12 October 2012

A Year of Change

It was one year ago today that my life changed forever. Today is one year since I discovered Mr. Money Mustache's blog. After reading lifehacker's presentation of his classic cost of commuting post, I subsequently wandered deeper into his blog and then the whole community of financial independence/dividend growth investing/early retirement that exists here in cyberspace. Over this past year, my readings have opened my eyes and I have learned a tremendous amount about myself, my family, my friends, and the world around all of us.

I've always considered myself to be somewhat decent with managing my money. I've had steady work ever since my senior year of high school, and have been working full-time since returning from my first year of college out-of-state. I had subscriptions to Forbes, Kiplinger's, and Money. I regularly followed financials and know a bit about quite a few different types of investment. However, all was not hunky dory. "The grass is always greener on the other side"--or in my case, the money.

In college, I'd been extended offers of credit from three companies. The initial limits were low, but they were all subsequently raised considerably. I can currently put a maximum of about ~$12,500 among the plastics, which works out to around 50% of my income for last year. Over the years, the balances have inched up as I bought a whole range of items. Textbooks. Gasoline. Snowboard equipment. Plane tickets. Food. Clothes. I always consoled myself that it would be okay because once I graduated, I could get a professional job--or at least into graduate school--and pay them all off along with my student loan (which in hindsight, was also 100% unnecessary).

As of yet, neither of those scenarios have come to pass. However, I was somewhat trapped by then. My balances were high enough to cause the minimums to consume a major portion of my monthly income, especially after my "creditworthiness" resulted in raised limits every time I turned around. I'm still not quite sure what possessed me to commit an even bigger mistake by then borrowing money from my retirement account to put as a down payment on a car that I then still took out a loan for. Needless to say, that didn't result in anything good for my budget.

So despite those assumptions about me by other people, I knew that I was in need of some help and I even know what exactly I needed. I just was having trouble figuring out how to get it. I'd recently returned from vacation, where I spent ~5 weeks crisscrossing the country, ultimately driving a little over ten thousand miles in that time. After the trip and who knows how much more driving before I purchased the car, it had finally decided it needed some major service and I lacked the funds to pay for it. My credit cards were all filled due to several years of mismanagement and I quite honestly wasn't interested in paying for the repairs with credit anyway. I saw the article just in time.

After reading it, I realized that MMM had some real truth packed in there. I then consumed the rest of his posts in short order. A few articles in, I knew I'd found the inspiration I needed to help me finally get control of my finances. I'd heard of people like Suze Orman and Robert Kiyosaki in the past, my dad even has the whole Rich Dad, Poor Dad series. But while I knew they existed and the general premises under which they operate, I discounted their information as consumer personal finance not applicable to me because I knew better. (A view that has actually been reinforced by reading the likes of Jacob, Paul Terhorst, Joe Dominguez, etc.)

With inspiration being provided by the likes of MMM, Dividend Mantra, Paula, and several other bloggers who write about cutting down debt/increasing net worth, my outlook has changed quite a bit. First, I've given up the fantasy of getting a professional job at the present. With a B.A. in Psychology, there just aren't a whole lot of doors open for me without either going to graduate school or at least taking a certificate program. However, I have been able to get hired by a local school district as a substitute teacher and that has provided a welcome boost to the bottom line. While it may not be a "real" job, it does pay better than my other employment and due to the district size, I can have basically full-time work for the entire school year. My other job does provide benefits, though I don't currently take them. (I am considering signing up for HSA next year, but only if they'll contribute matching funds.)

Between my two jobs and any other odds and ends I manage to secure, I am expecting a decent boost to my income for the year, raising it to a level to a bit above quite a few averages and medians (and probably into a new tax bracket as well). So far this year, I've been making good use of that extra income to greatly accelerate the repayment of my debts. Beyond eventually paying for the repairs to my car, I've been able to substantially reduce the balance of the loan and expect to finish it off over a year early. I've also been making progress on my credit cards, albeit at a slower pace due to the nuances of several different interest rates on several different balances. One of my 401(k) loans is also nearing completion. All these balances on the verge of zeroing out will help me to have extra cash to "snowball" the rest of my debts, including my student loan, which will be out of deferment in December.

I hope to have the major portion of my debts repaid within a year. In addition to no longer owing people money and the peace of being debt-free, I can see several extremely beneficial reasons to get it done. First, I realized that the financial benefit of paying off my loans is not just a lower monthly outflow, but is approximately equivalent to a pay raise of the interest rate. The only exceptions are mortgage and student loan interest due to the tax benefits, but owing someone money is a ridiculous way to get a tax write-off. Secondly, I would like to get involved in some business and philanthropic ventures, but a cloud of monthly payments following me around severely limits my options. Lastly, I am planning to relocate to where my girlfriend lives 2/3 of the way across the country in a little over a year. That will require quite a bit of funds both for the move itself then to pay for living expenses while getting settled.

As someone who had the deer-in-headlights feeling at this time last year, I certainly feel much better than I did. Though not everything is perfect, things are going much more favorably than they were back then. I'm finding extra funds to pay extra on my bills by biking when possible, paying the bills as soon as possible, and directing large sums of money away from areas that are currently blessed with extra. I'll continue to offer updates on the proceedings as time marches on. The holidays are fast approaching, but so is winter. Both bring their own special challenges to a budget. But despite it all, I plan to keep on with my plan until completion.

If you find yourself in a similar position as I was in (or ever worse), taking time to sit back and think well certainly help your situation. Consider all your options, remembering that desperate times call for desperate measures. After the storm has passed, keep on a sustainable path as much as possible. The benefits will far outweigh any temporary discomforts that you must endure to get to that place. The peace that comes from having finances in order is certainly greater than the heartache caused when they're not. I'm already anxiously looking forward to when I send in my last payment so I can truly enjoy my items. Until then, auf Wiedersehen!

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