When we last spoke, I gave you the whistlestop tour of the idiocy that was my law school tenure. Long story short, In March 2017 we were new to the NoVa area, $255k in non-mortgage debt, with maxed out credit cards, my Roth IRA almost completely cleaned out, and less than $500 cash. My 8 month pregnant wife was working a few odd shifts at the local running store to make enough money to put gas in the car, and I was panicking because I had just gotten an email saying that our homeowner’s insurance was declined because of the condition of our roof. Payday wasn’t for another two weeks, and there were enough financial deadlines between now and then that it wasn’t exactly clear how ends were going to meet.
ASIDE: We’re icky Jesusfolk, and there are a few times in our life together where we see God’s provision most clearly. This is #1 on that list. Despite a lack of planning and spending tens of thousands of dollars, we got within ~$100 of having to do some pretty desperate things to ensure that we were staying in our house. Everything had to come together perfectly to prevent us from various catastrophes.
From the depths of chaos sprouted a flower. The best thing I did was tally up the damage and get angry. In January or February, before things had become quite so dire, I got pissed off at the way things went, and I had the knock down, drag out fight that my wife and I needed. Thing is, it wasn’t that much of a fight. It was Hiroshima. I dropped a nuke.
She had no clue how bad it had gotten. I had become so efficient at patching up the financial tatters we had left at the end of each month that she thought we had hundreds of thousands fewer dollars in debt. My demand that we attend Financial Peace University wasn’t even a point of contention. The problem was blasted all across the living room. Fallout was drifting down from the ceiling, burning away our comforts and our preconceptions. That was the day everything changed.
We enrolled in and attended FPU at our church, and despite both of us knowing the material, we grew a unity of purpose that we couldn’t have done by ourselves.
Its hard to tell whether doing Dave’s plan is harder for single folks or for married couples. Personally, I think it was harder for me to do it while married. I’m a driven, all-or-nothing person, and when I commit to something, I commit wholly. My wife is likewise driven, but doesn’t have that all-or-nothing spirit. There are a few things that she pours her passion into, but most of the time her commitment lands somewhere in the middle. On something like finance, where she has no intrinsic drive, it’s a fight for her to keep up any level of intensity. Add in the fact that she has a more confrontational personality than I have, and she can steamroll me solely through inertia.
That dynamic had primed the pump for our descent into madness, and it made fixing our finances much more complicated.There was a constant tension between keeping up the intensity to a level that I felt comfortable with versus not putting my wife over her threshold where she just gives up and falls off the bandwagon. As you can imagine, my resentment from the initial accumulation of debt would recede, but I’d occasionally have to tamp down growing resentment when I felt like I was dragging her across the finish line. Conversely, she would constantly struggle with feeling like I blamed her for everything and feeling like I would never let up on the emotional pressure to keep a tight budget, forever. However, we persevered through all of this tension because we were aligned on our ardent desire to fix our financial problem.
The first step to fixing any problem is defining the problem. This is usually fairly easy in the financial realm. There are some whose eyes glaze over when they look at their credit card transaction history, but mostly its just a bit of addition and subtraction.
There are two components to quantifying the “problem” in personal finance, figuring out where you are on a broad global level, and figuring out what happens to your income on a monthly level.
The first was simple, add up the debt that we owed, add up the liquid assets, and compare. We had $255k in non-mortgage debt, a $290k mortgage, $2500 cash, and ~$65k in various retirement accounts.
The second was a bit more complex, but no more challenging. I took a few months of bank and credit card statements and categorized the expenses. I actually used mint.com to do this, as it pre-categorized most of the expenses and massively reduced my effort.That exercise has been lost to the sands of time, but two takeaways were that we spent way too much money on food (mostly on restaurants) and that Amazon was a nemesis.
Okay, so that exercise was not too bad, I do some math, we have a discussion about what we see. No biggie, right? Wrong! All of this preparatory work was rote math, now came matters of the heart.
Everybody has a motivation for wanting their finances to be a success. Most of us aren’t motivated to simply increase a number on a screen, and most of us don’t want a scrooge mcduck pool to swim in our dollars. Dave calls this the “Why”. Why do you want to be financially successful?
For me, a picture immediately clarifies in my mind. I’ll not describe it in detail, but it involves retiring early, living on land, and basically running a hobby farm. For my wife, a different picture appears, and that’s some of the problem we had to work out. Not being on the same page on the why impacted our positions when we did the monthly budget.
Budgeting sucks. It just does. For couples, it’s 3 or 4 months of fighting before you start speaking the same language. For me, it was almost 2 years before the resentment subsided. Budgets aren’t complicated, you can do one on a lined sheet of paper folded “hot dog style”. Budgets are hard, though. For those who aren’t on a budget, it feels like voluntarily putting yourself into a straightjacket.
