My SHINY Nickels

Live Smart. Save Money. Retire Early.

We’re Getting an Unexpected Windfall…What Would YOU Do With It?

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Every once in a while, a sweet little cash angel may drop an unexpected gift in your lap.  Sometimes it’s just $20 from a coat pocket, or a crisp $100 bill laying on the ground (this actually happened to me).  But if you’re lucky, it turns out to be a whole lot more than that.

On Monday we received a letter in the mail.  It was from Kodak, my husband’s former employer, asking if he wanted to cash out his pension benefit.  It’s not a large pension, but it would have provided a fixed $6,600 annual payment once he turned 65.   Now they want to cash us out with a lump sum.

Hmmmm.  Interesting.

Turns out we have 3 options:

  1. Take the lump sum in cash (which means a 20% tax withholding and a 10% early withdrawal penalty)
  2. Receive the annuity as originally intended
  3. Take the lump sum and roll it directly over to another qualified retirement plan (no tax withholding or penalties)

So how much is this unexpected chunk of money they’re offering?  

$32,050.20

And with unexpected chunks of money, come decisions.

Decision #1

Take the lump sum in cash?  No way.  Uncle Sam will take 20% in taxes right off the top, as well as a 10% early withdrawal penalty because Randy is not at least 59 ½.  (And… we could still have a huge bill come tax time depending on which tax bracket that extra cash pushes us into. Ack.)

Leave things as they are and just receive a monthly check?  No thanks.  We can invest the entire lump sum ourselves, and get a better return than if we took the monthly annuity option.  So that leaves us with…

Roll over the entire lump sum into another qualified retirement plan?  Yes, please.

Why?

We don’t want a single cent to go to Uncle Sam…yet.   We want every dollar working for us, growing over time.  When it’s time to withdraw, the government will get their cut.  But for now, we want tax-free growth.

And in order to accept the lump sum without that tax withholding or the early withdrawal penalty, it must be transferred to another tax-deferred plan such as a Traditional IRA or a 401k.

Decision #2

Traditional IRA or Randy’s current employer 401k?

If we roll it over to a Traditional IRA, we can’t make (penalty-free) withdrawals until he turns 59 ½, but the IRA will allow us access to all of the low-fee index funds we want to invest in.  If we roll it over to his 401k, he can withdraw the money beginning the year he turns 55, but our investment options are limited to only those his employer offers.

So…drum roll…we’re going to take the lump sum and roll it over to a Traditional IRA.

We’ll have enough saved in other accessible accounts when we begin our early retirement that we shouldn’t need to access this money (or the money it generates) until after he turns 59 ½.  So we’ll open a Traditional IRA, invest the cash in solid index funds and let it marinate for a while.

The decision, for us, was fairly easy.  We looked at each scenario logically, and determined that we would get the most benefit from rolling it into a Traditional IRA.

Why I Am Telling You This Less-Than-Fascinating Tidbit of Our Life

As I said, the decision for us was pretty easy.  A little bit of math and a long-term wealth-building outlook, and we had our answer.

But the sad truth is that for others who find themselves with a lump sum of cash, the decision is made with emotions, not logic.  They don’t have the luxury of sitting back and deciding how this windfall could benefit them long-term.  They can’t see beyond next week,  let alone 5…10…20 years from now.

When your financial life is in chaos, you just take the cash (and the 30% tax/penalty hit) and run.  Maybe there’s unpaid credit card bills, or you’re behind on your mortgage.  So you cash out to get yourself back above water.  Or worse, you see a big shiny car/boat/thing-a-ma-jiggy that has your name on it.

(Now, just so I’m clear, if you’ve got debt, and your intent is to pay it down and become debt-free, then cashing out and paying it down (or off!) is the best thing you can do.)

But my real point is that when your financial life is in order, you can make the decision using logic, allowing that windfall to really work for you. 

A jumpstart towards building wealth.

So don’t wait and hope for a windfall to rescue you from your money troubles.   Get (or stay) debt-free now, so that if/when the sweet little cash angel drops a windfall in your lap, you can use it to really build wealth and be ahead of the game.

 

 

P.S.  Remember that $100 bill I found?  I was 18 years old, on vacation in Hawaii.  I was walking down a path to the beach at Hanauma Bay, and there it was, a fresh $100 bill just lying on the ground.  Not a soul was in sight, so I picked it up and stuffed it in my beach bag, with a grin a mile wide.

