It has now been about three weeks since we have gone into “hibernation mode” with our finances. So far, we have done well with keeping within our emergency budget and things are looking up for the rest of the year. Unlike people who get into financial difficulties because they buy too many luxury items on credit, our problems stemmed from our home renovations, most of which, to date, HAD to be done. Home renovators are a separate breed from the shop-o-holics who spend their money to buy stuff. The difference is for most of us, our home is our largest single investment, and our largest single debt. Any substantial work we do on our house tends to cost a lot of money, and any work that is not done properly will cost us a LOT MORE money down the road. And renovations are not something we can sell at a garage sale when we find ourselves in too deep.
How we got into this mess
We underestimated the costs of the initial improvements we knew about when we first bought the house. The cost of the roof was double what we expected it to be, which used up the equity we had set aside from the sale of our old house. Therefore, we went into debt to finance the air conditioning.
It was during the installation of the air conditioning when we discovered the problems with the insulation that led me to gut our entire second floor. Our heating bills soared during the winters that we had no insulation upstairs which meant we had less money to pay off the debt we incurred for the air conditioning.
A one-time expense of hiring a contractor to completely finish upstairs for us made a lot of sense. However, our definitions of “completely finish” differed somewhat and we parted ways leaving a lot of work for me to complete. He was the one who pointed out that the plumbing for our hot water heat was inadequate, which led us to call a specialist for an estimate.
As it turned out, our hot water heating system was a mess and required a complete overhaul. The cost of that project doubled when we chose to have our boiler zoned. Zoning, however, makes it a much more efficient system and should save us on our heating bills in the future, as well as ensure our long-term comfort in this house and help with its resale value.
Add to these costs the financing for a second vehicle (once my wife went back to work), and the associated expenses of a child who is getting involved in various sports and activities in addition to school, and suddenly paying down debts has become much more difficult than in the past.
How we are getting out of this mess
We are comfortable carrying a certain amount of debt, but we are way over that threshold right now. To get things under control, these are the steps we are taking:
Plan for Christmas. We usually “wing it” around Christmas and we do tend to be overly generous. This year we have an exact budget, including travel expenses, and we are setting aside money on a weekly basis to cover it. I don’t want any nasty surprises in January.
Plan for other major expenses in the next few months. Our car and house insurance all come due at the same time, at the end of October. Right now, every spare cash is going into a fund to cover the insurance costs, and once this year is paid for, there will be a regular weekly contribution to the fund. Inevitably, every year, we forget about the insurance until it is due, and we usually pay for it by credit card. No more.
The grocery budget. We have reversed our priorities. Before, we would get our groceries and then use whatever money was left over from our other bills to service our debts. Now, we make regular payments to our debts and have a strict amount budgeted for our groceries. Any extra money left over goes to the debts. Our meals are planned for the week, so there is no more tendency to get meals out. We usually only dine at the finest establishments– you know, the ones with the drive-thrus, so cooking in every day will also be healthier.
Eat cheap. Cutting our grocery bill in half, on average, is a challenge, especially with a five year old, but for the last three weeks, we have been pretty successful. These are the strategies that are working for us.
- Pasta: It’s cheap. It’s easy. And a big batch will last for two meals. Variety may be the spice of life, but leftovers are easy on the budget.
- Plan each meal. My mother used to do it quite a bit. You could tell what day of the week it was by what was on the table. The advantage to this boring predictability is knowing what the meal is going to be rather than looking at a full freezer and trying to make a decision. Before, when faced with a decision, we would often choose another option: take out.
- Grocery list. With a specific list for groceries, there is less tendency for impulse buying.
- Weekly trip to the grocery store. We hate grocery shopping. Before, we would get groceries when we needed them. That meant if we ran out during the week and did not have time to buy groceries until the weekend, we would have take out in the interim. Now, we get groceries weekly, whether we like it or not.
- Consider cost per serving. We used to “treat” ourselves to relatively expensive foods. For the next little while, at least, we are choosing less expensive items or items that provide for multiple meals.
- Awareness of the food on hand. I’m trying to have a better idea of just what food we have in our pantry and in our freezer. This way, we avoid unnecessarily buying something we already have. Before, in the pre-budget days, this didn’t matter too much because we always rationalized that it would eventually be used. However, every dollar counts now.
- Â Avoiding the sale frenzy. We always had a tendency to stock up on sale items. However, we also had a tendency to eat more if we had more on hand. Take, for example, snack crackers. I buy one box per week. They last a few days and once they are gone, they’re gone. But if there is another box in the pantry, instead of having a two week supply, the second box would get used up before the end of the week. And with perishable items, there is a greater chance of waste. Buying twice as many strawberries when they are half price doesn’t really save anything if half of them get thrown out for going bad.
Obviously, the biggest step on our road back to financial well-being is controlling our grocery budget. For us, our groceries represent the greatest discretionary spending in our household. By keeping a lid on our grocery bill, we will have more money to pay down our debts.
Right now, all other spending is on hold until we have our insurance covered. Presently, we are setting aside at least a couple hundred per week for that. After we make the payment, we will be setting aside a fraction of that amount each week to cover next year’s insurance. The extra money left over will be put towards the installation of the bamboo upstairs. Once that is paid off, a greater amount will be put on the rest of the debts, and I will budget a certain amount of money each week to cover the other costs upstairs, such as trim and doors. We wanted our daughter in her own room by September. Now it’s looking a lot more like Christmas. The last thing I want to do at this point is to add more debt as tempting as it is.
Other debt reduction strategies.
When I say we have credit card debts, I should point out that we have extremely low rate credit cards. One is a zero percent introductory rate for 15 months. The other is a guaranteed rate that is now less than prime. Once the introductory period is up, the balance from that card will be transferred to a low rate line of credit and the card will be canceled. And I will certainly entertain any other low rate introductory offers. Juggling credit card debts is not usually a good way to get out of debt, but low rate cards offer some relief. Just keep a couple of things in mind should you choose to go this route:
- Read the small print. Watch out for administration fees and other hidden expenses on low rate cards.
- Don’t carry too many credit cards at once. Having too much available credit can hurt your credit rating. Once the introductory rate is up and the balance is transferred elsewhere, cancel the card.
- Don’t use the card(s) you are using to service your debts for any other purchases. If you regularly charge certain expenses that you pay off each month, keep them on a separate card and pay it off each month.
- In fact, avoid using credit cards altogether. Pay cash whenever possible. Make a budget and stick to it.
- Keep a running total of your entire debt. It is easy to lose sight of just how much debt you are in if you are looking at individual credit cards totals.
So far, these strategies are working for us. We will revisit our budget after Christmas, but for now, we are on track. Plus, by postponing certain renovations until we can afford them, it buys me more time to finish things that we already have the supplies for on hand.