The good news is that the feelings of restriction subside. Assuming that you’re not doing the financial equivalent of a crash diet (which is sometimes necessary), you’ll find equilibrium. The first couple budget sessions were awful. That’s where we really hashed out our velocity for paying down our debt. Dave has the concept of “gazelle intense”. your creditors are lions and you’re the gazelle. They’re more than happy to chew you up, so you need to run for your everloving life!
That message speaks right to me. I’m a binary person, and I can switch on to 100% effort. Dave has a whole bunch of mantras that his followers use to embrace the suck. The big one is “beans and rice, rice and beans”. The implication being that you’re going to be finding 50 ways to eat rice and beans because they’re really freaking cheap.
My wife cringes when she hears beans and rice. Her “gazelle intense” was eating out a couple times per month, limiting grocery spending, and flying to visit family every 6 months. Even now as I write this, my chest is tightening thinking about it. I bit my tongue many times, because my uncharitable response would have been “you entitled brat! I just spent 4 years working all day and going to school all night to provide us with a great income, and the best you can fucking give me is a reduced restaurant schedule and sticking to a grocery budget?”
Thankfully, I’m not an idiot, and found more constructive ways to describe what I was feeling. The result was a compromise on the velocity. We’d pay off the debt in 5 years. It was an uncomfortably tight budget for her, and an uncomfortably long payoff for me. However, I found that the discomfort on both sides reduced as time went on. Hers because we had additional income loosening the budget up, mine because we were consistently hitting or exceeding our payoff goals.
Anyway, our first few months, we did a paper budget and hung it in the kitchen. Dave has a great starter budget on his site that walks you through every step. It’s not complicated. The math is 4th grade. We eventually switched to a spreadsheet so that I could do projections and velocity and color code things. If people are interested, I could share, but it’s nothing all that special.
That said, I promised a budget on a lined sheet of paper, so here’s how to do it. Fold it in half “hot dog style” (so the crease runs parallel to the long side). On the first line of the left side write “Financial Priority”, on the first line of the right side write “Budget”. On line 2 Left, write “Income”. Then, on the following lines of the left hand side, make a priority order list of your financial priorities. Most people start with putting a roof over their heads, basic groceries, transportation, and utilities. Dave calls these the “four walls”, and they are the highest priority to pay, no matter how angry the collections gorilla is about that defaulted credit card.
As you continue your financial priorities, minimum debt payments will probably show up pretty early, but there may be some additional expenses that are higher priority than debt payoff. This is the “danger zone”. There’s a cutoff lurking somewhere in here where you run out of paycheck. If your aggressive debt payoff falls below that line, you’re going to be treading water. This is also where the heartache lies. Some of your ardent desires are about to be excised from your life.
Once you have your priority list, your budget is basically done. The rest is just subtraction until you run out of money. So, on your left side of your budget, you have your priority ordered budget categories. On each line, staying on the left hand side, you simply write the monthly cost of that budget category. Some (like grocery) you won’t know to the penny, but you can guess and readjust next month. You may want to put a miscellaneous category up high on the list for a few months to catch any overages.
Then, you put your full monthly income on Line 2 Right. Finally comes the most emotionally taxing part. Line 3 right equals Line 2 right minus line 3 left. Line 4 right equals line 3 right minus line 4 left, etc. You keep doing that until the number on the right hand line is zero (or close enough that the next line item would push it below zero), then you draw a big ugly horizontal line below that last number. Everything below that line isn’t important enough to get paid. If there’s something necessary sitting below that line either you rejigger the order, or it’s time to have a heart to heart with yourself.
Once you have your budget, the even harder part comes… sticking to it. Dave mentions that it should be treated as a solemn contract and I agree. you put so much effort into “negotiating” your budget, and now you’re just gonna blow through it? Nah. The discipline required is extreme at first, but it becomes habit soon enough. Submitting yourself to the process of setting your financial priorities and sticking to them is what separates those who meander financially from those who are able to achieve their goals.
I’ve heard more than a few people say that budgeting just isn’t their thing. I’ll say that I think this is mostly bullshit. I’m sure there are some out there who are naturally frugal enough to stumble into a pile of cash, but I think that one of two things is happening. Either they’re setting and achieving financial goals using informal budgeting (also known as “oof, I didn’t put as much into the retirement account this much. I’ll rein it in next month”) , or they’re not planning for the future more than a couple years in advance. I think that having goals, making a plan to achieve those goals, and executing on the plan is foundational personal finance, and it’s on top of these disciplines that everything else is built.
Next time, I’ll talk about Dave’s debt payoff philosophy, and a few ways we intentionally strayed from Dave’s plan.