Welcome to the newest installment of “Getting Out Of Debt,” a new series where I realize just how horrible my financial situation is and figure out how in the world I’m going to rectify it. If you missed the last column, read Getting Out Of Debt: Compound Interest.
Well, it finally happened. I woke up bright and early at 6:30 this morning like a little kid on Christmas morning. Instead of running down to look for presents under the tree, I logged onto my mobile banking app, and there it was. My first full paycheck. I sat there and reveled in the beauty of a bank account that hasn’t been this flush since I enrolled in graduate school two years ago, and my first immediate thought was, “I’m super fucking rich.”
With a salary bump of over two grand a month from my postgrad internship, I was absolutely loaded. I could finally buy anything I wanted. New clothes? Check. New couch? Hello, Wayfair. No longer was I worried about going into Target for paper towels and overdrafting my bank account. BOGO shoes were piling up in my imaginary shopping cart and I didn’t even care. Thinking about what I was going to do with all of that extra money before I remembered I was trying to get out of debt was the best three minutes of my life.
Oh yeah. Since I’ve told my significant other and literally everyone on the Internet that I was going to be responsible with my money now, I guess that’s something I should actually be doing. For the first time in having money, I’m actually going to handle it like a grown-up and not blow it all at Ulta (unfortunately). I came up with a pretty good process for payday, and as long as I can stick with this for the foreseeable future, I think I may be able to dig myself out of this hole.
I opened up my newly-created budget and my bank account and went to work. Since my 401(k) contributions getting that employer match were auto-deducted, I didn’t have to worry about those and moved on directly to my bills. I get paid monthly, so the first thing I did was pay all of my bills for the month, including all of the minimums on my credit cards. There’s no use in making a ton of money if I accidentally spend all of it before rent’s due and end up with a giant overdraft fee on my account. Besides, this way it takes the money out of my checking account immediately so I don’t make the mistake of looking at my mobile banking app and thinking I have more money than I really do just because my car insurance hasn’t been deducted yet.
After bills were met, I still had a pretty sizable amount left over, which was a huge change from my grad school days. Unfortunately for the couch in my online shopping cart, the new, responsible Steph W. knew this couldn’t only be used to fuel spending desires. Instead, this money was getting broken up into three main categories – saving, spending, and debt reduction.
In personal finance, there’s a concept called “paying yourself first,” which basically means that you’re setting aside your money for saving and debt reduction goals away immediately instead of deciding to do it with “leftover” money at the end of the month, because let’s be honest – you’re going to spend it all. Although paying off debt is my biggest priority, there were a couple of things I needed to account for. First, since I had no savings whatsoever, I put a bit of the cash away to begin my emergency fund. In case I get a flat tire or a dead engine, I know I’ll be able to handle that expense without putting it on a credit card and paying for an emergency plus the interest from the credit card over the next couple of years. It’ll take me a couple of months to really build out this fund, but for now, I’m just going to hope that the universe only throws me tiny, manageable emergencies for the time being.
This leaves the rest of my money to split between spending and debt reduction, which is where things started to get reaaaaalllly tricky. I’d already paid my credit card minimums, and the temptation to keep the rest of it for myself was strong. So what if I have to make over $700 a month in payments? I could still buy a couch. Unfortunately for the part of me that wants to have nice things, logic (and the fear of being broke again when student loans kick in) won out and I knew that if I actually got these debts taken care of, I could buy myself a couch every month for the rest of my life with the savings, so I might as well get started on tackling this debt now.
To make sure that I don’t actually go insane, I left myself some spending money for the month. Using my Excel sheet, I calculated out how much I’ll need to leave myself for the essentials such as gas and groceries, as well as a few other spending “necessities” – dinner with an out-of town friend, a date night, a few new professional clothing items for work, and money to attend a wedding were non-negotiable for me, so I estimated my costs and planned ahead for them. With a sad sign-on to one of my credit card accounts, I watched the rest of my hard-earned money disappear into the oblivion with the click of a mouse.
So it turns out that I’m not nearly as rich as I thought I was, and that’s super unfortunate – especially because I’ve been spending a couple of years thinking I had a pretty sizable amount of spending money when in fact I probably should have been selling my organs on the black market to stay alive.
The good news here is that I can set up my personal finances in a way that protects me from myself and still lets me spend money without feeling horrible guilt. Of course, the money I have to spend isn’t the huge wad of cash I looked at this morning, but it’s still enough that I can spend some money on the most important things to me, which – at least in theory – should keep me sane enough to continue to give thousands of dollars back to the credit card companies I owe. With an hour a month on payday, I can plan for the month to set myself up for success without leaving a ton of leftover discretionary spending funds that I could blow on wine instead of accomplishing my financial goals. Besides, I can factor my wine purchases for the month into my budget and still use the rest of my paycheck to get out of debt, so we’re going to call that a win. .