Fast forward to a few months ago, and I’m telling the story to my son.  With a look of excitement, he asked if I still had the $100 bill.  I told him, no, of course not, that was almost 20 years ago.  Then he stomped off and pouted, mad that I had spent it.  It was kinda funny, but I have to say I agree with him.  Sigh.

Your Starbucks Habit is NOT Why You’re Broke

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I’ve just about had it.  If I see one more article/blog post/tweet telling me that I need to give up my foo-foo coffee habit in the name of finance, I’m gonna…well, I don’t actually know what I’d do. But enough already!

There’s always somebody whining about Starbucks.  It’s wasteful.  It’s indulgent.  It’s unnecessary spending.  Yeah, yeah, yeah.  But it’s about time the budget nazis get back behind the scope of their blame cannon and pick a better target.  (Wow, it felt good to get that out.)

Starbucks (or Peets or Coffee Bean & Tea Leaf or…) is hardly the reason why our piggy banks are empty.

If you’re broke, should you be indulging in foo-foo coffee? Probably not.  But is that the reason you’re broke?  Probably not.

We’re neck-deep in oversized houses and overpriced cars, and we’re worried about what coffee we’re drinking?  Why are we so afraid to tell each other the hard truth?  We’re spending too much in every area of our life.  Plain and simple.

It’s like we’re walking among the wreckage of a tornado, and starting the clean-up by dusting what’s left of the mantel.

The truth?  I enjoy a well-crafted cup of foo-foo coffee all the time.  Sometimes I’m on my own, with just my laptop and a latte.  Or sometimes I meet up with a friend and have a long-overdue catch up over espresso.  I love it all.  The aroma, the soft adult contemporary background music, everything.

I’ve said it before, and I’ll say it again. The key is to find what really makes you HAPPY, what gives you the most PLEASURE, and spend more loosely in those areas.  Then cut back on the big stuff that doesn’t make you blissfully content.  You’ll find you have money you didn’t think existed. Does the extra square footage you “had to have” make you smile each morning?  Six months in, does the new car bring you true joy?

Once you start prioritizing your finances according to what’s really important to you, you’ll have money to buy your latte and drink it too.

Breaking the Million-Dollar Car Habit

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The BMW Z4. 2 years ago, we came dangerously close to buying this.

I used to have a car payment. Several different ones over the course of my life, in fact. Now that I think about it, I had a monthly car payment of some sort for 13 years non-stop, beginning when I was 20.  I went from a Honda…to a Mazda…then a Toyota…then another Honda…then a Ford…then another Mazda…and finally a Mercedes.

And until we paid off the Mercedes a few years ago, I had never driven a car that was debt-free.  EVER.  It had never occurred to me to just keep the same car.

mercedes

June 2009 — The day we bought the Mercedes. I’m not sure what I was attempting to do with my leg here, but I guess that’s what I thought people did when they posed with their new car. Instead, I look like I’m missing a leg and that my torso is super-glued to the door frame. Fail.

Cars have their appeal, I get that.  They once appealed to me enough to hand over hundreds of dollars a month for the simple task of moving my behind from Point “A” to Point “B”.  But to what end? We all know what happens. It’s the law of diminishing returns. The first few months in a new (or new-to-you) car feel exhilarating.  The pungent aroma of fresh pleather/leather/plastic/vinyl fills our nostrils, causing the pleasure sensors in our brains to light up like the 4th of July.  (That smell is so desirable, you can actually buy one of those little dangly air fresheners in the scent “New Car Smell”. Wow.)

newcarscent

You didn’t think I was joking, did you?

Anyway, as the months and years pass…you trade it in…accepting less than it’s market value just to “get ‘er done”…buy another hunk of steel and rubber to move yourself around…the months and years pass…are you sensing a pattern here?  Ok, good.  I thought it was just me.

I used to be that person.  I was stuck in the cycle until I figured out that if I want to reach my financial goals, I need my money working FOR me, not AGAINST me.  So I did a rough calculation.  How much money did I throw away on car payments during those 13 years?  (Do I really want to know? No.   But for the sake of illustration? Yes.)

13 Years  x  $400 average monthly payment = $62,400

Oh, how that number pains me.  Really, it does.

