing some of them. Thus, that means I can pick and choose which ones to focus on, which led me to the choice to write full time. At this stage in my life, writing is where my passion is and so I have the freedom to follow that dream.
You can do this, too. Maybe it won’t come as quickly for various reasons, but this is a path that most people can follow. The biggest part was figuring out the things that were really important to me – and it wasn’t stuff. It was my family and my personal intellectual growth. Everything else followed from there.