How do I learn to budget and reduce my debt?
November 4, 2013 8:24 AM   Subscribe

I'm living with just shy of $50,000 of debt. That's actually pretty crazy to say. $18k of it is credit card debt. $22k of it is owed to the IRS (terrible decisions while freelancing). It was recently down to $20k, but I missed one of my monthly $500 schedule payments so I got hit with a sizable penalty. The rest of it is a Sallie Mae student loan.

I'm a 30 year old male living in San Francisco and making $90k/year in a creative industry, I have $0 in savings, and am paying $1200/month in rent. I've never been good with money, but the past few years found me particularly irresponsible. I understand the very first thing I need to address are my spending habits. I eat out almost every single day, I constantly purchase myself unnecessary stuffs. In the past I've sold off some of the more expensive toys to put towards the credit cards, but after I do that I end up bringing the balances back up to where they were before or even higher.

Today I went through and canceled subscriptions to things like netflix, spotify, etc. It's small potatoes in the grand scheme of things, but a start to the basic behavioral changes I need to make. What I need is structure. I need something (an app?) where I can plug in my income and my bills (including helping me visualize what I really need to be paying to put an end to all this) and that will allow me to better see what I have to work with.

Someday I want to start a business and a family and I am not on track to making this a reality. Please share with me any help or advice you may have. Thank you.
posted by anonymous to Work & Money (35 answers total) 28 users marked this as a favorite
 
I would start by tracking everything you spend. Budgeting isn't going to do any good until you have a clear picture of where your money is going and how much of that is waste.

I would also set up some kind of automatic savings plan. Your debt is an emergency right now, so it shouldn't be aggressive, but having something in the bank is always a good idea.

Does your employer have a 401(k) or similar retirement plan? If so, join that, especially if they match, because that's free money you're giving up if you don't do it.

But start with tracking every. single. thing. you spend. I do so on an Excel spreadsheet I keep on Dropbox. This is for every penny, so if you buy a pack of gum, you track it. It's amazing how quickly you stop spending money frivolously if you have to account for it immediately and see your balances decline.
posted by xingcat at 8:27 AM on November 4, 2013 [3 favorites]


I'm not good with money (used to be poor, have the spend-it-when-you-get-it mentality, used to get hit with bank fees, overdraft fees, credit card fees, &c.) but I'm getting better. The reason? I started using the ledger in the checkbook I got free from my credit union. It feels good to sit down every day or so and balance my checkbook--a tangible indication of how much money I have vs. how much I'll spend/need to spend-- and they're free from the bank! So that's my suggestion. The making an envelope for each expense (groceries, restaurants, &c.) and putting your budgeted cash in it so you can't spend more than that per month is always good too. (I'm too afraid of my cash getting stolen but it works well when you do it.)

I've tried lots of apps/websites/software (including Mint) but it just becomes overly complicated. PS: Pay down credit cards in order of highest interest to lowest.

Also: learning to cook, if you can't already. Saves sooooo much money.
posted by stoneandstar at 8:29 AM on November 4, 2013


Have you tried using mint.com? You can track and categorize spending, establish budgets and goals, and visualize your finances in a number of different ways.
posted by maximum sensing at 8:30 AM on November 4, 2013 [8 favorites]


And yes-- 401k, and automatic savings.
posted by stoneandstar at 8:30 AM on November 4, 2013


Maybe try mint.com? It tracks all your spending and you can categorize everything, and set up budgets and goals and such. I was previously using software that did the same thing, but I had to manually enter each purchase and it just got to be too much maintenance.
posted by polywomp at 8:30 AM on November 4, 2013


$90,000 per year, $1,200 in rent, and $50,000 in debt?

I know this is not necessarily what you want to hear, but this is incredibly manageable. I know that it must seem like a really big pile of debt, but the thing is, your after-tax cash flow is such that you can easily finance this.

There may be some psychological/emotional issues here that you need to deal with. I don't know how you deal with those issues, though they are obviously important.

