It was not a dark or stormy night. Somewhere a dog barked. (Actually the dog was next door.)
Bill sat down to see what bills would have to be paid and how much was available to pay them. “Oh no! Not again!” Bill put his head in his hands.
Too many times in the last several months that was the reaction upon going to pay bills. Why? Because too many times there was more that needed to be paid out than was actually available to go out from regular income.
How did they get to that point? More importantly, how were they going to get out of this monthly rut?
The Good: Credit card bills were always paid in full each month.
The Bad: The various credit card payments continually exceeded cash available after paying other bills and making non-credit card expenditures. He kept trying to reduce the amounts on credit cards and do more real-time spending but he could never get balanced between the two. There was just no catching up to upcoming credit card bills.
The Ugly: On paper there was enough income to meet normal obligations and spending and have something left over, but in practice things just were not working out that way. (See “The Bad” above.) They were moving into using a line of credit to make up any monthly short-fall. Really that was essentially the same as carrying credit card balances.
The Problem: Spending too much via credit card.
The Solution: Radical and immediate change.
The mission Bill chose to accept: Make the transition from paying by credit card most of the time to spending with cash or by debit card almost all of the time.
To get off to a running start it was necessary to inject extra cash into the family checking account. That would jump start development of the more cash, less credit habit. Some short-term pain for the long-term gain was going to be necessary. The cash infusion came from the emergency fund that had stayed untouched up to this point.
Next would come the task of using the debit card instead of the credit card for almost all spending.
The near term goals:
– Get to the balance point of income exceeding expenditures each month instead of the other way around.
– Properly fund an account to pay annual or semi-annual bills such as vacation, insurance or HVAC maintenance with a monthly set-aside. Getting out of that habit had contributed to the problem.
– Pay off an outstanding line of credit balance.
The long term goals:
– Not to fall back into the bad habit.
– Get back to a good savings routine besides the emergency fund. And keep building up the emergency fund.
The mission has begun. The stakes are high – peace of mind is very valuable.
To be continued…