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My former life as a personal finance train wreck

2013-11-03 13.34.35-2My finances used to be bad. Like, really bad.

I’ve been hounded by collection agencies. I’ve had my credit cards declined in public. I’ve borrowed money from friends. And I’ve been so maxed out I couldn’t even afford to take the bus.

That was me in 2006. I was 24 and just about to graduate from college. I had a mountain of student loan and credit card debt, and basically no job prospects. My three part-time jobs weren’t enough to pay “real” rent, so I was stuck living in my parents basement, and in a relationship I needed to get out of. With my college diploma in hand, I was desperate to start my new adult life. I needed change, and it needed to happen immediately.

I haven’t really thought of that time in my life for a while. But doing my taxes this year and shredding a bunch of old paperwork showed me just how bad it was. I saw max out credit card statements, a line of credit that I used as a revolving debit account, and collections notices for bills I couldn’t pay and chose to ignore. Shredding those pieces of paper was liberating, but it made me realize that the financial disaster of a person I used to be is still hiding inside of me.

Last month I spent nearly $2,000 in car repairs, travel, and clothing. And it could have been a lot worse. My life has changed in that I can now pay for all of that spending in cash – but when I look back at 24-year-old me, I can still see how easy it would be to slide back into old habits. Buying two items of clothing to replace two that have worn out was fun. I could have bought way more and still not have been satisfied. I still fight the urge to be lazy and not cook a single meal (and not having RD around lately has made me even lazier). I’ve been fantasizing about what I could be spending my money on instead of saving for retirement (imagine having an extra $1,500 per month to spend!), and can you imagine the traveling that could be done if I emptied my savings account?!

So what’s stopping me from sliding back? A lot of it has to do with the anxiety and hopelessness I felt when I was living perpetually in the red. If you’ve ever been in debt before, you know the feeling … like it’s too big of a mountain to climb … like you’ll always be struggling just to get by. I remember spending countless hours worrying, crying, and stressing out over how I was going to ever turn my life around. I had never been good with money, and was never taught how. I came from an immigrant family, but my parents were always responsible with their cash. I should have learned from their example, but I didn’t.

It took a lot of will power and motivation to take the step to change my life, but looking through those financial statements showed me it was worth it. Seeing my debt shrink each month (even if it was just by a little bit) was so motivating as it was happening back then, and it was motivating to me to read 10 years later.

I thought that once I got out of debt and taught myself how to be responsible with my money, that the urge to spend would disappear. But it hasn’t. Sometimes I slip up and buy things I regret, or I eat at restaurants too often, and I’m still sometimes shocked at my credit card statements. I have all of my savings automatically withdrawn from my account as soon as I get paid – not because it’s easier for me, but because if I don’t, I’m afraid I’ll spend it. I keep a detailed spreadsheet of all of my spending and savings and transactions because it helps me stay focused and on track. My monthly budgets and spending recaps on this blog? They’re for me, not you. :)

I may not be the personal finance train wreck I used to be, and I think my money management will always be a work in progress. I’m not a natural saver, but I know that it’s important for my future self, and for my current sanity. Seeing my savings grow and knowing I’ll be okay financially in the future gives me a lot less anxiety than seeing my debt grow. So I’ll continue saving and investing and spending within my means. But it’s not easy.

Are you a natural saver or spender?

Where did you live during university?

Where did you live while you were going to school, and if you had to do it over again, would you do it any differently?

This post was inspired by the Globe’s recent article: Want to save $45,000 in university costs? Live with Mom and Dad

When I was 17, I received a scholarship to study (and play field hockey) at a university in Michigan. The total value of that scholarship was approximately $20,600 per academic year ($11,000 tuition, $8,600 on-campus housing, $1,000 books). And that was when $1 CAN was the equivalent of $0.67 US.

Had I not gotten a full scholarship, there was no way I could have gone. Even if just my tuition was covered, coming up with $8,600 per year for housing (that’s $34,400 for a 4-year program)? Not possible unless I took out massive student loans.

When I was 22, I decided to go back to school in my hometown. I was living in a downtown apartment at the time, paying $625/month rent. As soon as I knew I was going back to school, I moved home and into my parents’ basement. In the two years I was in college, that saved me $15,000.