But, just looking at the cold numbers:

Assume you pull in $45,000 after taxes. (Your after-tax take home is likely higher but I am being conservative here.) That's $3,750 per month. Subtract $1,200 from that and you have $2,550 per month to live on and pay off your debt.
posted by dfriedman at 8:31 AM on November 4, 2013 [16 favorites]


Can you get some of your salary/wages put aside for you, to reduce the temptation to spend it all? For example, you could increase your withholding for the IRS, helping to pay that debt down, or have some put into a new account which is used only to pay bills directly to your credit card account and other debts. Then I guess I'd recommend cutting up your credit cards for a while -- then if you get to the end of your funds, you'll be able to tell when the ATM chokes. Nothing like some Ramen noodles to make you aware of spending beyond your means!

The longer-term answer is to do something like record every single expense for a month or two and see where it all goes and which things you think maybe aren't worth it, and make lifestyle changes accordingly (take in sometimes rather than eating out, buy fewer shoes, whatever). But it sounds like you need some structural help in the meantime, and I think making your employer part of our self-discipline structure is something that works for a lot of folks.
posted by acm at 8:31 AM on November 4, 2013


What you need is a budget account as much an app. You need to separate out what you think is "your" money from what actually is yours to spend. Do the maths on your fixed outgoings, what you need to pay off, what you need to save, and the rest is your disposable income for discretionary items.

In the savings box you might need two accounts - long term savings and rainy day savings. However, if your interest exceeds return from savings, which it might well, then you should be diverting as much as possible to paying off the principal of your loan as long as you have some coverage for a rainy day - 3-6 months salary.

Like xingcat says, you should also then track your disposable income spend with a view to reducing that as much as possible and channelling the savings back towards paying off your loan.
posted by MuffinMan at 8:31 AM on November 4, 2013 [1 favorite]


The first rule is basically Track Everything. The second rule is Use Cash. You can still budget for restaurants, but you give yourself a certain amount of cash in your wallet at the beginning of the month. When it is gone, then either you are bringing a sandwich or you are going hungry. There are a billion apps and stuff, but I've never found anything as useful as a basic spreadsheet and a couple paper envelopes with my discretionary spending money. Any discretionary spending that does not fit into a paper envelope is not something you need right now.
posted by Sequence at 8:32 AM on November 4, 2013 [2 favorites]


YNAB. The method and the software.

Unbury.me for the debt.
posted by melissasaurus at 8:38 AM on November 4, 2013 [5 favorites]


Your credit card debt is quite likely the most expensive you have. I don't imagine you have much flexibility with the IRS or the Dept of Education on terms but with the credit card(s) it's imperative you do more than just service the interest. There must be a net reduction in the principal every month. If that means taking scissors to the cards, so be it. I can tell you from experience there is nothing quite like being able to pay down the balance to zero every month...
posted by jim in austin at 8:46 AM on November 4, 2013


I've accumulated a lot of credit card debt this year that I'm trying to get out of. The best advice I've heard is: STOP USING YOUR CREDIT CARDS. Which, I'm still struggling with. My initial approach was to just make as large of a payment on my CC as I could on pay day, and then live off the CC until the next pay day. This was bad for reasons not obvious at first, but if anything it makes it impossible to figure out when you will get out from under your CC debt. It also made me fast and loose with my money because I felt like I could never hit the CC limit anyway.

For the past few months I've taken another approach of making about a 2x minimum monthly payment on my CC to bring that down, deposit about $33/2-week into savings, and live off my budgeted checking account.

I'm not sure what the real benefits of putting something into saving are exactly. It seems like it would be better placed paying down my debt. If anything it is establishing a good habit for when I'm out of debt and it gives me a nice pool of cash if an emergency comes up so I'm not using the CC. So I guess those are the benefits.
posted by nickerbocker at 8:48 AM on November 4, 2013


Once you have enough of a stash put aside to cope with emergencies, there's no justification for saving rather than paying off credit card debt. The interest you earn on the savings is far outweighed by the interest being charged on the debts, especially once you take into account te fact that you probably have to pay income tax on the savings interest.