But if you take into consideration the opportunity cost of throwing that money away, the numbers get worse.  So let’s continue the self-deprecating fun with numbers, shall we?

If I had saved that same $400 a month for the first 2 years (25 months), I would have had $10,000 to buy a well-made, fuel-efficient, no-one-would-laugh-at-me car, with CASH.  That car would be driven (and maintained!) for at least 10…15…maybe even 20 years.  (Stay with me, we’re not done yet.)

So I now have my $10,000 car, paid for with cash, but I continue to save that same $400 I would normally be paying in car payments, for the remaining 11 years. Do you know how much I would have at the end of the same 13 years?  If I had invested that additional money, with an average 9% return, I would have a PAID-FOR car AND…

$89,672.62

Seriously!  The math doesn’t lie.  But this is so depressingly fun, let’s take it one step further.

Sadly, since many people consider a car payment as “part of life” and have one (or more) for much of their working lives, let’s say that I continued to save that $400 each month, as if I had a car payment, for a full 35 years. Do you realize how much I would have?…at the age of 57?

$1,176,736.85

AHHHHHHHH!!!   Let’s go bang our heads against a wall, because that, my friends, is what we miss out on when we decide to jump in to the buy/trade-in/buy/trade-in/buy cycle.

Can you imagine your life without a car payment? What would that mean to your finances?

Do the math.  If you were investing your car payment(s) instead of sending it to the CEO of Ford Motors every month, what would you have in 5…10…20…35 years?  Seriously, do it.  Find a simple savings calculator online, like this one at Bankrate.com, and put in your monthly car payment(s) as the monthly deposit.  Set the Annual Interest at 9%, and play with the number of years.  WARNING: The results may depress and/or inspire you.

So get off the merry-go-round already.  Sell your car, pay off your car, whatever you have to do to get rid of those ridiculously dumb car payments.

Or….don’t.

But be sure to take a good l-o-o-o-o-o-o-n-g whiff of that new car scent every few years…you’ll need it to drown out the smell of your million dollars going up in flames.

So You Want to Retire Early? It’s All About the Numbers

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numbersA comment from a reader on my last post, Would You Rather Have Money…or Look Like You Do?, asked for some ‘nuts and bolts’ information on our ‘retire early’ strategy.  I was planning on writing this in the near future anyway, but moved it to the front of the pack. So “Paul V”, this one’s for you. My motto “Live Smart. Save Money. Retire Early.” pretty much sums up our strategy. We’ll go through them one-by-one.

1.   Live Smart.

This means cutting back on at least the ‘big ones’…housing, car expenses, food…and, when possible (it often is), increase income.  We made most of these changes as soon as we decided to turn our financial life around.

Efforts we made to LIVE SMART:

  • Downsized our home.  (This may mean renting out your current home and renting something smaller and less expensive, or selling your freakishly-large McMansion with the equally-large property taxes.  Don’t be afraid to make a big change, especially if it means big monthly savings.)  Even a $500 monthly savings = $6,000 a year.  We saved thousands per month when we downsized.
  • No car payments.  If your current vehicle is worth more than $10,000…sell it and buy something less expensive and practical.  There are plenty of used cars that are economical and would pass the coolness test.  Once you sell, invest the cash difference, if any.
  • Cook more, eat out less (when you do eat out, go somewhere that gives you high pleasure-per-dollar.  If you’re going to pay someone else to cook and bring you food, it should be WORTH IT.)
  • Buy groceries in bulk – we shop almost exclusively at Costco.
  • Make sure you’re getting paid what you’re worth.  If not, seek out a higher-paying job.  (My husband found a new job making 30% more, even in a depressed job market. It’s worth the effort.)
  • Increased our auto insurance deductibles to $1,000, and because our vehicles are paid off, dropped comprehensive coverage completely.  These two changes cut our monthly premiums by 50%.  We comparison shop every year, and the best value the last 3 years in a row has been esurance.com.
  • Lowered our heating/cooling bill by 30-40% after installing The “Nest” Smart Thermostat. Paid for itself in 3-4 months.
  • Learned some DIY tricks.  Treat every repair/maintenance issue as an opportunity to do it yourself.  This won’t always be possible, but it’s always worth looking into.  Start with small projects, and work your way up to bigger things.
  • Once we made the changes above, the monthly cash we freed up skyrocketed.  We eliminated our debt, and then started Step 2…Save Money.

