My SHINY Nickels

Live Smart. Save Money. Retire Early.

Don’t Be Afraid to Make a BIG Change

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“Downsizing”…it’s been a buzzword for the last few years.  Companies are downsizing, folks are downsizing their homes, heck even my Nature Valley granola bars are smaller than they used to be. (Did they think we wouldn’t notice? Sorry, off-topic.)

Fortunately, I haven’t been on the receiving end of a company downsizing, but we did choose to downsize our home.  This was part of our “let’s get all ninja-like” on that $40k of debt we had. Plus, we knew we had to get our living expenses down ASAP if we were going to stop living paycheck-to-paycheck.   Naturally, we looked to our  biggest expense…housing.

Our mortgage was about $400k, give or take.  The PITI payment (Principal + Interest + Taxes + Insurance) was just shy of $3,000.   Aye, aye, aye.  So we did something drastic.  We sold our house and MOVED.  Now, let me tell you that I get it…I really do…people are attached to their houses…”Waaaaaah!!! I brought my babies home here…I installed the tile in the bathroom myself…the concrete driveway has our handprints embedded with our cutie-patootie names scribbled next to them! Waaaaah!!!”

I didn’t say it was easy.  NOT AT ALL.  But the house no longer fit our financial goals, plain and simple.  Was it nice living a cushy life in the suburbs, sitting in a 2,600 square foot house with an elegant two-story entry and custom backyard?  Um, yeah.   But was it too much space for too much money?  Absolutely.   It wasn’t hard to come up with the “cons” of downsizing; it’s a pain in the @ss to move, we liked our nice roomy house, we wouldn’t have 3 bathrooms anymore, where would everyone gather for Christmas, blah, blah, blah.  We had to think a little harder to get our list of “pros”, but we did…

  • Less square footage to clean / maintain / furnish
  • Smaller home encourages more family interaction
  • Lower heating / cooling costs
  • Lower insurance costs
  • Lower property taxes
  • LOWER MORTGAGE PAYMENT!

So we did it.  And we don’t regret it for a single second.  We sold our primary home and moved in to the 980 square foot rental we owned, that also happened to be my husband’s childhood home.  The home was passed down to him, so the only debt associated with it was a small $75,000 remodel loan he used to spruce it up and modernize it.  As a bonus, the tax basis of the house also passed down to my husband from when his parents owned it, so our TOTAL ANNUAL property taxes were now only $500.  Yes, only 2 zeroes there.

Here’s the breakdown:

Big House Small House
Utilities 420 190
Insurance 100 35
Property Taxes 410 42
Mortgage Pmt (P+I) 2,390 500
Monthly TOTAL $3,320 $767
ANNUALIZED $39,840 $9,204

Just looking at the monthly difference, our cash flow increased over $2,500 from that one change alone.  That’s OVER $30,000 ANNUALLY.   Remember, this is just MY experience.  Yes, we had another home at our disposal with a very low loan and ridiculously low property taxes.  My case may be an extreme example, but even if someone downsized and had half the results we did, that is a SCORE.  And I haven’t even mentioned home equity.  In northern California, where we live, there was no equity to be had when we sold.  But for some of you, it may be smarter to sell your house, move into a rental, and throw that equity at your debt/savings.

So this is the point where you start looking at priorities.  What’s important to you?  Continuing to pay that too-expensive rental/mortgage payment…or get out from under the high cost, the high stress and get control of a major expense? For some of you, it may not make sense to go through the hassle of moving just to save $200 a month.  But I’m fairly sure that for many of us, we’re spending too much of our income just to keep a roof over our head.  I dare you…run the numbers yourself…what do you see?

The Journey Begins…

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Interestingly, the business trip that started our whole debt-elimination journey ended up cancelled. Figures. But the fire that had been lit by that circumstance was far too hot to fizzle out at this point. I was determined and I was focused; we would start a savings account and then throw everything we had at our debt. I went into a Google-frenzy; searching and finding all sorts of personal finance articles/gurus/blogs.

My my my, the things I found. It seemed that for every true financial mentor that was out there, there were 10 more that were purely charlatans, masquerading as a financial know-it-all in the interest of making a buck. In these early days, I was drawn to Dave Ramsey. (Now before you start ‘flaming’ me with anti-Ramsey comments, go back to the beginning of that sentence, emphasis on ‘early days’). He had a simple approach, what he calls “Baby Steps”.