Bad spending habits can be pernicious things though. One approach that might help is to roughly calculate the actual cost of anything you buy at the current rate you're paying off your debts. That '20% off today!' offer might not look so cheap when the cost of the debt repayments doubles the cost.
posted by pharm at 9:04 AM on November 4, 2013


We started using YNAB (You Need A Budget) and it has really helped see where our money is going and what we have to spend. I used Mint for a long time, but didn't feel it gave me complete control over my budget. YNAB let's you make categories that suit you, allows you to set your budget for groceries, gas, bills etc etc and keeps track of EXACTLY what you spend pay check to pay check. It also lets you see what you have leftover in each category so you can either let the money flow over to next month or redistribute it where you see fit.

They have online tutorials and reviews. It's a bit pricey (we got ours on sale through steam), but it is exactly the budget tool I was looking for. It also has mobile apps, so you can enter your receipts on the go and automatically deducts from the proper category. Syncs to your drop box and makes it easy to compare with your bank account.
posted by Sweetmag at 9:06 AM on November 4, 2013 [1 favorite]


I'd like to suggest that you not cancel Netflix, etc. They are, as you say, small potatoes--eating supper out a single day is the same cost as a month of Netflix--and my experience is that it's a lot harder to rein in your spending when you're depriving yourself of the small pleasures. Having Netflix means that you're a lot less likely to get super bored and decide to treat yourself to a movie in a theatre, in my experience.

First, stop using your credit cards. Cut them up, freeze them into a block of ice, whatever. From now on you only buy things if you have the money in cash or on a debit card.

Second, stop eating out. Don't try to do this all at once, because you'll almost certainly fail. If you eat out for every meal right now, pick one meal and don't let yourself eat out for it anymore. Maybe you spend the next month making yourself breakfast or lunch every single day--that's awesome progress. Put that money aside, and at the end of the month, throw it towards your biggest balance. When you're used to making whatever meal, try to do a second one. But leave yourself some wiggle room--at 90k a year, even paying down debt, let yourself eat out once a week, say. Slow progress is a lot more sustainable than trying to go whole hog.

Third, and this maybe sounds crazy, but consider going to therapy. (You have a full time job, so I assume you have insurance.) This really stood out at me: I constantly purchase myself unnecessary stuffs. In the past I've sold off some of the more expensive toys to put towards the credit cards, but after I do that I end up bringing the balances back up to where they were before or even higher. It sounds, to me, like you're trying to fill some sort of emotional or social void in your life with Things, and it's not working. (This sort of unnecessary spending is also a common thing, in my experience, for people dealing with depression.) Even if you're not depressed or whatever, a therapist might be able to help you better understand your relationship with money.

From the sounds of it, you don't have a budgeting problem so much as you have a spending problem, and in my opinion, budgeting in and of itself isn't going to do you a lot of good until you figure out why you're spending so much and how you can stop. If you don't, you might go ok for a while, and maybe even pay off your debts--but in another three or five or ten years, you're going to be back in the same place, and you're not going to understand how you got there. Don't do that to yourself. If you're going to commit to getting out of debt right now, commit to also learning how you can avoid the mental traps that led you to debt in the first place.
posted by MeghanC at 9:08 AM on November 4, 2013 [18 favorites]


You should speak to a qualified bankruptcy lawyer in your area about the 40K in IRS and credit card debt. You can probably discharge a bunch of that, which will put you in a good place financially while you work on your other fiscal responsibility issues.
posted by Aizkolari at 9:17 AM on November 4, 2013


It was recently down to $20k, but I missed one of my monthly $500 schedule payments so I got hit with a sizable penalty.


This is the part that jumped out at me, in 2 ways:
1. You should put that payment on some automated system so you don't have to physically remember to do it.
2. Seriously, one missed payment raised your debt from 20 to 50K? I guess I don't have enough experience with the IRS (I think that's who it was, based on your question) but this sounds like something you might want to try to call and negotiate. Unless you had already done that and this was the penalty you agreed upon, but wow.
posted by CathyG at 9:19 AM on November 4, 2013 [3 favorites]


One thing I did that really helped is I set up a second, separate checking account with debit card, and I have an "allowance" automatically deposited into that account (pulled from primary checking) every week. That is the only account I can spend from. This covers what I can spend every week on groceries, gas, and "fun money".

