Do It Simple Accounting

While in my youth, I was told there is good debt and bad debt. The good debt is a mortgage, student or car loans because they are necessary expenses. They build good credit and allow for a career which is always a good thing. Bad Debt is credit card debt, store department cards, and lines of credit because they are more for wants rather than needs. Frivolous spending as it was once told to me.

From a budget standpoint, Good or Bad Debt is no better or worse than the other. Debt is debt! There is no line between the two. When tracking debt in your budget, it does not differentiate. As a budget consultant, I strongly urge to not take out debt for any reason. Debt is a modern day servitude. Your freedom is in tack until the first charge or the signature on the dotted line.

From a personal standpoint, I purchased a car with a 5 year note and was able to pay it off in 1.5 years with putting as much as I could toward it. Great I thought! Then I married my husband, who was in a huge amount of debt and on unemployment due to lay offs. No problem! I am up for a challenge. With budgeting and on unemployment, we were able to eliminate the debt completely within 1 year. My husband found a job and then nine months later, we sold our stock and purchased a brand new home. Awesome! Right?

Not really, we accrued more debt during this time period, all in the name of Good Debt. While knee high in debt, my husband lost his job, we sold our house and eliminated about 200k debt and left the city with 20k. There was no prospect for a job in the new town but we had enough living expenses and credit to fall back on. My husband found a job and we were living well in a small apartment. But it was tight and we wanted to be home owners again.

We saw the market was rising at the time and we figured we “needed” to buy now before it was out of our league. So we started looking for a house. We found a home that was built in the late 60's for a great deal. We figured we needed to spend a few thousand for repairs. No big deal, they were “needed” repairs, like a roof without holes, clearing out the old moldy carpet, fixing a big water leak etc etc.

Well, 100k later, we were not done fixing the house and it had drained out credit and now our budget could not sustain the debt. I was off to work to pay for the additional debt. Now I had one son so off to daycare he went. My health as a young adult was poor and continued into my marriage. My son caught every cold at the daycare and so did I. I spent most of my time at home with all the colds. The job was ok with it for awhile but not for long so I quit and started working from home and took my son out of daycare.

Our health improved and things looked like it was moving up. My home based business was rocky for a while and then started to take off. It was great but we again accrued more debt in the name of business expenses. The business was now taking care of it's own and helping the family with the debt. Then the economy took a nose dive. My business was a luxury item for many customers and it was the first to take a hit. I had to close the business. I no longer had the income to sustain the debt. I was drowning. So I opened another business, but by then it was too late. The ugly master had reared it's head and I lost. All the budgeting in the world could not save me any more.

Now the wiser and more humbled, I had broken my own golden rule. “Never get into debt.” Good or Bad debt. It is debt and the master will always come calling.

I find the system that works the best, hands down, is the envelope system, but that comes with a caution and here is why.

The envelope system is simply taking your money and separating it into various envelopes which would represent different categories such as Gas, Rent, Utilities and etc. In the days before computers, these were real physical envelopes and cash was used to populate them. The system was simple, straight forward and when an envelope was empty, that was it on spending for that ...
Continue reading...

It's scary when you are down to your last penny and wonder what ever happen to the money I just got paid yesterday!

I was like that once. I had no clue where or when or how my money would leave me. My relationship with money was awful. I had just graduated high school and decided to try a new adventure. So I packed my bags, said good-bye to my parents and moved to a new town with $2000 in my pocket. I thought I was set. I had a place to live but no job but that was ok. I would land one quickly...
Continue reading...