(Yikes, this was much longer and much more cathartic than I intended!! Sorry!!)
This is an interesting discussion.
What I am finally figuring out, after years of good intentions that resulted in bad mistakes, is that the secret is finding a system that works, that makes sense, and most importantly - one that you can live with and stick with.
For many years, I tried doing this-or-that financial thingy because some financial guru recommended it. More often than not, I only did about half of the work necessary and ended up in worse straits then before. Having the absolute best of intentions, but absolutely no self-discipline is a recipe for financial disaster.
So, I'm learning to deal with my own personal weaknesses, and in a way that will work for me.
For example: If I have any noticeable money in savings (that I can get to easily), I will spend it. I just will. I tell myself that the savings is for emergencies, but, then somehow, buying a new computer will seem like an emergency. And poof! The savings is gone.
So, against all rhyme or reason, I had to create for myself a system that has no savings and no cushion. (Please understand that I do have a 401K that I contribute mightily to).
I use a MASSIVE spreadsheet that contains every possible bill, allowances for food and gas, and things that I know I want (like eating out with friends, or a vacation, or a set of golf clubs) in the future, and most importantly - large payments towards my credit cards!! I am at $32k in CC debt, 90% utilization - did I mention a lack of discipline?
I track future (18 month) expenses to the PENNY and to the DAY. I committed myself to a payment schedule that leaves no room for error, and I spend about a half-hour on each and every lunch break fussing with it. Some days I only have $12.96 in my checking account, in the past, this would have worried me since I would have no idea what checks or ECH would come out. And I was always bouncing checks. But now, I can tell from my spreadsheet that I am safe with $12.96, since the next bill/check/etc won't be pulled until after my next direct deposit.
I shredded 3 of my 4 credit cards (accounts are still open). I use the one remaining card to track my gas and food allowances. I went to paperless billing. I now have no easy access to my account and CCV numbers. Previously, if I just kept the cards in a sock drawer for emergencies then somehow buying new clothes for work would turn into an emergency in my mind. And if I just had my account number and CCV, I ended up making a lot of online purchases.
My emergency plan for true emergencies? I have one BT check from each of the shredded cards in a block of ice in my freezer. Yes, paper checks, in ice. If something goes very, very bad, I will have to wait for the ice to melt, and for the checks to dry.
On the face of it, I know this is the stupidest plan ever invented. And there is no way I could pull this off if I had a family to care for or if there was any sort of turmoil (besides financial) in my life, or if I didn’t have a passion for Excel. But, for me, at this point in my life, it is more important to pay down my 25% interest rate debt, than it is to have any savings at 5% (which I would then blow anyways).
The funny thing: IT’S WORKING! Having no cushion forces me to stick to a budget, which I never could do before. If I go out with friends unexpectedly and spend $20 on booze, I then know that I will be eating beans and rice for the next week since the only place for the money to come out from is my food allowance. My friends have gotten used to me saying, "Sorry I can't do that (or buy that), it just won't fit into my spreadsheet right now". This system has finally taught me that foolish spending today means I have to sacrifice something else tomorrow. And that I have to make a choice, I can't have it all. It has been a hard lesson.
Without the luxury of savings to abuse, I can no longer just “hope” that that my finances will all work itself out. I have to predict, track, juggle, and scrutinize every dollar going in to and out of my checking account. I now argue with customer service if there are unexplained amounts on my bills. I eliminated several nagging monthly subscriptions I didn’t know I had. I actually negotiated for a better DSL rate with Comcast. I now turn in all my expense reports at work – even for the minor stuff I used to ignore. If I think I am going to use up my gas allowance too soon, I start biking to work. How many of these things did I do before? I’m sure you can guess.
I haven’t had an overdraft fee, overlimit fee, check advance fee, late fee, or new credit card charge in three months; this is a huge thing for me! Most importantly, my CC utilization is dropping by 2% every month, and that will increase exponentially as my balances go down. I can now predict to the day (June 16, 2010) when I will be out of debt. I know it will happen – if I don’t lie to my spreadsheet, it can’t lie to me. And, maybe, just maybe, I will finally develop the financial self-discipline I so desperately need.
I think my point is that there is no absolute right answer that fits all people. The most important thing is to really honestly evaluate who you are, where you are, and your strengths and weaknesses. Then you have to educate yourself, find a system, method, plan, whatever… that plays to your strengths and locks out your weaknesses (because you won’t eliminate them…at least not right off). I think in many cases, certainly it was with me, that the reason we are in a financial mess is due to a delusional optimism and intentional blindness with regards to reality.
If Dave Ramsay’s program works for some people, that it is an excellent program for those people. Having a system that some people can stick to, is worth sacrificing an interest rate point here or there. For some people, there is no middle ground between having lots of credit and lots of debt OR having no credit and no debt. Some people need it to be black and white to be able to deal with it.
Just like some people need a gigantic spreadsheet, BT checks in ice, and $12.96 in the checking account to be able to deal with it.
The most important thing is to deal with it!
By the way, I was inspired to take control of my finances by these forums. It started with my credit report, and just sort of spread. Thanks to everyone who takes the time to post, for their encouragement and advice, you are making a difference in many, many, lives, including mine.