When that money is gone, I don't have any more money to spend that week. I have to wait until my next "payday". Since the cycle is weekly, I'm never THAT far from my next payday, even if I blow through all my money halfway through the week. I just live off of food in the freezer or pantry for a couple days.

(Since I'm married we actually have three accounts, one joint groceries account and two individual gas/expenses accounts, but since you're one person you could probably just get away with one account. But if that doesn't work for you, two or three separate accounts might. It's basically the envelope system but with debit cards instead of cash.)

If you do that, AND you cut up your cards or freeze them in blocks of ice for only TRUE emergencies, you're nipping all that extra spending in the bud and you can pay down your balances MUCH faster.

One tip: if you have a car, and you need it to get to work, fill up the tank at the beginning of the week, before you spend on anything else.
posted by rabbitrabbit at 9:23 AM on November 4, 2013 [5 favorites]


Seriously, one missed payment raised your debt from 20 to 50K?

My reading was that the one missed payment raised the IRS debt from 20k to 22k. Which is less unreasonable, but still, dang.

posted by Johnny Assay at 9:30 AM on November 4, 2013 [2 favorites]


YNAB (You Need a Budget).

This is why you haven't been successful in the past:

In the past, when you've tried to budget, it probably goes well briefly, but then you fall off the bandwagon and stop paying attention to your budget/debt/bank balance, and then you're back where you started. But feeling guiltier, and thus less likely to even look at your bank balance. Right?

This is how YNAB's site/app/philosophy is different:
-It doesn't tell you how much you should spend on different things.
-It doesn't have you catalog where your money went in the past (what's done is done, it tries to get you to just focus on moving forward).
-It allows you to choose where to budget your money (if eating out is important to you, you can still make it a big chunk of your budget - you'll just have to find savings elsewhere....err, other places bigger than a netflix subscription)
-It *encourages* you to think of your budget as flexible and to move things around if you overspend in a category
-The system encourages you to make debt-payment and savings automatic so you aren't tempted to use that money elsewhere
-The app is super user-friendly and kind of addictive

Good luck!
posted by leitmotif at 9:56 AM on November 4, 2013 [2 favorites]


I think tracking your expenses and most importantly, giving yourself a fixed weekly "allowance" to spend every week (an amount decided after setting aside money for bills, emergency savings, minimum payments on your IRS and student loan debts and as much as you can possibly pay towards your higher-interest credit card debts) are the two biggest things that will help you. There's a lot of options for how to implement those two things, but it doesn't really matter how you do it, as long as you do it consistently.

It sounds like credit cards are a problem for you so I'd suggest this allowance be either cash or a dedicated debit account with only the weekly amount in it. Get rid of your credit cards - freeze them in a giant block of ice or cut them up. They are not working out for you at the moment.

You can look up tips on how to save money etc. if you're struggling to get by on your allowance, but even just being conscious of the fact that you have a weekly spending limit to maintain in order to keep your life in order will probably help a lot in curbing the impulse to spend money all the time.
posted by randomnity at 10:08 AM on November 4, 2013


Also, importantly, the allowance you decide for yourself can't be unreasonably low or you'll rebel before long. This is why tracking current expenses is a good start - then you can pick a number that allows you to buy some luxuries and enjoy life, without going overboard. Same idea as dieting, actually.
posted by randomnity at 10:10 AM on November 4, 2013


I concur with MeghanC re: Spotify, Netflix, etc. At most, those things cost a total of $1000/yr, right? That's definitely not the reason for indebtedness. Invite people over to watch netflix instead of going out to the movies once every two months and you've saved the cost.

I might disagree on the eating out. I am single as well (assuming) and cooking for one, at least if you like a wide variety, is time consuming and moderately expensive. If your eating out is once a day at $15 or less, that's only $5500/yr. I still make sandwiches and breakfast for the lighter meals (breakfast and dinner for me). Now, if you're eating out at $30+/day or buying drinks at the club even once a week... it definitely adds up to too much.

But my computers and phone are many years old. I have the cheapest data plan possible. My car is cheap and barely used. My apartment is cheap (for SF, so is yours). When I get a raise I save more money instead of "raising my standard of living".