2.    Save Money.

  • Before you can know your own savings strategy, you need to play around with the numbers and see what different savings models do to your timeline. Go to Networthify.com and use their early-retirement calculator.  I suggest using 9% as your rate of return, and 4% as a safe annual withdrawal rate.   We plugged in our numbers, with a 60% savings rate, and it gives us an estimate of about 7.5 years until retirement.
  • For those with a net annual income of $100k or more, you should be aiming for a 50% savings rate…if you want to get hard-core, and really shorten your timeline, aim even higher.
  • Our first savings efforts went towards our employer-sponsored retirement plans (401k).  Next we each opened a Roth IRA at Charles Schwab.  Then the rest of our savings is invested in a regular taxable brokerage account, also at Schwab.  I like Schwab; their website is intuitive and simple to use, and opening a new account is as easy as it comes.  They process deposits and purchases quickly as well.
  • Invest in low-cost index funds
    • The mutual funds you invest in should never have expense ratios of more than 1.0%.  (Take a look at the ‘fact sheet’ for each mutual fund, and search for ‘expense ratio’ or ‘net expense ratio’.  This is how much the fund manager will charge you to manage your investments.)  That’s why index funds are so great.  Their expense ratios are usually 0.25% or less, which means they take a much smaller cut of your money to manage it.
      • Example:  If you have $250,000 invested in “Mutual Fund A” with a 2.0% expense ratio, they will take $5,000 out of your fund in fees each year.  If you have that same $250,000 invested in an index fund, “Mutual Fund B” with a 0.25% expense ratio, they will only take $650 each year.  Invest in index funds and keep more of your money.
    • The majority of our money is invested in four (4) index funds.  50% is in an index of the S&P 500, 20% in a medium-cap index, 20% in a small-cap index, and the last 10% is invested in an international index.  We’ll eventually move some of our balance to a bond fund (less risk) as we get closer to our retirement date.

3.    Retire Early.

  • If you used the handy calculator I suggested in Step 2, you should have a good idea of what your savings strategy will be and the timeline until retirement.
  • When your investments reach the point that a 4% annual withdrawal rate will cover your desired expenses, you are financially independent.
  • When you retire, you’ll continue to live smart, spending money on things that mean the most…for us this will be travel and eating good food.  In every other category, we’re going to live as economically as possible.
  • Check out one of the best posts I’ve seen on the math behind early retirement, by a blogger known as Mr. Money Mustache.  Both he and his wife retired at 30 years old.  He does a much better job explaining the early retirement strategy than I ever could.

 

Once you understand the power behind extreme savings rates and compound interest, the goals you can reach will blow your mind. Someone starting with a $0 balance, who begins saving 50% of their 100k net income can retire in 13.7 years with nearly $1.4 million dollars.

After my husband and I started living smarter, we were able to quickly pay off our debts.  Then the extreme saving/investing started.  We couldn’t believe how much we were able to put away.  Many times we’ve said to eachother, “Why did we wait so long to wake up?” 

Would You Rather Have Money in the Bank…or Look Like You Do?

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A few weeks ago, while sifting through an old memory box, I came across one of my childhood diaries.  It looked so aged; the bright pink and blue pattern on the cover had faded over time to dull pastels.  But the sight of it brought me right back to that time. 1987.  I was 9 years old.

I couldn’t help myself.  I cracked it open.  I began to read the excited, innocent and often dramatic musings that I wrote as a young girl.  One entry struck me.  It read:

“Dear Diary,

Yesterday was the best day ever.  We’re so rich.  My parents bought a new Camry, and my brother and I got a bunch of new toys. I also got a new pink sweater from Mervyn’s.  It’s SO CUTE! [entry continues…]”

Logic as a 9-year-old was that if we’re buying these new things, then we must have a lot of money.  But, we really didn’t.  My parents were financially responsible, so the fact that a new car coincided with a couple of new toys and a sweater was purely coincidental. It provides an interesting peek, however, into how I perceived wealth and money at that age.  A new car, toys and clothes were indicators that we were financially set.   But the reality was that while we were not living in poverty, we were not wealthy either.  We were a typical middle-class family with my dad as the wage-earner and my mom who was the stay-at-home parent.  We always managed to have enough, but we were far from rich.

