Chelle's Budget Page

In April, 1999, our family finances were in a terrible state. We had managed to get behind on our bills, and creditors were calling us. We could make the normal monthly payments, but we couldn't get caught up. In addition, we never seemed to have any money for anything we needed. If one of us had to go to the doctor, or the car needed an oil change, or we needed a new set of sheets for the bed, we were doomed.

I have to say that we didn't fight about our finances. We both brought a lot of debt to the relationship, and we both knew that we were responsible for our share of the problems. In addition, we had kept our finances primarily separate, with Desi giving me a weekly check for her share of the household expenses. But we knew that, in addition to our financial and credit problems, the stress was going to lead to relationship problems, especially since we were both making some bad decisions about how we used the money in our separate checking accounts.

Something had to be done. But what?

That was when we found a book called Financial Peace. While there was a lot in the book that didn't seem to apply to our current situation, it gave us a lot of good advice about what to do to get our finances in order. We haven't exactly followed the steps in the book, but they gave us a place to start, and we're doing pretty well.

We also turned our credit-card bills over to Genus Credit Management. They're not really that great, from our perspective at least, at getting your debt paid off any faster, nor did they really lower our monthly payments. But they did negotiate some lower interest rates for us, and they do make sure that our bills get paid every month! We're going to have to put in some effort of our own if we want to get out of debt, though.

The links below will lead you to a description of each step of our step-by-step path toward getting ourselves on the road to recovery. Remember, I'm not a financial professional, and this might not work for you. I think that there are some sound principles here, though, that can help anyone.

• A Good Long Look

• Combining Our Assets

• Developing a Budget

• Establishing a Repayment Plan

• The Envelope System (aka, "Living the Budget")

• Save, Save, Save

• The Big Payoff

A Good Long Look

The first thing we had to do was to really look at our financial picture. We had been telling ourselves that it wasn't that bad, that we'd do better when we were making just a little bit more money. That was before we sat down and realized that we were making about $50,000 a year. If we couldn't make it on that, we'd never be able to achieve any of our goals--not the least of which is to be able to live on one income, so that I will be able to stay home with the children we want to have.

Unfortunately, a large percentage of our income was, and is, going to debt repayment. If we were completely out of debt (including student loans and cars) we'd have $933 more a month available! (Or, to put it another way, if we had no debts to pay, Desi could quit her full-time job and work for minimum wage, 11 hours a week, without affecting our standard of living.)

We had to decide that we were not going any further into debt. We made an exception for student loans. Desi is still in college, and her degree will make it a lot easier for her to earn a salary that will support our family. And I'm planning on working until we have children, so I need to go back to school and finish up my M.Ed. degree. We have decided that student loans are the ONLY form of debt we're willing to undertake at this point, however--and we're going to borrow the minimum amount possible. In addition, I'm going to use the sizable raise I'll get once my master's is finished to pay off student loans faster; I'm not getting the degree for more money, but to make myself more appealing to employers in Minnesota.

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Combining Our Assets

Legally-married couples have probably already done this. Very few of the gay couples we know have, though. When we sat down to look at our financial picture, we decided that we'd do better if we treated our debts as a whole, and treated our income as a family income. (NOTE: We do have plans in place for what happens if we ever "divorce"--don't combine your finances without making those plans, since laws don't usually protect unmarried couples!)

We've kept separate bank accounts; Desi has an account with a credit union because that gives her a better deal on her car loan; I've got an account from which my car payment is automatically deducted, and which gives me a safe place to keep my car insurance payment (I save about $50 a year by paying semi-annually rather than monthly). But our primary checking account is a joint account, and we have a joint savings account as well. That way, everything is OUR money, not "mine" and "hers." Also, one of us is much better at financial planning and budgeting than the other (on the other hand, Desi is really good at fixing things, and I'm not), and this way I can handle all of it--with frequent consultations with her, of course!

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Developing a Budget

The next thing we had to do was to work out a budget, so that we could keep track of our expenses and our income. Some budget planners tell you to write down everything that you spend for a week or a month, but we weren't going to go into all that. There was just no way we'd have the patience for something like that.

What we did was to write down everything that we make during a month. My salary is fixed; Desi's varies, but we figured up the amount that we could reasonably count on her bringing home every week. Then we listed all of our expenses. Include everything--fixed bills, gas, groceries, entertainment, anything you could think of. Fill in the amounts for those things that aren't negotiable. Be realistic about variable, but non-negotiable, expenses like the electric bill. Then you can deal with the negotiable expenses. Start with necessities, like gas for your car and food for your family, first. Then, if there's any left, you can budget for things like entertainment.

Savings are an important part of budgeting. We started budgeting $50 for savings, because we were trying to get caught up in our bills. Six months later, we have $254 budgeted a month. (The $4 is a long story. :) ) More about saving later.

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Establishing a Repayment Plan

This is where Genus came in handy for us. We didn't put our car loans or my student loans on Genus; we were able to handle those without much trouble, and the interest rates weren't bad at all. But our credit card debt was handed over to them. They established a repayment plan, and the amount is automatically deducted from our checking account every month.