When I was making your salary ($2k less, actually), I had my bank moving $2000 (adjusted-for-rent) every month from checking to savings. Every 3 months I moved another $1500 over (I left a cushion to prevent against overdrafts). I never touched the savings account.
posted by flimflam at 10:13 AM on November 4, 2013


You know you need to make better decisions about your money. The bad news is that you don't make those good decisions. The solution is to automate your savings so you don't have to rely on will-power hundreds of times every month. It's not hard: just have your money automatically transfer into a savings account immediately after your paychecks clear. Do not have any kind of debit card that allows you to access that savings account, and make sure it's the kind of account that requires a minimum balance and doesn't let you withdraw very often. (This is pretty standard.)

The good news is that your situation is absolutely manageable. You can do it!!! My husband and I combined make the same amount as you do, and even though our rent is double yours, there are two of us to feed/clothe/care for, and we're expecting a baby in a few weeks (so our budget includes $$$ daycare, etc.)... We still put away about $1400/month, between a savings account and retirement plan. We don't live like Spartans - we have iPhones and computers, we eat nice food, and we pay for entertainment now and then. However, we rarely eat out, buy a minimum of clothing and electronic "toys", try to repair our stuff rather than replace, and do a lot of free fun things like hiking and playing music. Our life doesn't feel stifled or sad; I enjoy it a lot actually!

Also: there are ZERO bills that my husband and I have to remember to pay on time. Virtually everything we have to pay is automated (credit card, rent, savings transfer, phone bill, utility bill, insurance), and for the things that can't be automated (dentist bills, the occasional parking ticket, etc.) I ALWAYS set up automatic email reminders the second I am charged so there's no chance I'll screw myself over by forgetting a bill. It's been YEARS since I forgot to pay a bill. This is especially important for credit cards - it's nice to have a perfect record. Helps with getting apartments and having one's credit limit extended.
posted by Cygnet at 10:20 AM on November 4, 2013


We've been given a few books from Suze Orman as gifts and she does a pretty good job of describing the steps to make a budget, which thing to pay off first, etc. She has a few different titles, and I'm certain that at least one of them's available at your local library.

I think just keeping close track of expenditures for a few weeks is a really good starting point. As a pretty frugal person, the big difference I see between myself and friends who have a hard time saving is that my default is *not* to buy anything, and their default is *to* buy something. I think the useful thing about tracking what you're spending is not so much about having precise numbers that you then try to make smaller, it's about getting into the habit of asking yourself "do I need this? If I buy this now, what would be a cheaper way of accomplishing the same thing next time?" and then trying the cheaper way and seeing if it's doable some of the time.
posted by tchemgrrl at 10:38 AM on November 4, 2013 [1 favorite]


You might benefit from a percentage-based budget system. The amount of cash you have in each category will vary as your income changes, but the ratios make sure that your proportions for each category remain the same. They also allow you to continue your fun habits, guilt-free, but within your means. For instance, my current plan is:

10% of my take-home goes to my retirement savings
5% goes to my emergency fund
50% goes to a joint account which covers my share of rent, groceries and eating out together
10% covers my personal bills such as cell phone and bus pass
25% is my free money for personal restaurant eating! clothes fun money etc.

If my income goes up, I plug the new amount into my spreadsheet and it tells me how much to put into each category. I know I can spend my free money guilt-free and not sacrifice my other goals.

For you, I suggest adding in a percentage amount for debt repayment. So it may look like this:

Calculate your take-home pay
Subtract your fixed expenses (rent, electricity, bus pass or basic car etc.)
What you have left if your discretionary money

Put 10% of it into a savings or retirement account
Put 5% into an emergency fund
Put 25% to debt repayment
Put 15% to groceries! drugstore and other necessary but variable expenses
Put the rest toward eating out, fun money etc.
posted by JoannaC at 11:49 AM on November 4, 2013 [3 favorites]


Instead of enjoying the things you splurge on, think of how awesome it will feel to be debt-free. Read Get Rich Slowly, Dumb Little Man, Motley Fool, Wise Bread, Simple Dollar. This helps you adjust your mindset from spending to saving. Stop reading magazines that promote buying stuff. One thing I like about netflix is no ads making me want stuff I don't really want.

