Climbing out of debt (again)

cash is king

At the beginning of July, I transferred some money over to our line of credit, bringing the balance down to zero. We have eliminated the last of our consumer debt, except for our mortgage and car payments. It’s a milestone worth celebrating, but we must remain vigilant, lest we find ourselves slowly sinking in debt again.

Cash is king.  Long live the king!

Ignoring the mortgage on the house and the mortgage on the car, we have no other debt plus we have about $1500 in savings.  We are finally in the black! We even have a cash stash for our family vacation that should be enough to cover most if not all travel-related expenses.  In the coming weeks and months, we will be able to squirrel away a significant amount of money that will go towards the family room renovation.

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Delays equal money in the bank

We have been trying to set up a meeting with the architect for about six months now.  He has been very busy on other projects and the meeting keeps getting delayed.  And just when it looks like the meeting is going to happen, there is some sort of conflict in our schedules.  It’s frustrating, but it’s also good for our bottom line.  With each passing week, we improve our financial situation:  our savings grow and our mortgage shrinks.  With each passing week, however, it becomes less likely that we will have a shovel in the ground this fall.  That’s a little disappointing, but it’s more fiscally prudent to wait until the spring anyway.

And I know what you are probably thinking:  if the architect can’t even make the effort to meet with us for an hour now, we would be better off working with someone else.  But to that I respond that the very fact he is not able to meet with us now is exactly why he is the best choice.  It means that he is busy and he is in high demand.  These are solid indications of his reputation. We also know from having worked with him in the past that his current projects receive his full attention.  And we also know that once things start moving, they move fast.  So we might as well enjoy the calm before the storm, so to speak.

Meanwhile, the longer we wait, the more we can build up our cash reserves. The more cash we have on hand, the less we will need to borrow. The less we borrow, the more likely I will be able to retire before I am 80 years old.

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Sage financial advice

A few years ago, we were in deep financial doo-doo. At least I  think that’s the technical word for it. At the time, I wrote a post about our strategies for getting out of debt. You can read that post here.

Six months later, when my dad passed away, we suddenly had cash for to pay down our debts and we were able to pay for extensive renovations 2009. Those renovations are well-documented on this blog, starting somewhere around this post. Thus we never found out how long it would have taken our debt reduction strategies to achieve success on their own.

We ended up spending more than we had budgeted for the renovations and found ourselves in debt again. This time around, we employed some of those same debt reduction strategies and kept our debt at a manageable level. However, I must admit that most of the credit for for paying down our debts goes to increased income from our jobs. Still, we would not have paid off our bills as soon we did had we allowed our debt to get out of control again.

I thought it would be interesting to take a look back at the strategies we had in place in 2007 and see which ones we are using today and how well they are working.

Plan for Christmas (and travel to visit family)

We typically travel to visit family during the Christmas holidays. We have been fairly consistent in sticking to a gift budget. Our nieces are older so handing them cash or gift cards is a perfect solution. As for travel expenses, I build a cash stash by tucking away twenty to forty dollars per week. Thus we pay cash for as much as possible, only using the credit card if absolutely necessary. This has avoided the killer bill in January.

Plan for major expenses

We have managed to build up savings at the same time as we have been reducing our debt. Before, we were in a cycle of building savings and then wiping out the savings to pay down debt. Now, we try to be more balanced, and keep enough reserves to cover major expenses that crop up. Cash is king.

The grocery budget 

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Each week, we automatically transfer money from our principal chequing account to our savings and to our line of credit.  Only after all other debits are accounted for do we plan the grocery list. We have been very successful planning ahead for our meals for the week and we shop accordingly.  We still enjoy the occasional take-out, but that usually only happens once every two or three weeks.

Eat cheap: Um, “that’s unpossible.”  We do try to buy our groceries as cheaply as possible, but we are also more focused on trying to eat healthy. Unfortunately eating healthy is more expensive than eating processed crap.

Pasta:  While inexpensive, and great for leftovers, pasta is not the healthiest choice. We now choose costlier whole wheat pasta over the more heavily processed white stuff. Twice a month during the winter, I make a batch of lasagna with spinach and zucchini that lasts two or three days. During the hot summer, though, lasagna isn’t very desirable.

Plan each meal, shop with a list, be aware of the food on hand, consider the cost per serving, and plan regular grocery shopping schedule:  I am the one who does the cooking. I plan out the meals with the wife and kid and make the list according to what is needed to put those meals together. I try to plan for some leftovers to take to work or even squeak out another dinner. Forcing myself to go to the grocery store every week is still a pain, though.

Avoid the sales frenzy:  Okay.  It doesn’t make much sense to not take advantage of sale items. I will alter the planned menu for the week to accommodate stuff that’s on sale. I still try to avoid stocking up on snack and junk foods that require greater will power. A two or three week supply of some of these things will still only last a week if they are calling to me from the pantry.

The (not so) secret to our financial success

The key to getting out of debt, staying out of debt and building savings is simple: Spend less than you earn and earn more than you spend.

Simple, really.

Our debt reduction strategies are based on spending less than we earn. However, our success in climbing out of debt can be largely attributed to earning more than we spend.

Going forward, we will be continually challenged to avoid spending money we don’t have. Once we embark on the construction of the family room and garage, we will no doubt find ourselves back in consumer debt once again. The key will be to save as much as we possibly can while we are able, and keep our spending to a minimum.

In other words, we must continue acting as though we are still in debt even when we’re not.

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