If you listen to their ads, Genus is a wonderful thing. We're happy with them overall, but like anything, there are pros and cons to using the service.

Some of the pros:

• The payment is taken directly from our checking account. That's a relief for several reasons: we know the payment will be made each month without our doing a thing, we don't have to write separate checks (each withdrawal from our checking account costs us about fifty cents), and we save the cost of seven stamps per month.
• Genus is able to negotiate better terms with creditors than we can. Two of my credit cards had their interest rate reduced to 9.9%. Late fees stopped accumulating. All of these things help us to pay off our debt. A skilled negotiator might be able to handle this for him/herself, but neither of us is all that good at negotiating with creditors.
• We're not allowed to make any more charges. This was no big deal at the beginning, when they were all maxed out, but these days, I technically could charge about $3000 more on my credit cards. That could be a problem--except that we can't charge anything. (Whew!)

Some of the cons we've found, and some of our solutions to them:

• Genus is sloooooooow. They estimated it would take 53 months to pay off our debt. We think that's way too long. Our solution: We plan to pay additional money to the creditors ourselves. We thought about having Genus increase our minimum payments, but we decided that this would give us more flexibility. If the car breaks down, we can use that money to pay for repairs instead, which we couldn't do if we'd made arrangements with Genus to deduct it.
• The "reduced payment" they promise in their TV ads is misleading. They claim to have reduced our minimum payment by $400/month. That's because we didn't call them until we were behind in our bills. Our statements were showing the past due amount as well as our normal minimums--so of course they saved us a lot of money! Our solution: We were able to make the minimum payments anyway, and Genus did get the companies to hold off on the past-due amount, so we didn't worry about this too much. Our advice to you: Don't be fooled by number-juggling. Look to see how much you're really saving.
• Genus can negotiate with your creditors, but it's up to the companies to set the final terms. With four of our seven bills, that was great. We got much better terms than we had before. With two more, that was okay. They accepted the payment amount, but didn't reduce our interest rates (or, in one case, waive over-the-limit fees). The seventh bill, frankly, has been a mess. The creditor did not accept the terms, proposing a minimum payment that was $120 more than what Genus suggested. We went with Genus's payment. We made that bill our first priority for our repayment plan. Our solution: More of the same. As I said, we're making additional payments to speed up repayment. We're taking the bills that offered less-generous terms and dealing with them first: first the one that's threatening collections, then the one with over-the-limit fees, and so on. Sitting back and letting Genus handle it would work, but it would take too long, and we'd rather get on with our lives, especially as we want to start cleaning up that credit rating!

Is Genus (or a similar debt management program) worth it? For us, it was. It stopped our creditors from calling us, and it gave us some peace of mind--we know that our credit-card debt is being taken care of, slowly but surely. If you haven't gotten to the past-due, afraid-to-answer-the-phone stage, and you're disciplined enough to pay it off yourself, I'd suggest that you not waste your money. (Genus isn't completely free. There's an optional $3-per-card "contribution." It's optional, but they push it pretty hard.)

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The Envelope System (AKA "Living the Budget")

Those of you who've read budgeting tips before are familiar with the envelope system: you pay nearly everything in cash, and you take that money out and put it in enveloped earmarked for each budget category: "groceries," "gas," etc.

It's working well for us. Our bills are either deducted from our account or paid by check, but everything else is paid in cash. It's helped us to keep track of our expenses. Now, I'm not promising that it's easy--in fact, we have been known to go over budget, to goof up, to splurge, etc. But if you have a plan, and you overspend, you're still probably in better shape than if you didn't have a plan in the first place. And it's letting us see where our money's going. (And it's given me a goal--SLASH THE BUDGET. Now that I've stocked our freezer and halfway stocked our pantry, I plan on seriously cutting back on our food and household expenses, for example.)

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Save, Save, Save

This information could fit under just about any of the other topics, since so many of them involve saving money. Saving has become an important part of our financial strategy; we have a budget category for "savings," but we've found some other painless (or relatively painless) ways to save, as well:

• Saved change.
  You really don't miss it, even though you think you would. We have a dime-store juice carafe with a plastic lid. We cut a slit in the lid, and voila! Instant piggybank! We throw all our change in there, and the occasional dollar bill as well, if that's all we have left over in a budget "envelope" at the end of the month. (I lie. Now that the new "state" quarters are available, we put all of those, and any old Bicentennial quarters we might find, in a separate container. We're trying to see how many sets we can get over the years. That's savings, too, but of a more long-range sort.)
• "Found" money.
  This doesn't happen every month. Basically, this means that if we have any extra income for the month, it goes into savings. Desi gets mileage reimbursement from work; some of that replenishes the gas money, because the more miles she drives for work, the faster our gas money is depleted. The rest of it goes into savings. It's not a reliable method of savings, but it does help us reach savings goals, and it helps us keep that "savings" mindset.
• Budget surpluses.
  Most months, we find that we've taken in more money than we've spent, even after we've deposited our budgeted amount into savings. I could take the entire amount and put it into savings, but I don't like taking my checkbook down to zero, or near zero, if I can avoid it. I use a rather complicated (some would say, needlessly complicated) formula for deciding how much I put into savings from that surplus, but most months, it works out to about 50%. The rest I leave in the checkbook as a "cushion" to keep me from making a small arithmetic error and bouncing a check. When that "cushion" reaches $500, I take half of it and put it into savings. So I have somewhere between $250 and $500 "extra" in the checkbook at all times. That also gives us some very easily-accessible savings in case something unexpected happens when we can't get to a bank.
• Raises.
  I got a raise last month; it works out to about $120 more a month. I took $20 of that and budgeted it for the power bill; we moved into a bigger apartment recently, and it costs more to heat/cool it. We left out some budget categories when we developed the budget (knowing that I'd be getting this raise soon), so after Christmas, we're adding a "clothing" category to the budget. However, we'll have increased our savings by about $50 a month, as well.
• Extra work.
  Enough said. It's easy for me to pick up some extra money, since I have an eight-week break in the summer. I'm considering trying to locate a job that would let me work a couple of evenings a week when Desi's in class, too. Some of that money will be used for savings.

Okay, so that's how we're saving money. What on earth are we doing with it?

• An emergency savings fund.
  We have $1000 in a passbook savings account, to be used for any emergencies that might arise. If we use any, we'll replenish it, but right now, we're not contributing to that account.
• Major purchases.
  We started saving money in May. In late October, we went out and paid cash for a washer, dryer, and freezer. We're not planning to spend our savings on a regular basis, but those were three things we really needed and couldn't buy without saving up. We also want to purchase a pair of matching rings. (We have a lovely pair of claddagh rings that were given to us by a friend, but we want something that we bought.) We're using our coin savings for that. It may take a couple of years, but we can wait.
• Christmas.
  Which we forgot to budget for. We're taking our November 99 savings and using it to buy presents, mostly for the kids in our family.
  
  And the big one is.....
• Debt repayment.
  Now that we have the $1000 emergency fund, we're going to be using our "savings" budget for debt repayment. It's the most cost-effective thing to do with our money. Even at reduced interest rates, we're paying 9.9% or more on our debt, and we're earning 1.51% on our savings account. You do the math. We could probably get a better interest rate elsewhere, but we're not sure we could get a 9.9% yield, guaranteed. Effectively, that's what we're doing by paying off our bills.

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The Big Payoff

This is the whole goal of our financial restructuring: to pay off our bills. Essentially, what we're using is called a debt snowball. It starts small and harmless, but as it rolls along, it gains size and momentum, and eventually, it knocks a huge hole in your bills.

How does it work? First, list all your bills from smallest to largest. Unless there's some compelling reason to change the order (like our bill that's still charging us late fees), you're going to pay the smallest one off first. (Many people advocate listing them in order of interest rate, and attacking the highest interest rate first, for the most savings. I think the psychological advantage of having paid off a bill is important). List the current minimum payment on those bills. Unless you are having to survive on ketchup packets scrounged from McDonald's to make those payments, that's the least you will ever pay on these bills until they're paid off.

Now it's easier if I just use an example. Let's say that Suzy Q has three credit cards, A, B, and C. The minimum payments are as follows:

Suzy has $100 extra to pay on her bills each month. She pays all of it on Bill A. In a few months, Bill A is paid off. She now applies the minimum payment from Bill A to Bill B, like this:

She puts all of that extra money on Bill B, as well, so she's paying over $200 a month on it. That means that it gets paid off fairly quickly. Now she turns her attention to Bill C:

With at least $180, and frequently as much as $300, being paid on Bill C, it's paid off in no time. That's one of the reasons I like starting with a small bill first--the first bill will frequently take longer to pay, and it's easy to get discouraged.

We're modifying the snowball a little bit to make it work better for our particular needs. First, we're paying off a bill from a creditor who doesn't like working with Genus. After that, we're going to pay Desi's car off early. We won't be using that money for the snowball; we'll be saving it for a down payment on the new car she'll need soon. Then we're going to pay off my car in the same way; it's new, but I put a lot of miles on it, and the sooner I start saving for a down payment, the better shape we'll be in when we have to replace it.

After that, we'll start working a straightforward debt snowball. We think it'll take us 18 months to 2 years to get there, but meanwhile, our bills are still going down. And when we get there, we'll own two cars outright and have a decent down payment on their replacements. (I'd like to be able to pay cash for the next cars, but it's unlikely. Maybe the next time.)

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What then?

We're not really sure. It'll depend on where we are and where we're employed. We've got lots of things in mind; we'll do more planning when we get closer to our goals.

Can this work for me?

Probably. At some point--when I have the rest of this page up and running--I plan to set up a step-by-step guide for people who are interested in trying to make this work for themselves, as well as updating this with our progress reports. Until then, (and after then--it's not like I'm a professional or anything) there are a lot of resources available on the Web. Check my links page for more information.

I plan to have a guestbook soon. Until then, if you have any questions or comments, e-mail me!

You are visitor number to visit this page since November 27, 1999. Does your mother know where you are?

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