Make a budget, and make it realistic. Mint.com is a good resource for tracking your budget.

Save money on stuff you don't have to have. Reduce your cable to 100 channels or so. Buy breakfast foods you can microwave. If you eat lunch out, make dinner at home. There have been a lot of ask.me threads on frugality, and you can have good food, etc., on a budget. In fact, you should budget in things that feel like treats - it'll help you stay on track.

Get a debit card. Cut up your highest rate credit cards. Keep 1 or 2 cards in the freezer in a block of ice. When you want to buy things, don't say No, just agree with yourself to think about it, and if you really want it, it'll be there tomorrow. Maybe take a picture of it. Most stuff won't be all that compelling the next day. If you still really want it, see if it's within your budget.

I agree with Suze Orman about having an emergency fund, so start putting 100/month aside for that. Decide how much extra you can pay on your loans. Every month, when you get paid, pay extra on 2 debts, 1 should be the smallest debt - getting it paid off will be so motivating, the other should be the highest interest rate. You can work with this any way you like, just budget that extra payment, and stick to it.

Don't beat yourself up for getting into debt. It sounds childish, but charts and stars work. Every day that you enter your spending at mint, and stick to your budget, put an X on the calendar. For every week of Xs, put a sticker on the calendar. Give yourself a tangible reward for a month with 4 stickers. Doesn't have to be big, and does have to be in budget. Rewards really help you change your behavior.
posted by theora55 at 12:07 PM on November 4, 2013


I've been in the same boat. Seconding maintaining a ledger...I found Mint to be a major pain in the ass and really restrictive, so I made my own. I use Google Drive for this so you can update it anywhere. I use formulas because I'm not very good at math.

I do a new ledger for each month so it's less prone for errors. Just duplicate and clear out the data.

The ledger has has 5 columns. Category, Date Cleared, Item Name, Item Amount, and Ledger Balance.

- I created my own categories (Deposits, Transportation, Debt, Food, etc...you can get as granular as you want, but stay consistent)
- In the Date Cleared column, I put the date the item cleared with my bank. I leave pending charges blank and highlight those cells in yellow. I add in expected charges and highlight those in orange.
- Item name is whatever it shows on your online banking...or you can give it a name to remember by ("Paypal Lil'Bub Tee shirt" or whatever, lol)
- I set up auto formatting to show deposits (positive numbers) as black and charges (negative numbers) as red.
- Ledger Balance is an easy sum formula. Add standing balance as the first item and then sum all the way down. make sure to rerun this formula each time you add new items, just to make sure the formula doesn't get screwed up.

I set up a pivot table (on a different sheet) that's linked to the Ledger categories...it shows me what I spent on each category during the month.

I have another tab that has Monthly Bills...I list out all my approximate bills with due dates, and I check those off as I pay them....so everything gets paid on time.

Having a ledger is key, I wish I had started doing it earlier. You can either enter it manually as you go, or get a download of your charges from your bank as a csv and do it after the fact. It's not going to solve everything, but at least you can build your budget from there. You need to look at it every day or so so you know where you're at, money wise.

I was shocked at how much I spend on food and clothes when I tallied the numbers on my first month. It'll help you reign in your spending. It has some initial set up and maintenance, but it's really helped me. It's a starting point.

Also, don't cancel Netflix! cheap entertainment at home. You gotta have some fun stuff. It's the big changes that matter most.
posted by hotelechozulu at 12:24 PM on November 4, 2013


Pay down everything with the highest interest first and in priority. Meaning, very probably, your credit cards. The interest on your credit cards are probably what's keeping you from paying down your debt, so you need a big push to do that.

Do not ever spend another dime on a credit card. Go debit card only.

DO NOT SAVE ANYTHING until you've paid down your debt. Saving accounts and any not too risky investments will accrue at 3-4-5% per year, while your debt is costing you way more than that.

In short, pay your living with what you have on your account only. Kill your credit cards forever. Don't save until everything is paid off.
posted by Riton at 12:37 PM on November 4, 2013


When I was in debt/broke, I had lower debt and a lower income than you do (though it sounds like similar expenses otherwise), but for what it's worth, this is what worked for me:

I opened a second checking account and cut up the debit card that came with it.