He begins with building a small emergency fund, and moving on to knock out debts one-by-one with the “Snowball Method”. For those who don’t know what the “Snowball Method” is, google it and come back. There’s plenty of people on the web who describe it much more eloquently than I could hope to. Moving on…

And frankly, this worked for us. We didn’t follow his plan to the letter, but he provided the basic framework as well as some motivational stuff to chew on. We saved up our $1,ooo emergency fund rather quickly. Then aimed our efforts towards our debt pile. It may not be as high as some, and it may look gargantuan to others, but we had about $40,000 in debt across a few credit cards, a couple personal loans, and an auto loan. This does not include our mortgage, which was about $400k at the time. (Even now, that number still makes me cringe.)

I’m an impatient person by nature, and this whole debt nonsense…well, I wanted to get ‘er done. Like yesterday. But where to begin? Well, there’s a few ways you can start the debt elimination process. Some start with the debt that carries the highest interest rate, others start with outstanding debts to friends/family, and some start with the smallest balance in order to get a quick, psychologically-satisfying win right off the bat. Unless you’ve already forgotten the very first sentence in this paragraph, you should be able to guess that we went with…the last option. I needed some quick results to keep my momentum up. Normally I’m much more strategic in how I approach problems, but in this case, my impatience won out. But oh how glorious those first few “wins” were. We started with the easiest one…a Capital One credit card with a balance of $1,500.

From that point, we moved from debt to debt, until we reached our last one, an auto loan for $15,000. However, let me step into the confessional booth and pull the curtain behind me for a moment. (Wait, is there a curtain? Or am I thinking of a photo booth?) Anyway…we weren’t perfect. We had moments of “we’re doing fantastic, I deserve a (fill in ridiculous materialistic item here).” But what counts is what you do MOST of the time, not what you do SOME of the time. So while we may have delayed our debt-free status by a month or so by squirrelin’ around, we got there eventually.

On April 19th 2013, we celebrated. We were officially debt-free (except for the mortgage, but that’s a whole other post…soon to come). Mr. Nickels took me out to my favorite high-end restaurant and we enjoyed a luxurious dinner…and paid with CASH.

The First Wake-Up Call…yes, there’s more than one

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I’m blissfully sitting at my kitchen table, working.  It’s 2011, late December, just before Christmas.  My husband is just home from work, relaxing in the family room, where our dog, Piggy, is curled up tight in her favorite napping spot, snoring.  Then it……well, happened. An ordinary moment from the outside, but one that would change my life more than I could have imagined. This moment would never make the front-page news or even be worthy of a Facebook status. But none of that mattered.  It was my first wake-up call. Telling me I was BROKE.

As I said, the moment was rather benign and ordinary. I get an email from my boss, saying that I’ll need to make a business trip.  “Go ahead and book everything, and submit your receipts when you get back,” she said.   The travel policy was for employees to front the cost of the flight, and the company would reimburse us after the trip had completed and all receipts had been submitted.

No problem. Let me just check my credit card statement.  (The fact that I went there first should already be telling you something.) The number sitting under ‘Remaining Credit’ caused things to move in slow-motion. $90.  That’s all we had available?  When did that happen?  Ok, maybe we have enough in our checking account. Being in the last days before  payday, we had a hefty ‘ol $52 in our bank account.

I sat there for a few minutes, frozen.  For so long, I’d always made it work.  I could usually juggle things well enough to get money from somewhere, or put it on the trusty credit card if I had to. I’d made a fairly reliable routine of paying it down “just enough” to get more breathing room.  But this time, there was no way out. I sat still and silent for a few moments. Once my reality had some time to sink in, the tears started flowing and so did the inner monologue.   “How the HELL did you get to this point?  How can someone make decent money yet be so poor?  You’re pathetic, you can’t even float a $400 plane ticket…”

I continued to sob.  Then I sobbed a bit more.  Finally, the tears dried, and I felt a surge of financial self-preservation kick in.  “This madness ends today”, I told myself.  The days of living paycheck-to-paycheck were over.  And with that, the journey began…