Sure, I missed out on some things. Bonding with my classmates (who were also roommates), and having the independence of living on my own. I really liked living on-campus when I was in Michigan. I didn’t have a commute (which meant I could roll out of bed at 10:45 for my 11am class), and all my meals were made for me at the cafeteria. But it just didn’t make financial sense to keep my apartment – or even live closer to campus. Even if I really wanted to. Living in the same town as my parents, they were happy (but maybe a little reluctant) to let me live with them again. I had moved out twice before, after all. :)

The $15,000 I saved while living with my parents likely would have been a lot more if I had lived somewhere else. It’s pretty easy to get tempted with dinners out, drinks, parties, etc. when you’re surrounded by friends … or living on campus, where there are always temptations to help you spend your money. And since I graduated over $20,000 in debt, it’s obvious I already had problems keeping my spending in check.

So, where did you live while you were going to school? Did you live with your parents, and regret not having the freedom? Or did you move out on your own (or to a different city), only to have accumulated more student loans than you thought you would?

How do you fight debt fatigue?

There are many different ways to get yourself out of debt – like creating multiple income streams, selling possessions, living below your means, and going without a lot of comforts you were used to. But when you change your life so drastically, at a certain point, you might start to get tired of concentrating so hard on your debt. This is called debt fatigue.

Debt fatigue is a mental state that can happen when you’ve been in debt for so long that you think you’ll never dig yourself out of the hole you’ve created for yourself. Financial expert Gail Vaz-Oxlade often tells people on her television shows to try and make a plan to get out of debt in 36 months or less – because anything more than three years, and you’ll likely suffer from some form of debt fatigue.

I was in debt for years – from age 19 to 24, but I only actively cared about eliminating my debt for 12 months. Near the end, I could feel myself slipping (and that was after less than a year!). I remember I was just a few thousand dollars away from being debt-free, and then I bought a $3,000 iMac computer. What? Yeah. I was sick of living such a limiting, frugal lifestyle, and it took a lot to remind myself of the path I was on, and how much better my life would be once I got out of debt.

Related: Can lifestyle inflation be avoided?

Being extremely money conscious all of the time can really put a strain on your quality of life. Because I never had a great relationship with money, once I got myself out of debt, I really struggled to find a balance between spending and saving. It took me a very long time to come up with a budget I could live with, and I still find it hard today – which is why I track my spending on a weekly and monthly basis here at GMBMFB.

So if getting out of debt seems impossible, and it seems like it’s too hard for you to deal with, don’t give up and revert back to your old spending habits. Here are some suggestions on how you can fight debt fatigue:

Keep in mind the big picture

It can be really, really easy to fall into the habit of feeling sorry for yourself when you’re on a strict budget. Especially when you find yourself working a part-time job on Friday and Saturday evenings, when you could be out with your friends instead – trust me, I’ve been there. I worked minimum wage jobs for years – it helped me get out of debt, and save for a down payment on my first home.

When you’re trying to get out of debt, holding onto the impression that you are depriving yourself will only bring you down and make it harder to stay on track. It helps to create a list of both short-term and long-term goals for your debt-free life. Then, whenever you start to feel yourself slipping, you can remind yourself of your goals, and how amazing it will feel once you achieve them.

Think of your debt-free life

Take a few minutes to think about what being debt-free will mean to you. Whenever I started to feel tired during my journey out of debt, I kept in mind all of the positives that were waiting for me once I got there – like sleeping better at night, being able to afford a vacation, owning a home in the future, starting a life with someone, and most importantly – freedom. Not having to stress out about where the rent money was going to come from, or how I was going to pay for groceries? That was something I was really looking forward to, and unfortunately, it’s something I sometimes take for granted now. It wasn’t that long ago where I had to shuffle money around just to make ends meet, and it’s good to be reminded of that.

Related: Would you ever date someone who had debt?

Reward yourself

It’s okay to celebrate financial milestones when you’re getting out of debt. Whether it’s paying off a credit card, or getting your total debt down to a certain threshold, make sure you give yourself a little bit of wiggle room to treat yourself – within your means, of course. I used to treat myself with ice cream cones. :)

Create visuals

What are your goals once you become debt-free? Many people are visually motivated, so creating a collage of photos or a vision board is a great way to stay on track. Social media websites like Pinterest and Trippy make it easy to save and share photos with friends. So whether you’re looking forward to a trip to Europe, owning a home, or starting a family once you get out of debt, start cutting out photos or pinning images of your goals.

Don’t beat yourself up

Nobody is perfect. So if you slip or make a mistake, the worst thing you can do is give up. Don’t wait until the following month to get back on track (I’m super guilty of waiting for a milestone to “start fresh” with my goals if I haven’t been doing well). Just pick yourself up, learn from your mistake, and keep going as quickly as possible.

Have you ever suffered from debt fatigue before?

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