Every month when I sat down to pay my bills (same day of the month every time), I would transfer a fixed amount into that second checking account as though I was just paying another bill. I was looking at that transfer as a bill, so if I had to scrounge or pick up extra work or whatever to "pay it" on time, then that was what I had to do and I did it.

I paid my debt via check from that second account. I just paid the debt's minimums at first, but once I had some savings, I threw as much as possible from that second account at the debt until the debt was gone. (My rational for the initial savings period was that you don't want to spend so much money fighting your debt that if you have a foreseeable emergency you get plunged into more debt. A foreseeable emergency for me was stuff like a car repair, a vet bill, airfare for a family emergency, etc, so I saved enough to cover any given one of those things (+/- $1500) before getting aggressive with the debt).

Once the debt was gone, I kept up the transfers into that second account with the goal of getting six months' worth of expenses in there. All my spending (aside from paying my debt) came out of my original checking account, using my original debit card, not out of the second checking account. I tried as hard as I could to forget the second account was even there, aside from my monthly transfer into it. That kept me feeling broke enough to stop me from going overboard with my spending, even as I accumulated some savings.

Personally, I kept that system up through paying my debt and getting a fair bit of savings (more than I'd ever had before)...but around when I got near my goal savings amount, I started getting way worse about tapping into that chunk of money. I tapped it a few times for big ticket items (albeit I don't regret buying any of those items, they were done with eyes wide open), then decided to go to grad school and basically blew the rest away. But if/when you get to that point, just come back on here and ask people about that, and they'll probably be able to tell you how to avoid pulling a rue72 :P.

How I figured out what fixed amount to transfer:
I took a piece of paper and wrote out a bunch of categories (rent/utilities, food, entertainment, school, etc). Then I used my bank/credit card statements to tally up how much I had spent in each of those categories in the months previous, one month at a time, going about three months back.

Then I looked to see how much was left over "naturally." I rounded that number up so it was a figure that was relatively easy to keep track of -- that was the amount of my fixed transfer.

The point wasn't to cut my current spending, it was to keep me at an even keel in terms of spending. I think that's a key point -- it sounds like you have a tendency to do alright on your spending at any given time, but when it feels like money is getting freed up (like when your debt gets lower), you'll blow some money and wind up back where you started or worse. That boom-and-bust cycle is something I do, too.

So for me, and I suspect for you, cutting everyday expenses is just going to play into that cycle and the money saved on canceling Netflix is just going to get blown on a big night out or some lavish present or something in a month's time. What I needed to do, and what I suspect you need to do, is to keep the everyday spending high enough that you lessen that impulse to blow any "extra" money, and also to keep that "extra" money inaccessible enough that you have (logistical) trouble spending it anyway.
posted by rue72 at 2:37 PM on November 4, 2013 [2 favorites]


Identify the prompts that cause you to spend irresponsibly. Catalogs with tempting pictures of stuff you really don't need? Co-workers who are conspicuous spenders? Check your lifestyle and see what makes you splurge - then avoid all those circumstances. Convince your self that you are too smart to fall for advertising. You do not need to be the source of bonuses for credit card purveyors.
You do need to get rid of interest accruing debts!
posted by Cranberry at 3:33 PM on November 4, 2013


Nthing You Need a Budget. Believe me, I hate choking the $60 for the program (even as I have other expenditure problems), but I've spent the last 2 weeks searching the Internet for a computer + smartphone based app and this is The One. Sigh. I bow down before the Powers That Be. They have a free 30ish day trial, so be sure to take advantage of that.

I've only been using it for a few days, and I'm already noticing that my behavior is changing. Since I make it a rule to record every single transaction on my phone then and there (and the iPhone app is great, foolproof to sue), I'm starting to avoid spending where I otherwise would have - I'm becoming more conscious of that.

You just need some behavior modification tools. With your salary, your debt isn't insanely unmanageable. Breathe a sigh of relief. And start recording, and you'll start taking behaviors to minimize your expenses.
posted by Unangenehm at 4:27 PM on November 4, 2013


Dude, you could knock this out in less than a year.