The day I wrote that diary entry, I remember well.  I recall the excitement I felt.  But my feelings were connected to something greater than the thrill of newly-acquired material possessions.  I couldn’t have really known, or even described the greater sense of relief I felt, but looking back now, buried under the excitement was a calm peace that comes with financial security.  It may have been an illusion, but I felt it nonetheless.

Has Anything Changed?

This retrospective look back at my view of prosperity at 9-years-old got me thinking.  26 years later…what are my perceptions of wealth now?  What does it mean to be successful/prosperous/wealthy?  I can already say for certain that I’ve passed through several “stages” during these last 26 years.

In my late teens, being well-off meant your parents bought you a brand new car for your 16th birthday, and at anytime you could request a small lump sum of cash for a trip to the mall. You would not be questioned as to whether your household chores had been completed, as you had none.  Then came the “house-poor” 20’s.  I had a well-paying job; it was a race to see how much I could acquire, and I figured that the bigger the house, the more successful I must be.   Cars, a larger home, TVs,  nice furniture…check. Going into my 30’s, I began outsourcing various tasks I found unpleasant.  A weekly cleaning service was hired, a gardener began to take care of the yards, a trip to the nail salon every week or so, an expensive hair stylist, and a monthly restaurant expenditure of $1,500 a month.

What those years represent is the chasing of a feeling.  The constant, relentless pursuit of that moment when you feel that you’ve arrived and you’re finally living in abundance.  But despite the fact that I was surrounded in nice things, in a spacious suburban home, with hired help taking care of less-desirable tasks, that moment didn’t come.  I was still viewing prosperity through the glasses of a 9-year-old girl; if I just acquire enough, it will mean I must have lots of money.  It will mean I’m financially secure.  But, I wasn’t.  I had cars, but no money.  I had nice furniture, but no money.  My kids were in private preschool, but I…had…no…money.  While my gardener mowed my lawn, he probably had more in his checking account than I did.

Do You Feel Successful Now?……How About Now?……Or, Now?

But what I find interesting, is that during all of the mad, crazy spending I never felt “prosperous”.   It was just my life.  Even though our bank statements showed some nice deposits, it showed withdrawals at the same rate or faster.   Every month was just another run on the hamster wheel.  Money comes in, money goes out, without anything meaningful to show for it.  Annual pay increases would come, and…nope, still didn’t feel financially secure; and they were often spent before they were earned.

When my spending finally caught up with me a few years ago, I had my first financial wake-up call.  I had reached the bottom of a giant chasm, and there was nowhere left to go but up.  We turned our finances around with a fierce intensity. Soon the $40,000 in debt was paid off, and then we had our second financial wake-up call.  It wasn’t long before money was being saved…at a very fast rate.  The chronic stress I didn’t realize I had, was falling away.  With every deposit into our investment account, I had a feeling of exhilaration.  And the “high” wasn’t temporary.  At any time, I could check our account, and see the progress we were making.   I was no longer chasing the high that comes with the consumption of “stuff”.   I moved from the “law of diminishing returns” to a place of increasing returns.  Returns on investments that were growing on a daily basis.

For me, feeling financially at peace didn’t lie in what we spent, but in what we kept.  For so long, we spent all of our money and energy chasing the ILLUSION of prosperity, instead of prosperity itself.

And while we spend less and save more than we ever have before, we’ve managed to simultaneously increase our satisfaction with life.   I find happiness in things where money isn’t necessary; playing board games with my children, making s’mores in the backyard, a bike ride and picnic with my husband.

The Milestone

I’ll never forget the excitement when we reached that first $100,000 milestone.  In 2 years, we had gone from $40,000 in debt to $100,000 saved and invested.  I stared at the number, took a screen shot on my laptop to capture the moment, and smiled.

100kMilestone

Sitting there on the sofa in my living room, the smile soon turned to a release of tears.  Not a flood, but just a few.  I could barely grasp what we’d accomplished, yet I could see our future in my mind; imagining where we’d be in a month, a year, 5 years.

The excitement was familiar to me; but this time it wasn’t connected to the thrill of newly-acquired material possessions.  This time it wasn’t an illusion of financial security as seen by a 9-year-old girl.  I was excited and at peace, and this time…it was real.

 

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…