Well, many could, but I think spending is a bit like breathing. It's easy for people to hold their breath for a short while, but it's a short term solution that leaves you gasping for air quickly, feeling worse of than before. But with the right training you can habitually lower your respiration rate. Or something. So first, prepare emotionally. Take a few deep breaths of relief. You've got a large chunk of credit card debt, a backlog of IRS quarterly payments, and yet you have enough income you can make this all go away quickly.

First thing you need to do is put together an annual budget. The point of an annual budget is to give you an appropriately wide timescale to plan for everything, and to not fret about short term deviations in income or expenses. It's also simple enough that you can model it in a spreadsheet and still get plenty of automation. Because you live in a high tax state like California, and you have a history with the IRS, it's probably a good idea to account for taxes in your annual budget. These can be pretty complicated, but the spreadsheet above has worked for me as a single dude living in multiple states.

There's two things about budgets I think you should understand: they're planning devices, so it's important you have a realistic plan, and it's important that you have a goal to plan around. For some people, earning more than you spend is all the more goal a budget needs, but in your case you might want to shoot for paying your debt down aggressively. Or building your net worth up (mostly the same thing).

Beyond budgeting, automation is a key component. You have a limited time you can hold your breath, so you want to use that to set up systems that operate in the absence of your most rational self. For example, you could write a rent check every month and drop it off at your landlord's office, or you could set up direct deposit to a bank account that has an automated rent check cut and mailed to the landlord for free.

If you want to start a business I recommend you start applying double entry accounting principles via Quickbooks or GNUCash to your personal life. It's been pretty instructive for me in cleaning out some old bad habits. It also provides a crystal clear cash flow picture that the annual budget lacks. I have a couple dozen recurring transactions set up to predict where I'll be receiving and spending money in the future (which is depressingly simple). This lets me know when I might have an unexpected shortfall of funds, so I can transfer money from savings, or otherwise jigger up some short term funds.
posted by pwnguin at 5:59 PM on November 4, 2013


The above advice is good, so I just wanna throw in some support: I am right around your age and make less than 90k, living in LA, but my rent costs the same as yours. 2.5 years ago I decided to get serious about paying off $40k+ in student loan debt, and before my promotion last year, I was making WAY less than 90k.

Still, I finished paying off Sallie Mae last month! In retrospect, I think I could've paid it off even sooner if I'd gone really crazy about not spending. I still ate out a few times a week/bought some nice shoes -- my willpower is not the strongest -- i.e., I still led a pretty enjoyable life. Does 2.5 years seem like a long time? Sometimes, it felt like a *really* long time! But it isn't, really.

Methods: I have a spreadsheet with 2 worksheets. The first never changes -- it just shows my monthly income and recurring expenditures, so I always have those numbers in my brain. The second worksheet has rows where I can enter my daily expenditures, updated every other day or so -- I keep my receipts until they're on the sheet.

Updating the spreadsheet on a regular basis keeps me constantly aware of whether I'm about to go overboard on any given week. Then I know when I should spend a weekend here and there cooking up extra food to take to lunch every day for the next week. I love cooking, though, so YMMV.

Staying motivated: I listen to Dave Ramsey's podcast when I realize I've eaten out a lot one week, or feel tempted buy more shoes. I don't neccessarily follow his recommended program, but listening to other people's problems/victories gives me perspective and reminds me why I want to be responsible with my money.

Two things Dave is right about: 1) Credit card debt is verboten from now on!! 2) build up an emergency fund before you do anything else. The additional security of that carries huge psychological benefits.

Best of luck -- you can do it!
posted by estherbester at 10:16 PM on November 4, 2013


I make quite a bit less than you and pay more rent than you, and I'm fairly sure I could knock out that much debt in 5-6 years, easily. I just knocked out 6k in debt in less than 9 months.

Then set up your direct deposit to split off $1000/mo into a separate account to pay your bills, maybe more.

Then buy everything else you want with cash. If you can't buy it in cash, you can't afford it, period.

As far as debt goes, this is EASY. You can do this.
posted by empath at 10:49 PM on November 4, 2013


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